The Kerala State Electricity Regulatory Commission (KSERC) has published draft regulations for determining electricity tariffs for a five-year control period beginning in the 2027-28 financial year, including a dedicated framework for battery energy storage systems (BESS), pumped storage projects (PSP) and other energy storage systems (ESS).
The Draft KSERC (Multi-Year Tariff) Regulations, 2026, will replace the existing multi-year tariff regulations, whose validity ends in March 2027. Following approval after public hearings, electricity utilities, primarily the Kerala State Electricity Board (KSEB), will be required to file petitions for their aggregate revenue requirement (ARR) and expected revenue from existing and proposed tariffs and charges for each year from 2027-28 to 2031-32.
The provisions intend to improve efficiency, accountability and service delivery by distribution licensees, while ensuring that benefits from operational efficiencies and expenditure reductions are passed on to consumers.
The draft also incorporates changes in the power sector and recommendations or developments from the Union government, the Central Electricity Regulatory Commission and the Central Electricity Authority over the past five years.
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Dedicated framework for energy storage
Chapter IX of the draft provides a separate tariff framework for energy storage systems, covering BESS, PSP (aka pumped hydro energy storage, or PHES, in other jurisdictions) and other storage technologies.
The provisions apply where a distribution licensee develops an ESS, where an ESS developer develops a project in Kerala, and where a generating company or transmission licensee installs storage alongside existing generation or transmission assets for grid safety and reliability, flexible generation or transmission deferral and seeks supplementary tariff treatment.
Storage projects procured through competitive bidding under Central Government guidelines would have their tariffs adopted by the Commission following due process.
The draft also provides for community or collective storage, allowing ESS developers and consumers or prosumers to deploy storage under mutually agreed arrangements covering capacity, charging and discharging and the associated costs and benefits.
BESS and pumped storage availability norms
The draft proposes a 95% normative annual availability for BESS and 90% for PSP.
Availability would be assessed in 15-minute time blocks against scheduled charging and discharging for BESS and pumping and generation for PSP.
For BESS, the draft proposes a 90% normative depth of discharge, with battery degradation assumed at 1% of installed capacity per year. The proposed normative average ramp rate is 75% of rated capacity per minute.
Planned maintenance would require at least one month’s notice to the State Load Despatch Centre and beneficiaries.
85% BESS and 75% PSP efficiency norms
The draft sets minimum monthly round-trip efficiency (RTE) levels of 85% for BESS and 75% for PSP.
Round-trip efficiency would be calculated by comparing energy discharged or generated with energy consumed for charging or pumping.
The proposed tariff mechanism includes an incentive for energy supplied above the applicable normative efficiency. For BESS, the incentive is INR0.20/kWh for energy scheduled or supplied above 85% of energy consumed. For PSP, the corresponding threshold is 75% of pumping energy, with the same INR0.20/kWh incentive.
The incentive would be zero in a month if BESS discharge falls below 85% of monthly charging energy, or PSP generation falls below 75% of monthly pumping energy.
The draft also requires beneficiaries to arrange the electricity needed to charge BESS, including applicable transmission and distribution losses up to the BESS busbar. In return, beneficiaries would receive peak-hour energy equivalent to 85% of charging energy.
For PSP, beneficiaries would arrange pumping electricity, including applicable losses up to the generating-station busbar, and would be entitled to peak-hour energy equivalent to 75% of pumping energy.
Capacity-based tariff structure
The proposed ESS tariff consists of capacity charges and an incentive linked to cycle efficiency.
The annual fixed cost would comprise O&M expenses, depreciation, interest on loan capital, interest on working capital and return on equity, after deduction of non-tariff income.
Capacity charges would be recovered monthly and would depend on the ESS’s availability. Beneficiaries would pay capacity charges in proportion to their allocation or share of the saleable capacity.
The draft sets out a progressive monthly calculation of capacity charges linked to the availability achieved during the year, with an annual adjustment based on actual energy discharged or generated and energy consumed.
Storage capital costs subject to prudence checks
Capital expenditure for ESS projects would be subject to prudence checks by the Commission.
Eligible expenditure includes expenditure up to commercial operation, interest during construction and financing costs, foreign-exchange gains or losses on construction-period loans, approved increases in contract-package costs, initial spares and approved additional capitalisation.
The Commission would scrutinise the reasonableness of expenditure, financing arrangements, interest during construction, technology selection and cost and time overruns.
