Union Cabinet sanctions ₹3,760 crore VGF to support Battery Energy Storage Systems

Union Cabinet sanctions ₹3,760 crore VGF to support Battery Energy Storage Systems

New Delhi: To support the renewable energy sector, which depends on storage when green power generation is low or down, the Union Cabinet approved a 3,760 crore viability gap fund (VGF) for battery energy storage systems (BESS). The VGF provides grants to improve the viability of infrastructure projects.

According to the plan, the government will contribute up to 40% of the capital cost of BESS projects with a combined capacity of 4,000 megawatt-hours (MWh) through FY31. According to a statement released by the government on Wednesday, the plan seeks to lower the levelized cost of storage (LCoS) to between $5.50 and $6.50 per kilowatt-hour (kWh), making storage a practical choice for reducing peak electricity demand. The LCoS is now estimated by the industry to be between $10 and $11 per kWh.

Anurag Thakur, the union minister for information and broadcasting, told reporters that the VGF would be distributed in five tranches associated with various BESS project implementation stages.  “We have set the goal of meeting 50% of our energy requirement from renewable or non-fossil energy sources by 2030. We are committed to this. We have also met other targets before time. Today, a big decision has been taken in that direction to facilitate VGF for setting up BESS. For this, ₹3,760 crore will be spent. This a 100% central grant,” the minister said, adding the move may attract investments of about ₹9,500 crore.

Nirmala Sitharaman, the finance minister, initially mentioned the idea for a 4,000 MWh VGF for battery storage in this year’s Union budget.

A minimum of 85% of the BESS project capacity will be made available to distribution companies, according to an official statement released on Thursday, to ensure that the incentive program’s benefits are received by consumers and that they receive the electricity from storage projects built through the incentive program (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,” it said.

The recipients of VGF funds for BESS developers will be chosen through competitive bidding. This approach, according to the government, “will foster healthy competition and encourage the growth of a robust ecosystem for BESS, attracting significant investments and generating opportunities for associated industries”.

Since the production of renewable energy varies with the amount of sunlight and wind, grid-scale battery storage devices are essential for the energy transition. Energy is stored in storage systems for release at night or when there is no way to generate it. Given the enormous costs required, such systems have not yet taken off in India.

With a goal of installing 500 gigawatts (GW) of renewable energy capacity, the government has been concentrating on policy for the sector. The power ministry released guidelines for the purchase and use of BESS as a component of generation, transmission, and distribution assets, as well as auxiliary services, last year. Further, it also notified the Energy Storage Obligations (ESO) of 4% of the total consumption of electricity by FY30 for power discoms in line with the renewable purchase obligation.

For battery storage, the power ministry is also developing a production-linked incentive (PLI) program. 

Also, there is a plan to lower the GST on grid-scale battery storage to 5%. 

Current GST rates for lithium-ion batteries used in grid-scale power plants are 18% and 28%, respectively.

India’s BESS capacity was approximately 37 MWh as of FY23, and the Central Electricity Authority estimates that by 2031–2023, the country will need to have 236.22 GWh of battery storage.

The Industrial Development Scheme (IDS), 2017, for Himachal Pradesh and Uttarakhand received separate approval from the cabinet of 1,164.53 crore. A central capital investment incentive for access to credit at 30% of the investment in plant and machinery with a maximum of 5 crore will be provided to all eligible new industrial units and existing industrial units in the states on their “substantial expansion” in the manufacturing and service sector under the scheme.