Energy Storage Mandate for Discoms Raises Funding Concerns Amid ₹6.77 Lakh Crore Losses

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The government is formulating a mandate that would require electricity distribution utilities (discoms) to add energy storage capacity, but the proposal has raised concerns over the ability of financially stressed discoms to fund the additional investment. The specific storage capacity that utilities will be required to procure has not been finalised yet, and the contours of the mandate are still being worked out, according to officials.

The proposed mandate would extend the storage requirement beyond project developers to electricity procurers, including discoms, which purchase power from generating companies. This would mean utilities may have to factor storage capacity into their power procurement plans. However, most state-owned discoms are already struggling with weak balance sheets: they have accumulated losses of ₹6.77 lakh crore and borrowings of ₹7.11 lakh crore, according to official data. Their strained financial position also raises borrowing costs, and any additional debt for storage infrastructure could increase their debt-servicing burden.

Experts have flagged that a uniform storage mandate may not suit all states. Satyendra Nath Kalita, Director of Policy and Regulatory Affairs at the All India Discoms Association (AIDA), said demand patterns differ from state to state and any such requirement should be determined after due diligence by the respective State Electricity Regulatory Commissions. Anoop Singh, Founder and Coordinator of the Centre for Energy Regulation and Energy Analytics Lab at IIT Kanpur, said procurement of energy storage services through competitive bidding, for example through SECI (Solar Energy Corporation of India Ltd), may be more economical than a capital expenditure (capex) model, as aggregated bids would ensure scale and cost competitiveness for discoms.

What was the earlier Energy Storage Obligation?

The Ministry of Power in July 2022 had outlined an Energy Storage Obligation (ESO) trajectory, envisaging the requirement to increase from 1% of total electricity consumption in financial year 2023-24 to 4% by FY29-30. However, subsequent notifications excluded any mention of ESO, according to Anoop Singh of IIT Kanpur. The current proposal is a fresh attempt to mandate storage, this time extending the obligation to discoms.

Why is a uniform mandate opposed?

Electricity demand patterns and storage requirements vary significantly across states, making a fixed percentage or blanket requirement unsuitable, according to Satyendra Nath Kalita of AIDA. He said any such requirement should be determined after due diligence by the respective State Electricity Regulatory Commissions. Experts also note that implementing the mandate through a capex route could be challenging for discoms given their strained finances, and suggest that procurement of storage services through aggregated competitive bidding by SECI may be more economical.

What are the next steps?

The Ministry of Power needs to finalise the storage capacity requirements, and experts recommend further studies to assess state-specific storage needs. The growing deployment of rooftop solar may also necessitate Distribution Energy Storage Systems (DESS) or Community Energy Storage Systems (CESS) to be implemented by discoms, according to Anoop Singh. The government has already proposed making battery storage mandatory for all new government solar and wind power projects from July 2027.