The Future of Renewable Energy Profits

The sun, once a niche energy source, has become the undisputed heavyweight champion of the clean energy transition.

Its victory was driven by a relentless collapse in prices of solar modules. Solar module costs have dropped by over 90% since the 2010s.

This has made solar photovoltaic cell the cheapest form of new electricity generation in many global markets.

Meanwhile, India's ambitious green energy targets, and high annual solar panel deployment are shattering records.

This has ensured solar energy's presence is permanent and foundational to the global electric grid.

Currently solar energy contributes 47% of India's renewable capacity.

So, solar power is undeniably here to stay.

Yet, for investors, the growth of solar power masks a sharp paradox. The simple equation of 'install more panels - collect more revenue' no longer holds true.

The very success of solar power has brought about significant overcapacity in solar panel manufacturing. The supply glut is particularly in Asia and specifically expected in India over next 5 years.

It has driven module prices to record lows, decimating profit margins for traditional project developers.

The easy money from straightforward capacity building has vanished, replaced by a cutthroat race to the bottom.

Furthermore, regulatory frameworks, particularly around power pricing are shifting. This has created policy uncertainty that introduces serious risk for long-term project viability.

The future of solar power investment is, therefore, less about the panel. It's more about the ecosystem, energy storage, and policy navigation.

While the growth in solar energy demand is guaranteed, a profitable path forward demands strategic capital and innovation over volume.

The changing priorities towards climate friendly energy sources is another major risk to investors.

Policymakers in some of the world's largest economies are reducing support for solar power generation. While the US and China have reduced support for the sector, solar energy is likely to continue catering a high share of global energy demand in the long run.

So, there are three structural factors that investors looking for long term gains from solar energy sector need to keep in mind.

First, the cost of solar panels drops fast as the industry makes more of them. Therefore, players that are dependent on pricing of solar panels may not be long term value creators.

Second, solar energy's marginal fuel costs are zero, meaning that it costs nothing to produce every additional unit of electricity beyond the original cost of installing the panels and the ongoing cost of maintaining them.

So, there will be plenty of private players that will compete with institutional players in setting up solar energy capacities.

Third, solar panels are modular: They come in small sizes available at constant fixed prices, making it easier to create a decentralised grid.

However, the growth in retail demand for solar panels will remain dependant on the continuation of government incentives.

Any slowing in solar growth is likely to come from reduced policy support and from power supply volatility rather than from solar panel supply bottlenecks.

Since solar power generation is intermittent, the storage of power generated becomes paramount.

And here comes the need for Battery Energy Storage Systems (BESS).

Now, the BESS is not just a battery, it's a mechanism to store excess electricity produced by solar farms to allow that power to be discharged, when and where it is needed. This system helps ensure a reliable and consistent supply of electricity at all times and during peak demand or low generation times.

BESS provides reliable backup power, preventing costly disruptions to automated production lines and critical industrial processes during grid outages. Companies can store cheaper off-peak power and use it during expensive peak hours, significantly reducing operational costs for energy-intensive automated facilities.

BESS are therefore, better than traditional energy for grid stability, renewable integration, cost savings in storage of intermittent power and deploying it during peak demand, reducing emissions, offering instant grid response., etc

In other words, the BESS entities are a better proxy play on India's solar energy megatrend than the solar panel producers. And some credible entities in India's power generation and storage sectors are making the pivot.

Tata Power is actively expanding its BESS capabilities to support renewable integration, grid stability, and round-the-clock power supply across India.

Tata Power Renewable Energy, a subsidiary of Tata Power, has signed its first Battery Energy Storage Purchase Agreement (BESPA) with NHPC.

It's part of NHPC's broader initiative to develop 125 MW / 500 MWh of standalone battery storage capacity in the state of Kerala, under a tariff-based competitive bidding framework supported by viability gap funding.

Amara Raja Energy was earlier a leading manufacturer of lead-acid batteries for automotive and industrial applications.

It has made a strategic pivot toward lithium-ion batteries and energy storage solutions. The company intends to leverage its expertise in both renewable EPC and batteries for home and stationary applications, ideally positioning to cater to all major segments of energy storage - home, commercial, industrial, and utility.

There are also some lesser-known entities like Jupiter Wagons venturing into the BESS space. Recently, it entered electric mobility and has already received orders for full-fledged battery energy storage systems.

Jupiter Wagons' future plans focus on expanding its railway manufacturing capacity, making a strategic foray into the electric vehicle (EV) segment, and strengthening its export business.

The company aims to nearly double its revenue by FY28 by diversifying its product portfolio and tapping into India's accelerating infrastructure growth.

You can find more Battery Energy Storage stocks on Equitymaster's Stock Screener.

Happy investing.

Warm regards,


Tanushree Banerjee
Editor, StockSelect
Quantum Information Services Private Limited (Research Analyst)