CERC Proposes Tariff Framework for Energy Storage

The Central Electricity Regulatory Commission (CERC) has issued draft amendments dated 1 December 2025 to the CERC (Terms and Conditions of Tariff) Regulations, 2024 (the “2024 Tariff Regulations”), proposing a comprehensive framework to formally integrate Integrated Energy Storage Systems (IESS) into the regulated tariff architecture for thermal generating stations and inter-State transmission systems.

The 2024 Tariff Regulations were primarily structured around conventional generation, transmission assets, and emission control systems. However, the growing need for peak management, ramping support, grid flexibility, and deferment of transmission investments has highlighted the absence of a clear regulatory framework for energy storage. The draft amendments address this gap by embedding energy storage within coal- and lignite-based generating stations and interstate transmission systems, positioning it as a system-supporting asset governed by defined technical, operational, and financial norms.

The draft amendments introduce a dedicated set of definitions covering core technical and commercial parameters such as rated capacity, round-trip efficiency, state of charge, battery cycles, and auxiliary consumption. Importantly, they formally recognise Integrated Energy Storage Systems as a regulated asset class defined as storage systems co-located with generating stations or transmission systems, connected to a common bus-bar, and deployed for grid reliability, flexible operation, or transmission deferral.

Where an IESS is installed in an existing generating station or transmission system, its commercial operation date must be declared separately in accordance with the Grid Code. Once commissioned, the generating company or transmission licensee is required to apply for determination of a supplementary tariff within 30 days.

The draft introduces a two-part supplementary tariff for integrated IESS:

• Supplementary Capacity (Storage) Charges, derived from the annual fixed cost of the storage system, including depreciation, interest on loan capital, return on equity, operation and maintenance expenses, and interest on working capital; and
• Supplementary Energy Charges, reflecting the cost of electricity used for charging the system, adjusted for round-trip efficiency (with a normative benchmark of 85%), auxiliary consumption, and the source of charging power, whether from the same generating station, other regulated stations, or the open market.

This cost-reflective approach ensures that beneficiaries pay for storage services in proportion to actual efficiency losses and charging arrangements.

Recognising the capital-intensive nature of storage systems, the draft lays down detailed provisions for additional capitalisation of IESS projects. Prior consultation with beneficiaries is mandated, and proposals must disclose scope of work, phasing of expenditure, financing plans, tariff impact, and cost-benefit analysis. CERC retains discretion to grant in-principle approval, and only expenditure admitted after prudence checks will be eligible for tariff recovery.

The key financial norms proposed include a return on equity of 14% for storage assets treated as additional capitalisation, a useful life capped at 12 years for battery energy storage systems for depreciation purposes, and operation and maintenance expenses fixed at 2% of the admitted capital cost, with an annual escalation of 5.25% for the initial two years, subject to revision by the Commission.

The first right of discharge from an IESS vests with the beneficiary, except where storage is required for safe grid operation. Charging, scheduling, and dispatch procedures are to be framed by the Regional Power Committee in consultation with the Regional Load Dispatch Centre, in alignment with the Grid Code.

To encourage efficient operation, the draft proposes an incentive of Rs. 0.25 per kWh for excess discharge beyond normative efficiency levels. Further, gains arising from the provision of storage services to third parties or system operators are to be first adjusted against storage and energy costs, with net gains shared equally between the generating company and beneficiaries or adjusted against transmission charges in the case of transmission-linked IESS. This mechanism ensures equitable distribution of economic benefits while preventing windfall profits.

Overall, the Draft Amendments marks a significant regulatory advancement by formally integrating energy storage into India’s tariff framework. By aligning cost recovery mechanisms with operational efficiency and safeguarding beneficiary interests, the proposed amendments create a robust foundation for the regulated deployment of storage assets. If finalized, in their present form, the framework is poised to strengthen grid flexibility, facilitate deeper integration of storage with generation and transmission infrastructure, and advance India’s energy transition while upholding the core principles of tariff transparency and regulatory prudence.