Assets that are not put into use would be excluded from capital cost. Excess revenue from infirm power generated or discharged before commercial operation would be adjusted against capital cost.
Where actual capital expenditure is at least 5% below the provisionally approved amount, the draft provides for a refund of the resulting excess tariff with interest. Where actual expenditure is at least 5% higher, recovery of the corresponding tariff shortfall would require Commission approval.
Separate depreciation for battery and balance-of-system assets
The draft provides separate useful lives for BESS components.
The battery pack would have a useful life of 12 years, while balance-of-system assets would have a 25-year useful life for depreciation purposes.
The draft also allows special one-time O&M expenditure, including battery-module replacement within the useful life, subject to prudence checks.
Normative first-year O&M expenditure is proposed at 1% of admitted capital expenditure for BESS and 2% for PSP, with subsequent escalation according to the applicable norms.
Grid-forming technology proposed for new BESS
The draft contains specific technical requirements for upcoming BESS projects covered by the relevant provisions.
Such projects would be required to use grid-forming inverters (GFM). The systems would have to comply with the applicable grid-following inverter requirements and Central Electricity Authority connectivity standards.
The proposed requirement includes stable operation at a short-circuit ratio of 2.0 or lower at the point of interconnection.
Grid-forming BESS would also have to provide near-instantaneous autonomous frequency and voltage support and maintain a stable internal voltage phasor during the sub-transient period using short-term overload capability.
The draft requires coordinated current limits and coordination between active-power, reactive-power and higher-level controls to avoid instability or adverse interactions.
The required capabilities include active-power and frequency control, reactive-power control, voltage ride-through, phase-angle-change ride-through, islanding and black-start capability and BESS automatic generation control.
Construction would have to comply with the applicable Central Electricity Authority construction standards.
The proposed Kerala requirements come as India’s central electricity regulators are also tightening technical and grid-integration requirements for energy storage.
This month, the Central Electricity Regulatory Commission (CERC) proposed new grid-operating requirements for standalone energy storage systems, including a minimum 50MW aggregate trial run, staged commissioning provisions for larger projects and primary frequency-response requirements for qualifying storage systems connected at 33kV and above.
Additionally, the Central Electricity Authority (CEA) proposed mandatory grid-forming inverter capability and co-located storage for new renewable energy projects from July 2027.
Furthermore, India is targeting 100GW of PSP capacity by 2035-36. The International Hydropower Association has estimated that India has nearly 288GW of pumped storage potential.
Gain and loss sharing
The draft proposes separate treatment for controllable and uncontrollable financial gains and losses associated with ESS operations.
Controllable financial gains would be shared between the ESS developer and beneficiaries in a 2:1 ratio. Controllable aggregate losses would be borne by the ESS developer and would not be passed through to beneficiaries.
Uncontrollable gains or losses could be passed through to beneficiaries, subject to Commission approval and prudence checks.
Penalties or compensation arising from failure or damage caused by orders would not be recoverable through the aggregate revenue requirement under the proposed provisions.
Early commissioning incentives
The draft also provides incentives for ESS projects commissioned before their scheduled commercial operation date.
For ESS developers with an approved Battery Energy Storage Purchase Agreement (BESPA), the incentive would be linked to the approved tariff and actual availability.
Projects achieving commercial operation within one month ahead of schedule would receive an incentive equivalent to 5% of the approved tariff. The incentive would rise to 10% for projects commissioned more than one month and up to two months early, and 15% for projects commissioned more than two months early.
For generation, transmission or distribution businesses, the draft provides for retention of a portion of net savings from pre-scheduled commercial operation injections: 15% where commissioning is within one month early, 25% where it is more than one month and up to two months early, and 35% where it is more than two months early.
An ESS developer may also use open access to serve other entities if a distribution licensee exercises its first right of refusal for services before scheduled commercial operation.
Distribution efficiency and consumer benefits
Beyond storage, the Commission said the proposed MYT framework is intended to strengthen incentives for operational efficiency and expenditure control among distribution licensees.
The draft seeks to ensure that savings resulting from efficiency improvements and expenditure reductions are reflected in benefits to consumers, while introducing measures aimed at improving accountability and service standards.
It also contains provisions relating to early commissioning of capital projects and performance standards for power utilities.
The proposed regulations will govern tariff proceedings for the five-year period from 2027-28 to 2031-32, subject to changes following the consultation and public-hearing process and the Commission’s final approval.
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