Ministry Issues Viability Gap Funding Guidelines for Battery Storage

The ₹94 billion program will provide VGF for 4,000 MWh of BESS capacity


The Ministry of Power (MoP) has issued the operational guidelines for the ₹94 billion (~$1.1 billion) program to provide viability gap funding (VGF) of up to 40% to develop 4,000 MWh of battery energy storage systems (BESS) capacity across the country.

The program will run for three years, from 2023-24 to 2025-26, with budgetary support of ₹37.6 billion ($452 million).

The program also requires that projects be completed within 24 months from the agreement’s signing date. Funds will be disbursed in five tranches linked to milestones like financial closure and commercial operations.

Project awards will follow the tariff-based competitive bidding process according to MoP guidelines. Developers will compete by quoting the lowest annualized fixed costs subject to tariff caps determined by a committee.

Private sector participation is mandated with caps on maximum capacity awarded to a single developer. One project developer can get up to half the total capacity in a specific round. However, it cannot receive over 1,000 MWh of cumulative capacity across all rounds. Only projects with at least 100 MWh capacity are eligible for consideration.

The project contract period, which will be between 10 and 12 years, will be awarded based on the build-own-operate model.

The system requirement has been assessed to be 572 cycles per year, which may be increased by the National Load Dispatch Center (NLDC) if required. NLDC will declare stress hours of the grid, typically the evening and morning peak hours, on a quarter-ahead basis and update on a week-ahead basis.

Battery implementing agencies (BIAs) will be responsible for securing power to charge storage systems through renewable sources and market purchases. They will discharge stored energy through power exchanges, bilateral contracts, and ancillary services to optimize grid management and revenue generation.

The trading margin is set at ₹0.04 (~$0.0005) per kWh of energy sold. If the BIA generates over 10% surplus revenue in a year, it can get an extra margin of ₹0.04 (~$0.0004) per kWh sold if the total spending on this does not exceed the surplus. Conversely, if there is a revenue deficit of over 10% annually, a penalty of ₹0.01 (~$0.0001) per kWh sold will be imposed. A 10% trading margin will also be charged if the BIA fails to provide power during predetermined hours.

A BESS Balancing Pool (BBP) managed by a nodal agency will address revenue shortfalls and surpluses arising from BESS operations across all tranches. The BBP fund may be supplemented by a regulatory charge to ensure long-term sustainability as a payment security mechanism for developers.

Central Transmission Utility of India (CTUIL) will monitor the projects under the program.

The funding was announced during the 2024 interim budget in February this year.

The VGF initiative was widely welcomed by stakeholders for its potential impact on the system cost, demand, and manufacturing.