The power ministry has proposed amending the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, to extend their applicability to standalone energy storage systems in a bid to attract investment in such projects.
The proposed amendment will give independent companies operating standalone energy storage systems the same protection against delayed payments by electricity distribution companies (DISCOMs) that power generators, transmission companies and electricity traders already enjoy.
The Late Payment Surcharge (LPS) Rules were introduced in 2022 to prevent the accumulation of unpaid dues owed by DISCOMs to generation, transmission and trading companies.
Under the rules, a bill must be paid by the date specified in the power purchase agreement. If the agreement does not specify a payment date, the amount must be paid within 45 days.
The rules provide for a late-payment surcharge on overdue amounts, beginning at the State Bank of India’s one-year lending rate plus 5 percentage points and increasing by 0.5 percentage point for every month of delay.
DISCOMs are also required to maintain a letter of credit with a bank, which suppliers can draw upon if payments are not made.
If a bill remains unpaid two-and-a-half months after being presented, the DISCOM is barred from buying electricity in the short-term market and through power exchanges.
The ministry said these safeguards are important for energy storage because such projects require significant upfront investment, which is recovered over several years.
“ESS projects need large investment upfront, which is recovered through payments over many years. Investors and banks will invest into such projects only if they are confident that these payments will be made on time,” the ministry said.
India’s battery energy storage system (BESS) capacity is projected to increase from 15 gigawatt hours (GWh) in October 2026 to 321 GWh by 2035-36.
Pumped hydro storage capacity is expected to rise from 44 GWh in September 2026 to 630 GWh over the same period.
The ministry said mobilising investment on this scale would require an assured and timely payment mechanism for energy storage developers.
As the share of solar and wind power increases, storage is becoming increasingly important for providing reliable round-the-clock electricity and improving utilisation of renewable generation.
Rule 18 of the Electricity Rules, 2005, allows energy storage systems to be owned by a generator, transmission company, DISCOM, consumer or independent storage company.
A storage system owned by a power generator assumes the legal status of that generator and is therefore already covered by the LPS Rules.
However, standalone energy storage service providers currently do not receive the same statutory payment protections if a DISCOM delays payment and must instead rely on their contractual arrangements.
The proposed amendment seeks to add a new category of “energy storage service provider” under the rules.
This will cover companies that provide energy storage as a service or supply electricity using storage and are not owned by a generator, transmission company, DISCOM or consumer.
The ministry said extending the LPS framework to standalone storage providers would give developers and lenders greater certainty over payments.
This, in turn, could attract more investment, reduce financing costs and eventually lower the cost of energy storage.
Consumers could also benefit indirectly through higher storage capacity and more efficient use of solar and wind power.