Ministry Of Power Clarifies Make In India Rules For BESS Projects Under VGF Scheme

The Ministry of Power, Government of India, has issued a formal communication on December 24, 2025, providing clarity on the implementation of Battery Energy Storage Systems under the Viability Gap Funding Scheme. The communication was sent to the Principal Secretaries of the Energy Departments of fifteen states and to the Chairman and Managing Director of NTPC Limited. The directive focuses on how “Make in India” procurement rules will apply to battery energy storage projects that are supported through funding from the Power System Development Fund.

The clarification comes after several states approached the Ministry seeking exemptions from the Public Procurement (Preference to Make in India) Order. These states explained that during earlier technical sub-group meetings, they were advised to seek written confirmation from the Ministry on the applicability of local content rules for battery energy storage capacity. The states expressed concerns about whether current domestic manufacturing capabilities were sufficient to meet project requirements and whether strict procurement conditions could delay project execution.

In its communication, the Ministry explained that under existing regulations, it identifies certain power sector equipment where adequate domestic manufacturing capacity exists. Such items are required to be sourced only from Class-I local suppliers. However, the Ministry clearly stated that Battery Energy Storage Systems are not part of this notified list at present. Since BESS has not been declared a restricted item, both Class-I and Class-II local suppliers are eligible to participate in procurement for these projects. This clarification allows flexibility in sourcing while projects are being rolled out under the VGF Scheme.

While allowing participation from both supplier categories, the Ministry also underlined that certain domestic requirements remain mandatory. It referred to an amendment made to the VGF Guidelines in August 2025, which introduced a specific condition related to software. As per this amendment, the Energy Management System application software used in all BESS projects must be indigenously developed. The Ministry described this requirement as essential to ensure domestic capability in a critical and strategic component of battery energy storage projects.

To further bring uniformity in the release and utilization of funds from the Power System Development Fund, the Ministry has now fixed a minimum local content requirement. All BESS projects supported under the VGF Scheme must ensure that at least 20 percent of the total project cost comes from local content. The Ministry clarified that this 20 percent local content must include the indigenously developed Energy Management System application software, making it a compulsory part of the domestic contribution.

The Ministry also addressed projects that are already at an advanced stage of procurement. For tenders that have been issued without clearly specifying these local content requirements, a transitional arrangement has been provided. In such cases, states and procuring agencies may continue with the contract award process, provided they obtain a formal undertaking from the bidders. Through this undertaking, bidders must commit to meeting the 20 percent local content requirement during project execution.

The directive aims to strike a balance between the urgent need to deploy battery energy storage systems and the national objective of strengthening domestic manufacturing and technological development. By allowing participation from a broader supplier base while setting a clear minimum threshold for local content, the Ministry seeks to avoid delays in project implementation. At the same time, it ensures that a meaningful portion of project value, especially critical software infrastructure, remains anchored in Indian development.

The communication, signed by Director Sunil Kumar Sharma, provides clarity to states and implementing agencies and sets a consistent framework for BESS procurement under the VGF Scheme. It reflects the government’s approach of supporting rapid energy storage deployment while gradually building domestic capabilities in the renewable energy sector.