No Viability Gap Funding Released For BESS In FY25: Govt

The Ministry of New and Renewable Energy (MNRE) said that it has not issued any viability gap funding (VGF) for battery energy storage system in FY25. The Union Cabinet approved the Viability Gap Funding (VGF) scheme for Battery Energy Storage Systems (BESS) on September 6, 2023, to support sector development. Under the scheme guidelines, 10% of VGF is to be disbursed upon financial closure.

Minister of State for Power Shripad Naik, in a written reply to the Lok Sabha, said that no expenditure was incurred under the scheme in FY25 as no projects had achieved financial closure.

According to the government’s budgetary provision, ₹96 crore was initially allocated for 1,000 MWh of BESS in FY25, assuming a 10% disbursement upon financial closure. However, as BESS costs declined, the VGF amount was reduced from ₹96 lakh per MWh (estimated in FY24) to ₹46 lakh per MWh, or 30% of the capital cost, whichever is lower. Consequently, the budgetary allocation was revised to ₹46 crore.

The VGF scheme supports BESS projects approved between 2023 and 2026, with disbursements in five tranches: 10% upon financial closure, 45% upon achieving the commercial operation date (COD), and 15% annually over the next three years. With declining battery prices, the scheme’s capacity has been increased from 4,000 MWh to 13,200 MWh while remaining within the approved budget of ₹3,760 crore.

The Central Electricity Authority (CEA) is responsible for monitoring the scheme, while the Ministry of Power oversees implementation to ensure timely completion and efficient fund utilization. According to the National Electricity Plan 2023, India will require 236 GWh of BESS by 2031-32. The scheme aims to facilitate renewable energy integration and reduce power costs during peak demand periods in non-solar hours.

Guideline For VGF

India’s Ministry of Power (MoP) initially issued the guidelines in 2024 for a ₹94 billion  program to provide viability gap funding (VGF) of up to 40% for developing 4,000 MWh of battery energy storage system (BESS) capacity nationwide.  The program, running from 2024 to 2026, requires projects to be completed within 24 months of the agreement signing, the ministry said. Originally, according to the guidelines the funds for the programme were expected to be disbursed in five tranches, linked to milestones such as financial closure and commercial operations.