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					</table>The Reserve Bank of India’s (<a href="https://rbi.org.in/home.aspx" target="_blank" rel="noopener">RBI</a>) decision to raise the repo rate by 25 basis points has raised concerns among renewable energy developers over higher financing costs and their potential impact on project economics.
The RBI raised the policy repo rate under the liquidity adjustment facility from 5.25% to 5.50%.
Explaining its decision, the RBI cited the re-escalation of the West Asia conflict in September and the resulting hardening and volatility in global crude oil prices, which have weakened global economic sentiment and heightened financial market volatility.
The central bank said global growth is projected to decelerate in 2026 from the previous year. Rising energy costs and food prices are expected to push global inflation sharply higher, prompting monetary policy tightening by major central banks.
This is the first interest rate hike in over three years. In 2025, the RBI had <a href="https://www.mercomindia.com/renewable-energy-sector-cheers-rbi-interest-rate-cut-expects-lending-boost" target="_blank" rel="noopener">cut</a> interest rates by 50 basis points.
Impact on Renewable Energy
The repo rate hike adds to cost pressures for renewable energy developers, who are already facing higher solar module prices amid the implementation of the Approved List of Models and Manufacturers for solar cells (ALMM List-II) and volatility in wafer prices in China.
Higher interest rates could also raise the effective cost of imported renewable energy components and manufacturing equipment, particularly for developers and manufacturers dependent on overseas suppliers.
The impact of the interest rate hike is expected to hit smaller companies more. Residential rooftop solar could also become more expensive as consumers’ monthly loan installments are likely to rise. Renewable energy projects are capital-intensive and rely substantially on long-tenor debt. Higher borrowing costs can affect project cash flows and equity returns, particularly for projects where tariffs have already been locked in.
Industry stakeholders said the monetary tightening move could indicate a potential cycle of rate increases. The central bank indicated as much when it said, “Given the current conditions, rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook.”
Power and infrastructure projects are financed largely through long-tenor debt, so the cost of capital flows directly into the cost of electricity,” Arman Puri, Director, <a href="https://hindustanpower.in/" target="_blank" rel="noopener">Hindustan Power</a> said.
A 25-basis-point increase on its own is absorbable and does not fundamentally alter project economics. However, developers will have to factor a higher interest-rate environment into upcoming bids and financing plans, he added.
Near-Term Impact
Anand Kabra, Chairman and Managing Director of <a href="https://www.kolsite.com/" target="_blank" rel="noopener">Kabra ExtrusionTechnik</a> &amp; <a href="https://www.geon-energy.com/" target="_blank" rel="noopener">Geon</a>, said the repo rate increase could affect the pace of renewable energy investments in the near term as developers reassess project economics amid higher financing costs.
He expects the capital expenditure cycle to slow temporarily, with some projects potentially being deferred while developers reassess funding plans and project timelines.
However, he said the slowdown in project activity is likely to be temporary rather than a change in the sector’s broader growth trajectory.
Sandeep Arora, Chief Financial Officer at <a href="https://www.oysterrenewable.com/" target="_blank" rel="noopener">Oyster Renewable</a>, said the repo rate hike is likely to create a more cautious interest-rate environment, putting near-term pressure on financing costs for capital-intensive renewable energy projects.
However, he remained optimistic about the sector’s outlook, noting that industrial demand for reliable and cost-competitive clean power continues to grow, while long-term contracted revenues provide well-structured projects with resilience across interest-rate cycles.
Sandesh Naik, CFO, <a href="https://abenergia.co.in/about-us.html" target="_blank" rel="noopener">AB Energia</a>, said that a 25-basis-point hike to 5.5% will add some pressure on working-capital and project financing costs.
As project volumes increase, EPC players can benefit from better procurement, standardization and execution efficiencies, helping offset cost pressures and making renewable projects increasingly competitive.
Higher interest rates could also affect debt-funded commercial and industrial (C&amp;I) and rooftop solar installations by extending customer payback periods.
Hanish Gupta, Founder and Managing Director at <a href="https://www.sunkind.in/" target="_blank" rel="noopener">Sunkind India</a>, sees limited impact for projects financed through customers’ own funds. Developers would need to focus on disciplined project costs, timely execution, and competitive financing to preserve these savings for customers.
