India’s power sector is entering a new phase of its energy transition, with battery energy storage systems (BESS) emerging as a critical pillar of the country’s renewable energy strategy as electricity demand continues to climb, according to HSBC.
The brokerage said operational BESS capacity has reached 2.7 GW/7.5 GWh, with May alone adding 1.6 GWh of storage capacity as renewable energy developers increasingly capitalise on merchant arbitrage opportunities. It added that battery storage is already playing a meaningful role in balancing the grid, contributing up to 4.5 GW during evening peak demand while charging during solar generation hours.
“Energy storage stepping up amidst worries of solar curtailment and evening peak shortage,” HSBC said. “India is set to witness significant BESS capacity addition over the next three years, with CEA estimating capacity to reach 25GWh by the end of this fiscal year and 91GWh / 139GWh by FY28 / FY29 end.”
Battery storage pipeline expands rapidly
HSBC said India’s battery storage pipeline continues to build momentum as project execution accelerates.
The brokerage said the under-construction BESS pipeline stands at around 42 GWh, with another 40 GWh of awarded projects awaiting execution. Including projects at the tender stage, the total pipeline has expanded to about 144 GWh.
It added that storage systems contributed an average of around 3.5 GW during evening peak periods in the first 18 days of June, highlighting their growing role in stabilising renewable-heavy power generation.
Heatwaves push electricity demand higher
HSBC said delayed monsoon rains and rising temperatures have driven a sharp increase in electricity demand.
“After months of benign power demand growth, May witnessed a sharp increase in demand growth at 11.2% YoY as heatwaves and delayed rains pumped up demand,” HSBC said.
The brokerage said demand remained strong during the first 20 days of June, rising 8.5% year-on-year, while peak demand touched around 260 GW after reaching a record 271 GW in May. Average prices on the Indian Energy Exchange rose 24% year-on-year to Rs 4.8 per kWh in May as tighter demand-supply conditions lifted spot market prices.
Karnataka, Maharashtra, Telangana and Andhra Pradesh recorded more than 20% growth in electricity demand, while Bihar saw moderation after several months of robust growth.
Renewable capacity additions continue
HSBC said renewable energy additions remained steady despite some moderation in solar installations.
The brokerage said India added 2.8 GW of solar capacity and 370 MW of wind capacity during May. The commissioning of two 800 MW thermal units at Patratu and Yadadri increased installed thermal capacity to 251 GW.
Renewable energy capacity reached about 231 GW by May, accounting for 43% of India’s installed generation capacity. Renewable sources contributed 18% of electricity generation in April, while thermal power’s share continued to decline.
“Renewable capacity addition continues at its usual pace,” HSBC said.
Solar manufacturing rules tighten module supply
HSBC said implementation of the Approved List of Models and Manufacturers (ALMM) List-II for solar cells from June 1 is likely to tighten module availability in the near term.
“As the domestic cell requirement clause kicks in from 1 June 2026, we expect some short-term pressure on module supply and capacity commissioning while manufacturers add capacity,” HSBC said.
The brokerage noted that approved domestic solar cell manufacturing capacity stands at around 30.5 GW, compared with nearly 51 GW of solar capacity additions during FY26, creating a temporary supply mismatch.
Grid resilience improves despite record demand
HSBC said India’s electricity system has demonstrated greater resilience even as demand touched record highs.
Peak demand reached an all-time high of 271 GW on May 21, yet the country experienced virtually no power shortages. Around 63% of generation during the peak came from thermal power, followed by solar at 22%, hydro at 6% and wind at 5%.
Coal inventories remained comfortable at around 48 million tonnes, equivalent to roughly 15 days of stock at power plants, while thermal plant load factors improved to 68% in May.
“Even at this record-high peak demand, there was no significant power shortage,” HSBC said.
Conclusion
HSBC said India’s power sector is becoming increasingly dependent on battery storage as renewable energy penetration rises and electricity demand continues to strengthen.
The brokerage expects battery storage, renewable capacity additions and grid infrastructure investments to remain central to India’s energy transition over the next several years, while domestic solar manufacturing capacity will need to expand to support the country’s accelerating clean energy ambitions.
Disclaimer: The institutional equity market assessments, macroeconomic projections, and sector capacity targets outlined in this summary of HSBC’s report on India’s power sector are for informational and educational purposes only. They do not constitute investment advice, a financial recommendation, or an offer or solicitation to buy, sell, or hold equity shares or participate in specific energy sector allocations.
Investments in the power, renewable energy, and utility sectors carry substantial regulatory and operational risks. Financial performance and growth trajectories in these industries are highly dependent on evolving government policies, power purchase agreements (PPAs), tariff revisions, global raw material costs (such as lithium-ion battery cells and semiconductor supply chains), state-level distribution company (DISCOM) financial health, and climatic factors like heatwaves or monsoon variations. Readers are strongly advised to perform independent due diligence and consult a SEBI-registered investment advisor or certified financial consultant before making financial allocations based on these projections.
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