HomeEnergy Storage ›Industry Lauds Centre’s Move to Approve INR 3760 Crore Viability Gap Funding to Boost BESS

Industry Lauds Centre’s Move to Approve INR 3760 Crore Viability Gap Funding to Boost BESS

The approved scheme envisages development of 4,000 MWh of BESS projects by 2030-31, with a financial support of up to 40 percent of the capital cost as budgetary support in the form of Viability Gap Funding (VGF).

September 08, 2023. By Anurima Mondal

The Union Cabinet has approved the Scheme for Viability Gap Funding (VGF) to boost Battery Energy Storage Systems (BESS). The approved scheme envisages development of 4,000 MWh of BESS projects by 2030-31, with a financial support of up to 40 percent of the capital cost as budgetary support in the form of Viability Gap Funding (VGF). This move is expected to bring down the cost of battery storage systems increasing their viability.

Talking about it, Pankaj Sharma Co-founder & Director, Log9 Materials, commented, “This is a welcome move from the government. Since battery storage technologies are in nascent stages. Viability Gap Funding 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. Moreover, 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 it is clear intent to develop and promote indigenisation of battery tech in the country.”

The scheme, designed to harness the potential of renewable energy sources, aims to provide clean, reliable, and affordable electricity to the citizens. The VGF for development of BESS Scheme, with an initial outlay of INR 9,400 crore, including a budgetary support of INR 3,760 crore, signifies the government's commitment to sustainable energy solutions. 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 implementation of BESS projects.

“Battery Energy Storage Systems (BESS) are obligatory resources in a high renewable energy environment. The government has already introduced a slew of interventions recently to enable a more conducive environment for BESS adoption in India. The increased inclination of the utilities towards procuring Round-the-Clock (RTC) and peak power solutions holds implication for bundling energy storage solutions with Renewable supply. Both Pumped Hydro Storage and Battery Energy Storage Solutions would be gaining prominence in the Indian electricity system with the former being a preferred choice for many but restricted by its potential. Battery Storage Energy Systems (BESS) could be scalable and flexible with use cases across the value chain and in the long run expected to outweigh PSP by volume in India. The uptake in the BESS is largely dependent on the projected price reduction and establishment of a global supply chain. Current costs have prohibited the Indian utilities and developers to scale up BESS deployment. The scheme for Viability Gap Funding for development of BESS, as approved by Cabinet, is a significant and much required intervention towards mobilizing the first wave of BESS projects and enabling larger Renewable installations for meeting the country’s growing energy need,” said Anish Mandal, Partner, Deloitte India.

A minimum of 85 percent 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 minimize wastage while optimizing the utilization of transmission networks. Consequently, this will reduce the need for costly infrastructure upgrades.

Kartik Ganapathy, Founding Partner, INDUSLAW added, “The stability of power supply is vital to a continuously growing economy. Given the already evident power outages due to environmental factors, and a reticence to expand energy production from non-renewable resources, the Viability Gap Funding for development of Battery Energy Storage Systems announced by the Government today is a progressive step towards realizing a stable power supply. By declaring that the scheme will have a transparent competitive bidding process and mandating that a minimum of 85 percent of the BESS project capacity will be made available to Distribution Companies (Discoms), the twin objectives of fostering innovation and investment, as well as benefiting the public at large are sought to be achieved. 

In a significant move earlier this year the government introduced several initiatives to expedite pumped storage projects commissioning to expand India’s renewable energy capacity. By introducing the Scheme, Energy Storage Systems capacity could be factored into such projects (whether by co-location, or integration into a storage system already planned). The Scheme could make such projects more compelling from an investment development perspective.

There are certainly some minutiae to be ironed out, including a spot energy market, carbon credits, and the working of the electricity duty and cross-subsidy surcharge (particularly when input power is utilized for charging the Energy Storage System, to call out a few.  The Scheme could be made more lucrative by waiving stamp duty and registration fees on land acquisition designated for the installation of Energy Storage Systems. A production-linked incentive program to promote indigenous manufacturing could also facilitate not only technology and innovation, but also create employment opportunities, further advancing the agenda of development.

We hope to see the development and establishment of specialized waste management facilities for both recycling as well as recovering and safely disposing materials from end-of-life batteries. This could be an area that needs a great degree of focus, innovation and development as batteries become more and more relevant in all spheres of life.”

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.

Elaborating on the same, N Venu, MD & CEO, India and South Asia, Hitachi Energy commented, “The Union Government approving INR 3,760 crore for viability gap fund to support Battery Energy Storage Systems (BESS) for clean power infrastructure projects is excellent news for renewable energy sector. The timing couldn’t have been better as the government plans to introduce a policy framework of making energy storage mandatory for renewable projects of more than 5 MW. Combined this is an important step towards building a flexible grid & adoption of clean energy.

With an ambitious target of 500 GW from renewables, such measures are essential for the country’s seamless energy transition to build an energy system that is stable and swiftly responsive to peak or low demands. A dedicated energy storage system at each renewable power project will also go a long way to address the issue of power intermittency.
Moreover, the funding from the government will attract additional investment in the segment in the coming years – eventually creating a robust renewable power infrastructure. But the most significant outcome would be making the country’s renewable power system more flexible, scalable and secure.”

The government remains committed to promoting clean and green energy solutions, and the BESS Scheme is a significant step towards achieving this vision. By harnessing the power of renewable energy and encouraging the adoption of battery storage, the government aims to create a brighter and greener future for all citizen.
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