Jaipur: Rajasthan should exercise caution when signing long-term power purchase agreements (PPAs) for battery energy storage projects, warned additional chief secretary Ajitabh Sharma. He cautioned that poorly designed contracts could undermine the flexibility that makes storage valuable.
Current Storage Capacity and Concerns
The state is deploying nearly 12,000 MWh of battery storage capacity, with an additional 3,000 MWh in the planning stage. Speaking at an event, Sharma stated that conventional 25-year PPAs, widely used for solar and wind projects, are no longer suitable for many states. He emphasized that battery systems are not static assets; their value evolves with market conditions, grid needs, and technology. Therefore, contracts spanning 12 to 25 years for storage must undergo a high prudence test before being finalized.
Financial Implications for Consumers
Sharma warned that locking tariffs for decades could cap future revenue potential and unnecessarily burden consumers. Unlike solar plants that primarily generate and sell electricity, battery storage earns from multiple services, including buying and selling power at different times, grid frequency support, and peak demand management. A long-term PPA typically fixes a single revenue stream, restricting the operator from responding to real-time market opportunities.
Mismatch Between Contract Length and Battery Life
Another critical issue flagged by Sharma is the mismatch between contract length and battery life. While PPAs often run for 20 to 25 years, most battery technologies operate for only 8 to 15 years. This raises questions about replacement costs and long-term performance commitments. Developers could face financial stress if locked into fixed tariffs while incurring midlife reinvestment costs, he noted on the sidelines of the Sustainability Impact and Innovation Summit by JU.
Technology Shifts and Flexible Procurement
Sharma pointed to rapid technology shifts in battery chemistry and costs, arguing that long-duration contracts could lock in today's assumptions and discourage upgrades. He advocated for more flexible procurement, including shorter-term agreements or hybrid structures that allow part of the capacity to participate in open markets. Such approaches would help developers optimize revenues while supporting grid stability.
Evolving Regulatory Framework
His comments come as the regulatory framework for storage is still evolving. Rigid long-term PPAs could prevent projects from benefiting from future policy improvements, making it essential for the state to adopt a cautious and adaptive approach.
