Last Updated: 07 Sept 2023
The Union Cabinet has given its nod to provide viability gap funding (VGF) for the development of battery energy storage systems (BESS) program, allocating an initial budget of ₹94 billion (~$1.1 billion), which includes ₹37.6 billion (~$452 million) in budgetary support. This VGF support could potentially cover up to 40% of the project’s capital costs, subject to the condition that the projects are finalized and become operational within an 18 to 24-month timeframe.
The primary objective of this program is to significantly reduce the costs associated with battery storage systems, thereby enhancing their economic feasibility and supporting the government’s sustainability efforts. The approved program aims to develop 4,000 MWh of BESS projects by 2030-31, with up to 40% of the capital cost provided in the form of VGF.
This approval comes shortly after the Ministry of Power introduced a comprehensive framework to establish an ecosystem for energy storage system development. To improve the economic viability of energy storage and make BESS a viable option, there was a proposal to extend VGF support to initial BESS projects.
A central goal of the program is to harness the abundant potential of renewable energy sources, such as solar and wind power, to deliver clean, reliable, and affordable electricity to citizens across the country.
Providing 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. This cost target makes stored renewable energy an economically attractive option for managing peak power demand nationwide. The VGF will be distributed in five installments, closely tied to various stages of BESS project implementation.
At least 85% of the BESS project capacity will be allocated to distribution companies (DISCOMs) to ensure that the benefits of the program reach consumers directly. This allocation is expected to facilitate the integration of renewable energy into the electricity grid, minimize energy wastage, and optimize the use of transmission networks. Consequently, it will reduce the necessity for costly infrastructure upgrades.
The selection of BESS developers for VGF grants will be conducted through a transparent, competitive bidding process, creating 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 total electricity consumption and will only be considered fulfilled when at least 85% of the total energy stored in the ESS comes from renewable energy sources each year.