The Union Cabinet on Wednesday approved the scheme for viability gap funding (VGF) of ₹3,760 crore for the development of battery energy storage systems (BESS).

“The approved scheme envisages development of 4,000 megawatt hour (MWh) of BESS projects by 2030-31 with a financial support of up to 40 per cent of the capital cost as budgetary support in the form of VGF,” the government said.

A watershed moment in the long list of pro-environment measures taken by the government, the move is expected to bring down the cost of battery storage systems increasing their viability, it added.

Designed to harness the potential of renewable energy (RE) sources such as solar and wind power, the scheme aims to provide clean, reliable, and affordable electricity to the citizens.

Initial outlay

Out of the total project outlay of ₹9,400 crore, the government will provide 40 per cent, or ₹3,760 crore, as VGF and the remaining will have to be invested by the participating company.

By offering VGF support, the scheme targets achieving a levelised cost of storage (LCoS) ranging from ₹5.50-6.60 per kilowatt-hour (kWh), making stored renewable energy a viable option for managing peak power demand across the country. The VGF shall be disbursed in five tranches linked with the various stages of implementation of BESS projects, it added.

To ensure that the benefits of the scheme reach the consumers, a minimum of 85 per cent of the BESS project capacity will be made available to distribution companies (Discoms). This will not only enhance the integration of renewable energy into the electricity grid but also minimise wastage while optimising the utilisation of transmission networks. Consequently, this will reduce the need for costly infrastructure upgrades.

The selection of BESS developers for VGF grants will be carried out through a transparent competitive bidding process, promoting a level playing field for both public and private sector entities. This approach will foster healthy competition and encourage the growth of a robust ecosystem for BESS, attracting significant investments and generating opportunities for associated industries.

Industry welcomes VGF

Welcoming the development Log9 Materials Co-founder & Director Pankaj Sharma said, “Since battery storage technologies are in nascent stages. VGF would play a critical role in bridging the development cost that battery manufacturers need during technology development stages. This will also come in handy for pre-commercial battery projects to reach commercial stage.

Moreover, this funding from the government has the benefit of bringing non-dilutive capital to battery tech companies thus lowering the pressure of fund raise during the early technology development stage of various battery tech start-ups. Overall, a good move from the government and India is showing its clear intent to develop and promote indigenisation of battery tech in the country, he added.

Kartik Ganapathy, Founding Partner of INDUSLAW, said by declaring that the scheme will have a transparent competitive bidding process and mandating that a minimum of 85 per cent of the BESS project capacity will be made available to Discoms, the twin objectives of fostering innovation and investment, as well as benefiting the public at large are sought to be achieved. 

“There are certainly some minutiae to be ironed out, including a spot energy market, carbon credits, and the working of the electricity duty and cross-subsidy surcharge (particularly when input power is utilised for charging the energy storage system, to call out a few. The scheme could be made more lucrative by waiving stamp duty and registration fees on land acquisition designated for the installation of energy storage systems. A production-linked incentive programme to promote indigenous manufacturing could also facilitate not only technology and innovation, but also create employment opportunities, further advancing the agenda of development.,” he added.