The Union Cabinet has approved the viability gap funding (VGF) for the development of the battery energy storage systems (BESS) program with an initial allocation of ₹94 billion (~$1.1 billion), which includes budgetary support of ₹37.6 billion (~$452 million).

The VGF aid can potentially offset as much as 40% of the project’s capital costs, contingent upon the projects being finalized and operational within an 18 to 24-month timeframe.

The program is expected to significantly reduce the cost of battery storage systems, thereby enhancing their economic viability and forwarding the government’s sustainable efforts.

The approved program involves the development of 4,000 MWh of BESS projects by 2030-31, supported by up to 40% of the capital cost in the form of VGF.

The approval comes days after the Ministry of Power released a comprehensive framework to create an ecosystem for developing energy storage systems. To improve the economic viability of energy storage and render the BESS a practical option, a proposal was put forward to extend VGF support to the initial BESS projects.

One of the central objectives of the program is to tap into the vast potential of renewable energy sources, including solar and wind power. By doing so, it aims to provide clean, reliable, and affordable electricity to citizens nationwide.

The provision of VGF support under this program serves a strategic purpose: to achieve a Levelized Cost of Storage (LCoS) ranging from ₹5.50 (~$0.06) to ₹6.60 (~$0.07) per kWh.

The cost target makes stored renewable energy an economically viable option for managing peak power demand throughout the country. The VGF will be disbursed in five tranches, closely linked to various stages of BESS project implementation.

A minimum of 85% of the BESS project capacity will be allocated to distribution companies (DISCOMs) to ensure that the program’s advantages reach consumers directly.

The allocation is expected to promote the integration of renewable energy into the electricity grid and minimize wastage while optimizing the utilization of transmission networks. Consequently, this would help reduce the need for expensive infrastructure upgrades.

The selection of BESS developers for VGF grants will be carried out through a transparent, competitive bidding process, fostering a level playing field for both public and private sector entities.

Last year, the Ministry of Power issued the Renewable Purchase Obligation (RPO) and Energy Storage Obligation (ESO) until the financial year 2029-2030. The ESO will be calculated in energy terms as a percentage of the total electricity consumption and treated as fulfilled only when at least 85% of the total energy stored in the ESS is procured from renewable energy sources annually.

According to Mercom India Research’s Project Tracker, the pipeline of standalone BESS projects stands at 5,020 MWh.