Mayur Misra, Director &amp; CEO, <a href="https://corrit.com/" target="_blank" rel="noopener">Corrit</a>, said that for C&amp;I solar projects, higher financing costs could marginally extend payback periods, especially for businesses evaluating projects primarily on near-term returns. “For MSMEs and smaller companies, where access to competitive finance is already a concern, the impact could be more pronounced. Residential rooftop projects may also feel the pressure if higher lending rates push up monthly EMIs for customers financing their installations.”
However, he added that the rate hike does not fundamentally alter the long-term case for rooftop and C&amp;I solar.
Last year, RBI <a href="https://mercomindia.com/rbi-increases-priority-sector-lending-renewables" target="_blank" rel="noopener">increased</a> the lending limit for the renewable energy sector in its new guidelines for priority sector lending, set to take effect from April 1, 2025. The limit on bank loans was increased to ₹350 million (~$4.08 million) for renewable energy-based generators.

RBI Rate Hike May Increase Renewable Energy Financing Costs

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					</table>As India’s energy storage market matures, battery energy storage developers say power purchase agreement (PPA) tenures need greater flexibility than the customary 20-25-year contracts used for solar and wind projects.
Contract duration could range from five to 15 years for many storage projects, depending on cycling requirements, degradation, augmentation needs, warranties, and the underlying revenue model.
Shorter contracts can reduce developers&#8217; exposure to long-term technology and performance risks, but could result in higher tariffs and financing costs if projects lack sufficient revenue visibility beyond the initial PPA.
India <a href="https://www.mercomindia.com/indias-battery-storage-additions-jump-84-fold-to-8-2-gwh-in-1h-2026" target="_blank" rel="noopener">added</a> 8.2 GWh of battery energy storage capacity in the first half of 2026, nearly 84 times the 98.4 MWh installed during the same period last year, according to Mercom India Research’s Q2 and 1H 2026 India’s Energy Storage Landscape Report,
Cumulative installed battery energy storage capacity reached 9.3 GWh at the end of June 2026, with standalone systems accounting for 83% of installed capacity.
<a href="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2026/10/Picture1energystorage.png"><img loading="lazy" decoding="async" class="aligncenter wp-image-106327 size-full" src="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2026/10/Picture1energystorage.png" alt="" width="903" height="445" srcset="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2026/10/Picture1energystorage.png 903w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2026/10/Picture1energystorage-300x148.png 300w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2026/10/Picture1energystorage-768x378.png 768w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2026/10/Picture1energystorage-650x320.png 650w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2026/10/Picture1energystorage-624x308.png 624w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2026/10/Picture1energystorage-600x296.png 600w" sizes="auto, (max-width: 903px) 100vw, 903px" /></a>
Battery Usage Could Determine PPA Tenure
Unlike solar and wind projects, battery degradation is closely linked to how intensively the asset is used. Higher cycling accelerates degradation and can increase augmentation or replacement requirements, making the operating profile a key factor in determining contract tenure.
While industry executives broadly supported greater flexibility in storage contract tenures, views differed on the appropriate duration.
Ayush Misra, Co-Founder and CEO at <a href="https://amperehourenergy.com/?gad_source=1&amp;gad_campaignid=24273354231&amp;gbraid=0AAAABD7JG-vrmUlNpMwcO3UtNWYE2QzSO&amp;gclid=CjwKCAjwifjVBhBKEiwAYx4K9CsbSJqTYqRnn9n6318EBIUtz-yqkWwMmYcXSTV2PFBU1lDZolQI8RoCWsgQAvD_BwE" target="_blank" rel="noopener">AmpereHour Energy</a>, said a BESS operating one cycle per day could potentially support a 20-25-year contract. However, two or more cycles per day increase cell degradation, making shorter contracts of around 12-15 years more suitable.
Arman Puri, Director at <a href="https://hindustanpower.in/" target="_blank" rel="noopener">Hindustan Power</a>, agreed that standalone storage projects could be better suited to 12-to-15-year contracts, allowing degradation, augmentation, and replacement costs to be estimated with greater certainty.
Saurabh Jain, CEO-Energy Storage at <a href="https://www.geon-energy.com/" target="_blank" rel="noopener">GEON</a>, suggested exploring five-to-10-year contracts, while Parveen Jangra, Founder, CTO and COO at <a href="https://orianapower.com/" target="_blank" rel="noopener">TrueRE Oriana Power</a>, cited 10-15 years as an appropriate range.
Hassan Patel, Director at <a href="https://kpgroup.co/" target="_blank" rel="noopener">KP Group</a>, said seven to 10 years could better align contracts with typical warranty periods, reducing developers&#8217; exposure to performance risks.
