India's Ministry of Power on Wednesday, 11 November 2026, proposed extending late payment protections to independent companies operating standalone Energy Storage Systems (ESS), a move that could unlock large-scale investment in grid storage and accelerate the country's clean energy transition. The ministry has invited stakeholder comments on a draft amendment to the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, commonly known as the LPS Rules.

The Gap the Amendment Seeks to Close

Under the existing framework, late payment protections cover power generators, transmission companies, and electricity traders. However, independent energy storage service providers — companies that own and operate standalone storage systems not attached to a generation, transmission, or distribution licensee — have been left out. If a distribution company (DISCOM) delays payments to such a provider, the storage company currently has no statutory recourse and must rely solely on its contract terms.

Rule 18 of the Electricity Rules, 2005, permits storage assets to be owned by a generator, a transmission company, a DISCOM, a consumer, or an independent storage company. Storage owned by a generator already carries the legal status of the generator and falls under LPS Rules protection. The proposed amendment addresses the remaining gap — independent operators.

Key Changes in the Draft Amendment

The draft proposes two specific changes. First, it revises Sub-rule (3) of Rule 1 to explicitly state that the LPS Rules 'shall be applicable to outstanding dues of generating companies, transmission licensees, electricity trading licensees and energy storage service providers.' Second, it inserts a new clause defining an 'energy storage service provider' as 'an entity providing energy storage as a service or supplying electricity using energy storage system, that is not owned by a generating company, transmission licensee, distribution licensee or consumer.'

Under the LPS Rules, payment is due on the date specified in the power purchase agreement, or within 45 days of billing if the agreement is silent. Late payment interest starts at the State Bank of India's one-year lending rate plus 5%, rising by 0.5% for each month of delay and capped at 3% above the initial rate. DISCOMs are also required to maintain a Letter of Credit as payment security. Persistent defaulters can be barred from short-term power markets and power exchanges if a bill remains unpaid two-and-a-half months after presentation, with long-term supply progressively curtailed until dues are cleared.

Why It Matters for India's Storage Build-Out

Battery Energy Storage System (BESS) capacity in India is projected to surge from roughly 15 GWh in October 2026 to 321 GWh by 2035-36. Pumped Hydro Storage (PSP) capacity is expected to grow from 44 GWh in September 2026 to 630 GWh over the same period. According to the explanatory note accompanying the draft, investments of this magnitude require an assured and timely payment mechanism to attract developers and their lenders.

The ministry's note states that payment certainty will lower the cost of finance for storage projects and, over time, bring down the overall cost of storage for the grid. Notably, DISCOMs that pay on time are unaffected — the surcharge mechanism creates no new charge and activates only on delayed payments.

Broader Impact on the Grid and Consumers

Storage systems play a critical role in balancing variable renewable supply — holding excess solar generation at midday and releasing it during evening demand peaks. As solar and wind power form a growing share of India's generation mix, the ministry's note argues that storage is becoming essential for reliable round-the-clock supply. Consumers are expected to benefit indirectly through greater storage availability, more efficient use of renewable capacity, and improved supply reliability.

What Happens Next

The ministry has opened the draft amendment for stakeholder comments. If finalised, the amendment would formally bring independent storage operators under the same statutory payment framework as power generators and transmission companies. Industry observers note that regulatory clarity on payment security has been a persistent bottleneck for storage project financing in India, and this amendment — if enacted — would represent a meaningful structural fix ahead of the country's accelerating grid storage build-out.