The Ministry of Power has announced the second tranche of viability gap funding (VGF) to support battery energy storage systems (BESS) development in India.

Under this tranche, a VGF of ₹1.8 million (~$21,043)/MWh will be provided to support the development of 30 GWh of BESS capacity.

The funding will be sourced from the Power System Development Fund (PSDF), with a total financial outlay of ₹54 billion (~$631.30 million).

Of the proposed 30 GWh, 25 GWh of storage capacity has been allocated across 15 states to help them address their energy storage requirements. NTPC will develop the remaining 5 GWh. This allocation is intended to maximize the utilization of NTPC’s existing thermal generation and transmission infrastructure while ensuring a reliable and cost-effective electricity supply during non-solar hours.

To access this funding, all eligible states and NTPC must submit their project proposals to the National Load Dispatch Centre within 30 days. These projects must be commissioned within 18 months from the battery energy storage purchase agreement (BESPA) or the power purchase agreement (PPA) signing date.

NTPC and the states intending to participate in the program must also submit their detailed plans to the Central Electricity Authority (CEA) within 60 days for screening and approval. These plans must include information on the implementing agency, proposed locations, and capacity to be developed. Upon the CEA’s approval, these proposals will qualify for VGF assistance through the PSDF.

The VGF will be disbursed in three stages. The first 20% will be released upon financial closure, conditional on the submission of a bank guarantee. The next 50% will be released on the commercial operation date (COD). The final 30% will be disbursed after the successful completion of one year from the COD.

The preferred configuration for the storage systems is a two-hour discharge with an average of 1.5 charge-discharge cycles per day. However, developers are allowed flexibility in determining the discharge duration and number of cycles, depending on the specific requirements of their projects.

The BESS projects will be awarded through a tariff-based competitive bidding mechanism. Contracts will be awarded on a build-own-operate or build-own-operate-transfer basis, ideally for a term ranging from 12 to 15 years. The tariffs for the BESS can be in ₹/MW/Month or ₹/kWh.

The BESPA/PPA must be signed within nine months from the date of issue of these guidelines.

Projects may be connected to either the intra-state transmission system or the interstate transmission system, depending on the feasibility. Eligible entities will be responsible for arranging land and grid connectivity for their respective projects.

Before any VGF amount is released, a bank guarantee equivalent to the VGF value must be furnished by the eligible entity or renewable energy implementing agency. This guarantee will serve as security to ensure compliance with the program’s terms and may be encashed if project obligations are not fulfilled. The bank guarantee covering the VGF disbursed until the COD may be released within one year of the project becoming operational.

According to the CEA, a 37 GWh BESS capacity is required by 2027, and this requirement is expected to increase to 236 GWh by 2031-32. BESS capacity of 13.2 GWh has been approved under the ongoing VGF program for BESS development.

In March 2025, the Ministry directed all states and implementing agencies to award all BESS contracts by June 2025, enabling the VGF program to be completed by May 2027.

The government approved the first tranche of the VGF program in September 2023 with an allocation of ₹94 billion (~$1.09 billion), which included a budgetary support of ₹37.6 billion (~$439.58 million).