He added that some markets are also experimenting with tiered or stepped-tenure structures, where capacity payments adjust at defined intervals, offering a middle path between long-term revenue certainty and shorter-term flexibility.
Shilpy Dewan, Chief Business Officer at <a href="https://www.serenticaglobal.com/" target="_blank" rel="noopener">Serentica Renewables</a>, cautioned against prescribing a standard tenure, saying battery technology, degradation, cycling requirements, warranties, financing, and the underlying revenue model should determine the contract duration.
Shorter Contracts Could Raise Tariffs
Shorter PPAs can reduce developers&#8217; exposure to long-term technology and degradation risks. However, they also shorten the period over which developers can recover their investment.
“Tenure alone solves nothing. A shorter contract recovers the same capital over fewer years, which means a higher tariff, faster amortization and tighter debt cover,” Puri said.
Industry executives said faster capital recovery could translate into higher tariffs or capacity payments and require more aggressive debt repayment. Financing costs could also increase if lenders assign limited value to revenues beyond the contracted period.
Developers must therefore account for degradation, augmentation, and potential battery replacement within the contracted period. PPAs should clearly define performance requirements, cycling limits, degradation trajectories, augmentation obligations, and replacement responsibilities..
Jangra emphasized that the contract period should align with warranted performance, expected degradation, and augmentation or replacement economics rather than treating the warranty period as the economic life of the BESS.
However, Jain believes shorter PPAs provide an opportunity to re-contract the asset based on prevailing market conditions, technology, and its remaining performance after the initial contract expires.
Revenue Stacking Could Support Shorter Contracts
Higher capital recovery requirements under shorter PPAs could be partly offset if developers can generate revenue from services beyond the primary contract.
BESS assets can potentially participate in energy arbitrage, ancillary and balancing services, peak-demand management, renewable energy integration, and other grid-support applications.
“The broader opportunity is to move from viewing a battery purely as an energy-delivery asset to recognizing it as a multi-service grid asset,” Jain said.
Patel said shorter contracts could allow developers to reassess market conditions after the initial PPA and pursue contract renewals, merchant market participation, or ancillary services.
However, a shorter PPA does not by itself create additional revenue. Contracts must allow developers to use battery capacity and cycling capability not committed to the primary offtaker for other services.
Dewan said BESS&#8217; inherent flexibility enables participation in multiple applications, including energy arbitrage and ancillary services.
Bankability Hinges on Revenue Visibility
The ability to generate multiple revenue streams can improve project economics, but it also creates a financing challenge because lenders generally place greater value on predictable, contracted cash flows.
“Shorter PPAs should not come at the cost of bankability,” Dewan said.
Stakeholders noted lenders would assess not only contract duration but also offtaker strength, technology warranties, degradation assumptions, augmentation plans, contractual protections, and visibility into additional revenues.
According to Misra, lenders will increasingly need to evaluate the project&#8217;s full revenue stack and lifecycle management strategy, not just PPA tenure.
Puri said developers should also retain rights to operate BESS assets after the contract expires, including access to the site and grid connection. Such rights could allow lenders to assign residual value to the project rather than assuming that its value falls to zero when the PPA expires.
The bankability of shorter contracts will therefore depend on whether revenue certainty during and after the PPA is sufficient to support debt repayment and establish a credible residual value for the asset.
Market Reforms Could Support Shorter PPAs
The viability of shorter PPAs depends partly on developing deeper markets for storage services.
Executives highlighted the need for greater clarity around ancillary services, energy arbitrage, scheduling, settlement, resource adequacy, and revenue stacking.
Puri said India&#8217;s merchant revenue pools are not yet sufficiently deep to fully support residual BESS value, with ancillary services markets still developing and arbitrage revenues dependent on electricity price spreads.
He emphasized that greater flexibility over cycling could expand developers&#8217; ability to monetize BESS assets beyond the primary contract. Under such a structure, an offtaker could contract only the capacity and cycling window it requires, such as during the evening peak, while the developer retains the ability to use the remaining capacity for ancillary services or arbitrage. Part of the additional value could also be shared with the offtaker.
Developers also highlighted the need for greater standardization of performance parameters, degradation assumptions, and augmentation obligations in storage tenders and contracts.
As ancillary and merchant markets deepen, revenues beyond the initial PPA could become more predictable, making shorter contracts easier to finance. Until then, storage PPAs will need to balance shorter-tenure flexibility with the long-term revenue certainty that lenders require.

Shorter Battery Storage PPAs Gain Favor, but Bankability Remains Key

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