Emerging Opportunities in Battery Energy Storage: A Smallcap Investment Guide

Battery Energy Storage Stocks: A Smallcap Watchlist
=====================================================

Energy cannot be created or destroyed; it merely changes forms. This principle, often found in school textbooks, is currently shaping how we power our homes, cities, and economies. In India, solar and wind energy are becoming crucial components of the energy landscape. In FY25, India added an impressive 34 gigawatts (GW) of power capacity, with a remarkable 29.5 GW coming from renewable sources—primarily solar and wind. This brings the country’s total installed renewable capacity to nearly 220 GW, with an ambitious target of reaching 500 GW by 2030.

However, nature has its own schedule. The sun doesn’t shine at night, and the wind doesn’t blow on command. This inconsistency presents a significant opportunity in the energy sector: energy storage. To convert intermittent renewable energy into a reliable power supply, we need effective storage solutions. Enter Battery Energy Storage Systems (BESS). Without BESS, the growth of renewable energy would remain only a theoretical concept. These systems capture excess electricity when it’s plentiful and store it for use when demand peaks. They not only allow buildings with solar panels to utilize their energy at night but also alleviate pressure on the grid during times of high demand. Moreover, battery systems help stabilize voltage and frequency on the power grid. Without storage solutions, the transition to renewable energy could face substantial obstacles.

Recognizing this challenge, India has mandated that every new solar project must include co-located energy storage capable of storing at least two hours’ worth of energy or 10% of the installed solar capacity. In essence, storage is no longer optional; it is now an integral and mandatory component of energy projects.

But are BESS projects financially viable? Increasingly, the answer is yes. The cost of lithium-ion batteries, which power most BESS today, has significantly decreased in recent years. Innovations, enhanced supply chains, and mass production have all contributed to making these systems more affordable. Additionally, the government is backing these initiatives by providing viability gap funding to cover up to 30% of capital costs for storage projects.

What does this mean for the market? A tremendous growth opportunity lies ahead. India’s National Electricity Plan aims for 47 GW of battery energy storage by 2032, a staggering increase from the current installed capacity of just 300 MW—projecting growth of over 150 times in less than a decade. Industry experts estimate that by 2030, the Indian BESS market could reach $32 billion, growing at a compound annual growth rate of 27%.

This shift is already evident in the market, with established companies in power generation and renewable energy either entering or expanding their storage portfolios. Notable players such as Tata Power, JSW Energy, Adani Green, NHPC, KPI Green Energy, Sterling & Wilson, and Acme Solar are all making moves in this sector.

However, the real excitement lies with lesser-known companies. For instance, Advait Infratech, primarily engaged in telecom and power transmission infrastructure, has announced plans to develop 1 GW of battery energy storage projects over the next five years. Bondada Engineering, a small but agile player, has become the lowest bidder for a BESS project valued at Rs 2.4 billion for Telangana GENCO and is pursuing a pipeline of projects worth Rs 10 billion.

For the Indian Energy Exchange (IEX), energy storage enhances its relevance by allowing energy to be charged and discharged at optimal times, thus increasing liquidity on exchanges and potentially boosting trading volumes. Companies like Jupiter Wagons, known for manufacturing rail freight wagons, are diversifying into electric mobility and have received orders for comprehensive battery storage systems. Quality Power Electrical Equipments has acquired a majority stake in STATCON Energiaa, a domestic power electronics manufacturer that offers BESS solutions. Himadri Specialty Chemicals is focusing on critical lithium-ion battery materials and has achieved backward integration, a rare advantage in the industry. Similarly, PCBL is developing ultra-conductive battery chemicals and contributing to the establishment of a local supply chain for battery materials.

These companies may not be traditional energy giants, but they are positioning themselves to thrive in the future market. For investors, this presents a unique opportunity.

Of course, no significant opportunity comes without its risks. Technological disruptions and alternative cell chemistries pose challenges. Additionally, with China producing around 75% of lithium-ion batteries, there are geopolitical and supply chain risks, as well as competition concerns. While government policies are currently supportive, they may change. Furthermore, scaling BESS projects carries execution risks.

Despite these challenges, the emerging BESS sector is worth watching closely. It may soon become as critical as the energy it helps store. The time to be vigilant is not when everyone has already joined in but when the foundational elements are beginning to align. That is precisely where we find ourselves with BESS. So, stay alert!

Warm regards,
Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Research Private Limited