Battery storage made mandatory for power auctions

Facing serious duck-curve challenges, the government has decided to make a Battery Energy Storage System (BESS) mandatory as part of the upcoming auction of 800MW of surplus power capacity at a wheeling charge to help stabilise the electricity supply.

After more than thirty years of delay, the government has announced the auction process for a notional 800MW capacity to gradually move towards a competitive energy market, and it is currently engaging with the private sector to finalise the bidding schedule. Based on these engagements, particularly with prospective auction participants for feedback on different aspects of the wheeling auction framework, the state-run Independent System and Market Operator (ISMO) under the power division has now proposed three major changes to the Wheeling Auction Process to ensure smooth implementation of the wheeling and auction framework.

The first proposed change is the mandatory BESS requirement as part of the auction. Under this, auction participants would be required to include a BESS of a minimum 10 per cent firm capacity with their solar or wind generation technologies. According to the ISMO in its request to the National Electric Power Regulatory Authority (Nepra) for approval, this proposal is being made to not only address grid challenges including curtailment and the duck curve but is also beneficial for the auction participants as it improves their financial returns. The regulator has sought comments from stakeholders within seven days before issuing its approval.

The ISMO reported that during multiple stakeholder meetings and a public consultation session, most participants supported the recommendation to start with a minimum mandatory requirement of BESS while ensuring financial viability. Extensive modeling of BESS and its financial implications by the ISMO suggested encouraging financial returns, which showed an increasing trend with the installation of BESS up to a certain percentage. Based on feedback from the participants, a minimum level of 10 per cent has been finalised as a mandatory requirement, though participants may install a higher capacity to further improve their financial returns.

In its summary to Nepra, the ISMO noted that international markets show two approaches to integrating battery storage into the grid system. Mature markets generally publish all relevant information and let market players make independent decisions, whilst developing markets tend to follow integration through mandatory requirements. Developing markets such as India, the Philippines, China, and the Dominican Republic have already implemented mandatory requirements for BESS.

Most prospective participants and stakeholders acknowledged the importance of battery storage to address grid flexibility and mitigate the duck-curve challenge caused by renewable energy, which occurs when solar consumers exit the grid in large quantities during the daytime and return suddenly to the grid in the evening when demand surges.

The second proposed amendment seeks to grant the ISMO the authority to extend the proposal submission deadline for prospective auction participants by a month or so. Under the currently approved auction process, the proposal submission timeline is fixed at one month with no flexibility for an extension. The rationale for including this provision, apart from it being a standard feature in many procurement and auction frameworks, is to provide the ISMO with the necessary flexibility during the implementation of the first auction as a significant number of prospective participants may seek an extension.

The third amendment to the approved scheme is the constitution of a Grievance Redressal Committee, which has been suggested at the request of prospective auction participants. The committee would consist of two independent members of the ISMO board of directors along with the operator itself to resolve complaints from bidders. Under the current mechanism, the auction committee is responsible for both eligibility evaluations and the redressal of grievances regarding those evaluations. Nepra has already declared the Competitive Market Operation Date (CMOD) effective from January 22, 2026, but the first auction has not yet been held. The ISMO is required to publish an annual auction calendar by June 15 every year for auctions to be held in the following fiscal year.