By NomosFinergy LLP
Introduction
When India’s Electricity Act, 2003 came into force, nobody imagined that one day electricity itself would become abundant during certain hours of the day while remaining scarce during others.
The legislation therefore recognised four principal segments of the electricity sector—generation, transmission, distribution and trading.
Battery Energy Storage Systems (BESS) simply did not exist as a separate legal concept.
Two decades later, the electricity sector has changed dramatically.
Solar power has become one of the cheapest sources of electricity in India. Rooftop solar installations are growing rapidly. Renewable energy now dominates new capacity additions. Ironically, this success has created a new challenge—not producing electricity, but storing it.
This raises an interesting legal question.
Where exactly does a battery fit within the Electricity Act?
Surprisingly, the answer was not always obvious.
The Initial Legal Vacuum
Prior to 2022, neither the Electricity Act, 2003 nor the Electricity Rules, 2005 expressly recognised an Energy Storage System.
A battery does not generate electricity.
It does not transmit electricity.
It does not distribute electricity.
Neither does it trade electricity.
It merely stores electricity and releases it later.
Consequently, utilities intending to procure battery storage found themselves navigating a legal grey area.
Even if the technical need for storage was unquestionable, the legal framework remained uncertain.
The Turning Point – Electricity (Amendment) Rules, 2022
Recognising this regulatory gap, the Ministry of Power amended the Electricity Rules, 2005 through the Electricity (Amendment) Rules, 2022.
Perhaps the single most important sentence inserted by this amendment is:
“Energy Storage System (ESS) shall be considered as a part of the power system as defined under clause (50) of section 2 of the Electricity Act, 2003.”
The amendment goes a step further and clarifies:
“The Energy Storage System can be utilised either as a standalone system or as a part of generation, transmission or distribution asset.”
Further, it provides that:
“The Energy Storage System shall be accorded the status based on its application area, namely generation, transmission or distribution.”
These provisions fundamentally changed the legal status of storage in India.
Instead of attempting to classify batteries under one rigid category, the Rules adopted a functional approach—a battery assumes the legal character of the function it performs.
Did this completely solve the problem?
Not entirely.
The amendment answered one question.
What is an Energy Storage System?
But another question remained.
How should its tariff be approved?
This distinction is subtle but extremely important.
The Section 63 Debate
Most utility-scale BESS projects today are procured through competitive bidding.
After bidding is completed, the successful tariff is generally presented before the Commission for adoption under Section 63 of the Electricity Act, 2003.
However, this immediately raises an interesting legal issue.
Section 63 states that the Appropriate Commission shall adopt the tariff where such tariff has been discovered through a transparent process of bidding conducted in accordance with the guidelines issued by the Central Government.
Traditionally, Section 63 has been applied to procurement of electricity measured in ₹/kWh.
Standalone BESS projects, however, are usually awarded on the basis of ₹/MW/month, which is essentially a payment for making storage capacity available rather than selling electricity itself.
This gives rise to a legitimate legal debate.
Is a storage capacity charge also a “tariff” within the meaning of Section 63?
Although the emerging regulatory practice suggests an affirmative answer, the Electricity Act does not expressly state so.
This is perhaps one of the most interesting evolving areas of Indian electricity jurisprudence.
The Ministry of Power’s Procurement Guidelines
Recognising the need for a uniform procurement framework, the Ministry of Power issued the Guidelines for Procurement and Utilization of Battery Energy Storage Systems (BESS) as part of Generation, Transmission and Distribution Assets, along with Ancillary Services in March 2022.
These Guidelines do not merely prescribe a bidding process.
They establish the philosophy of storage procurement.
The Guidelines recognise that battery storage may be utilised:
- as part of a generation asset,
- as part of a transmission asset,
- as part of a distribution asset, or
- for providing ancillary services.
This is perhaps the first comprehensive policy document in India that treats storage as a grid flexibility resource rather than merely an equipment purchase.
What should a procurer be most careful about?
Interestingly, the Guidelines spend considerable attention on commercial structuring rather than technology alone.
In our view, a procuring utility should exercise particular caution in the following areas:
Charging Philosophy
Who supplies the charging energy?
Who pays for charging losses?
Who bears auxiliary consumption?
