The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the viability gap funding (VGF) scheme for the development of battery energy storage systems (BESS). The approved scheme envisages the development of 4 GWh of BESS projects by 2030-31, with financial support of up to 40% of the project’s capital cost in the form of viability gap funding (VGF). The move is expected to bring down the cost of battery storage systems, increasing their viability.
The VGF for the development of the BESS Scheme, with an initial outlay of INR 9,400 crore (around $1.13 billion), includes a budgetary support of INR 3,760 crore. By offering VGF support, the scheme targets achieving a Levelized Cost of Storage (LCoS) ranging from INR 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 BESS project implementation.
To ensure that the benefits of the scheme reach the consumers, a minimum of 85% of the BESS project capacity will be made available to electricity distribution companies (Discoms). This will not only enhance the integration of renewable energy into the electricity grid but also minimize wastage while optimizing the utilization of transmission networks. Consequently, this will reduce the need for costly infrastructure upgrades.
BESS developers will be selected for VGF grants through a transparent, competitive bidding process, promoting a level playing field for both public and private sector entities.
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