Viability gap funding (VGF) for battery energy storage systems (BESS)

Viability gap funding (VGF) for battery energy storage systems (BESS)

Subject: Schemes

Context:: Cabinet approves viability gap funding of ₹3,760 cr for battery energy storage systems l.

Key Points:

• 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 move is expected to bring down the cost of battery storage systems increasing their viability.
• 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.
• 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.
• 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.

Benefits of VGF:

• 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.
• A production-linked incentive programme to promote indigenous manufacturing could also facilitate not only technology and innovation, but also create employment opportunities.
• 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.
• 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.