Good s and services tax on lithium ion batteries used for utility or grid-scale power projects is 18% and for non-lithium ion batteries it is 28%.

"There is a consideration over the need for rationalization of GST. Talks are underway and the power ministry may suggest the finance ministry to recommend the GST Council for the rationalization," said a person in the know of the developments.

Another person said the ministry has also sought inputs from state-run Solar Energy Corporation of India Limited and NPTC on the need for rationalization of the tax.

As per standard procedures, the finance ministry decides on the proposals to be put forth to the GST Council, following which committees under the council consult on the matter. The fitment committee of the GST council takes the final call before putting it forward to the council, which includes the union finance minister and state finance ministers.

Queries sent to the ministries of power and finance remained unanswered till press time.

The move aims to tackle the high cost of battery energy storage systems and follows the discovery of high power tariffs from round-the-clock and hybrid power auctions.

"The cost of battery accounts for around 50-60% of the overall cost of setting up a battery energy storage system. A decrease in GST would give a boost to this nascent industry as it may lower the cost of battery energy storage systems by 8-10%," said Debi Prasad Dash, Executive Director, India Energy Storage Alliance (IESA).

The cost of batteries globally is around $300 per kilowatt hour (Kwh) and the landed cost includes several other taxes.

Battery storage holds the key to energy transition as it provides grid stability. Grid-scale battery storage system or grid-connected battery energy storage system (BESS) can accommodate a high share of renewable energy and contribute to grid stability.

So far the adoption of grid-scale battery storage systems has not picked up given the high expenditure involved. The Centre is taking a number of steps to lower the cost and increase adoption. On 5 June, Mint reported that the Centre is working on a production linked incentive scheme worth up to ₹15,000 crore for grid-scale battery storage and its draft is likely to be released soon.

The budget for FY24 announced viability gap funding for the sector. "To steer the economy on the sustainable development path, battery energy storage systems with capacity of 4,000 megawatt hours will be supported with viability gap funding," it said.

Research is underway on several new chemistries for battery storage as India and several other countries are dependent on imports for lithium, the most common mineral used in battery storage. Much of it is supplied by China.

Energy storage has gained significance in the past few years following massive energy transition plans and the target to achieve 500 GW of installed renewable energy capacity.

The integration of renewable energy into the grid would require stabilization of the grid and battery energy storage systems would play a key role in it along with assuring supplies during crunch hours and when solar and wind power are not available.

Last year, the power ministry issued guidelines for procurement and utilization of battery energy storage systems as part of generation, transmission and distribution assets. India's battery energy storage capacity as of 13 March stood at 39.12 MWh.