Failure to define these responsibilities clearly can become a major source of contractual disputes.
Performance Guarantees
Unlike conventional PPAs, payment under a BESPA is closely linked with availability and performance.
The contract should therefore clearly specify:
- Round-trip efficiency,
- Response time,
- Minimum availability,
- Battery degradation,
- Replacement obligations,
- Testing methodology.
Risk Allocation
Every major commercial risk should be allocated to the party best placed to manage it.
For example:
- delay in commissioning,
- degradation beyond contractual limits,
- failure to meet availability,
- technology failure,
- replacement of defective battery modules.
Poorly drafted contracts almost always result in future litigation.
Revenue Sharing
One issue that deserves much greater regulatory attention is the ownership of secondary revenue streams.
Suppose the battery earns revenue from:
- ancillary services,
- frequency regulation,
- congestion management,
- carbon credits,
- energy arbitrage.
Who owns these revenues?
The developer?
The DISCOM?
Or should they be shared with consumers?
This issue is likely to become increasingly important as electricity markets mature.
Emerging Areas of Regulatory Disputes
Although India has only recently entered the utility-scale BESS market, early proceedings and procurement challenges already indicate recurring themes.
These include:
Technical qualification disputes during bidding, particularly concerning cycle life, battery specifications and compliance with tender conditions. For example, disputes have arisen over whether clarifications regarding lifecycle requirements altered bid conditions or merely explained VGF eligibility.
Tariff adoption challenges, where Commissions have examined not only the discovered tariff but also whether the bidding process complied with Central Government guidelines before permitting execution of the BESPA.
Sizing and utilisation concerns, where regulators seek justification for the proposed MW and MWh capacity and question whether consumers would pay for under-utilised storage.
Charging energy risk, particularly where the petition does not adequately demonstrate the long-term availability of low-cost charging energy.
Performance monitoring, including availability guarantees, degradation monitoring and commissioning delays.
As deployments increase, disputes are also likely to emerge around degradation compensation, augmentation obligations, dispatch instructions, ownership of market revenues and settlement of multiple value streams.
The Commission’s Role is Still Evolving
One noticeable trend across recent regulatory orders is that Commissions are no longer satisfied with merely confirming that competitive bidding has been conducted correctly.
They increasingly ask questions such as:
- Why is this storage actually required?
- Why this particular capacity?
- Why this location?
- Where will charging energy come from?
- How will consumers benefit?
- What happens if the battery is under-utilised?
This indicates a gradual evolution from tariff adoption towards comprehensive procurement scrutiny.
The NomosFinergy Perspective
We believe that future BESS approvals should be viewed as a two-stage regulatory exercise.
Stage One should examine whether the tariff has been discovered through a transparent competitive bidding process conducted in accordance with the Central Government’s guidelines, thereby satisfying the requirements of Section 63.
Stage Two should independently evaluate whether the proposed procurement itself is justified from the standpoint of consumer interest. This requires a structured assessment of need, sizing, charging philosophy, cost-benefit analysis, contractual risk allocation and implementation strategy.
Competitive bidding should determine what the market price is.
Regulatory scrutiny should determine whether consumers should pay that price.
The two questions are related, but they are not the same.
Conclusion
Battery Energy Storage Systems have already transformed the engineering of electricity systems.
The next transformation will occur in regulation.
India has successfully addressed the initial legal vacuum by recognising Energy Storage Systems within the Electricity Rules and issuing comprehensive procurement guidelines. Yet the legal architecture is still evolving.
The next frontier is not technology—it is regulatory doctrine.
The Commissions that develop a consistent and transparent approval framework for storage procurement will not only reduce litigation but also provide the certainty required for large-scale investment in India’s energy transition
References & Further Reading :
A.Electricity (Amendment) Rules, 2022
Which introduced the legal recognition of Energy Storage Systems (ESS) as part of the power system.
Official Gazette Notification
B.Guidelines for Procurement and Utilization of Battery Energy Storage Systems as part of Generation, Transmission and Distribution assets, along with Ancillary Services
Disclaimer: This article is intended for educational and professional discussion. Readers are encouraged to consult the relevant statutory provisions, Government notifications, regulatory orders and applicable guidelines before taking commercial or legal decisions.