The Ministry of Power has launched a Viability Gap Funding (VGF) scheme to support the development of Battery Energy Storage Systems (BESS) across India. With the approval of the Minister of Power, financial support of ₹5,400 crore will be provided from the Power System Development Fund (PSDF). This funding will support the creation of 30 GWh of BESS capacity, with ₹18 lakh per MWh as the VGF amount. The initiative is targeted at 15 states and NTPC, which will receive allocations of 25 GWh and 5 GWh respectively.
The scheme aims to promote large-scale BESS development to support the integration of renewable energy (RE) and to ensure a reliable electricity supply. With India targeting 393 GW of renewable energy capacity (293 GW solar and 100 GW wind) by 2030, BESS will be essential to manage variability in renewable generation and to optimize the use of thermal generation and transmission infrastructure, particularly during evening peak hours.
The Central Electricity Authority (CEA) has estimated that India will need 37 GWh of BESS capacity by 2027, and 236 GWh by 2031-32. Under the ongoing VGF scheme, 13.2 GWh of BESS capacity has already been approved. The newly announced scheme will expand this support significantly.
Eligible entities include state utilities and agencies authorized by state or central governments. These entities must submit proposals to the CEA within 60 days from the date of guideline issuance, specifying the implementing agency, location, and planned BESS capacity. Proposals from states and NTPC must be submitted to NLDC, the nodal agency for PSDF, within 30 days of the letter issuance.
Projects must be commissioned within 18 months from the date of signing the Battery Energy Storage Purchase Agreement (BESPA) or Power Purchase Agreement (PPA). The BESS capacity should preferably have a two-hour discharge duration with an average of 1.5 cycles per day. Projects may be connected to intra-state or inter-state transmission systems (InSTS or ISTS), with the respective eligible entities responsible for land and grid connectivity.
BESS projects will be awarded using Tariff-Based Competitive Bidding (TBCB) under Section 63 of the Electricity Act, 2003. Contracts will be issued on a Build Own Operate (BOO) or Build Own Operate Transfer (BOOT) basis for a period of 12 to 15 years. Developers will compete based on annualized fixed-cost offers after considering the VGF support.
The disbursement of VGF will be done in three tranches: 20% at financial closure with submission of a bank guarantee, 50% at commercial operation date (COD), and 30% after one year from COD. CEA will monitor implementation progress through a Management Information System (MIS) and ensure compliance with agreed milestones.
The scheme also includes strict financial oversight and audit provisions. Eligible entities must follow General Financial Rules and maintain transparency. The shareholding of the developer in the project company must remain above 51% until COD.
In NTPC’s case, projects may be implemented under Section 62 of the Electricity Act, 2003, as per applicable CERC regulations. The Ministry of Power retains the authority to amend guidelines to address any implementation challenges.
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