Cabinet approves viability gap funding for battery storage system

The VGF scheme for BESS projects was first announced in the Union Budget 2023

The Union Cabinet has approved a scheme for providing viability gap funding (VGF) for developing battery storage of 4 gigawatt (Gw) by 2030-31.

The VGF for the battery energy storage system (BESS) will have an initial outlay of Rs 9,400 crore and this will include a budgetary grant of Rs 3,700 crore.

The VGF would be disbursed in five tranches and be linked with the various stages of implementation of BESS projects. The scheme is aimed at supporting the energy storage needs of the renewable energy sector, especially solar and wind.

Given their restricted hours/seasons of operation, energy storage ensures round-the-clock green energy.

The VGF scheme for BESS projects was first announced in Budget 2023. Through the scheme, the Centre is aiming to bring down the cost of battery storage systems and increase their viability.

“By offering VGF support, the scheme targets achieving a Levelized Cost of Storage (LCoS) ranging from Rs 5.50-6.60 per kilowatt-hour (kWh), making stored renewable energy a viable option for managing peak power demand across the country,” said a statement by the ministry of power.

The statement further said that 85 per cent of BESS projects under the scheme would be provided to the power 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,” it said.

Developers for these BESS projects would be selected through a competitive bidding process, to be open for both public and private sector. 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,” said the statement.