Govt. of India has approved a sum of Rs. 3,760 crore for Viability Gap Funding (VGF) to support the development of 4,000 MWh of Battery Energy Storage System (BESS) capacity in India.
Battery Energy Storage Projects worth 9,400 Cr. Expected by 2030-31
Indian Government’s VGF will be released in five tranches till 2030-31. This funding is expected to support the development of BESS projects worth approximately Rs. 9,400 crore in India during this period. Therefore, the Centre’s VGF scheme will provide up to 40% financial assistance for the development of the target BESS capacity.
Further, Battery Energy Storage System developers that will be able to avail the Centre’s VGF scheme will be selected from both public and private sectors by means of competitive bidding.
About 85% of BESS Capacity to be Developed for DISCOMS, Stored RE to be Cheaper
The Union Cabinet, in a PIB release dated 6th September 2023, stated that a minimum of 85% of the envisaged BESS capacity will be developed for DISCOMS. This translates to at least 3,400 MWh of battery storage capacity.
The Centre’s VGF scheme will help in achieving a Levelized Cost of Storage (LCoS)* in the range of Rs. 5.50 to Rs. 6.60 per unit. Currently, LCoS in India sits at around Rs. 10 to Rs. 11 per unit. Thus, the cost of stored Renewable Energy (RE) is expected to come down, making BESS facilities viable instruments in tackling high power demand scenarios.
Consequently, this reduction in LCoS would lead to reduction in per unit cost of electricity for the end-consumer. The release explained that equipping DISCOMs with this BESS capacity “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”.
*LCoS is the average price of discharged electricity from the BESS which is needed to break-even full costs of the investor. In other words, it is the total investment done in a BESS project during its lifetime divided by the units of electricity discharged by the facility during the said lifetime. LCoS is dependent on factors such as the cost of generation of power and the technology used for storing this power.
Industry Welcomes Centre’s VGF Scheme for Battery Energy Storage Systems
Responding to the Government’s VGF scheme, Mr. Pankaj Sharma, Co-founder and director, Log9 Materials said, “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”. He went on to explain that Government’s assistance would mean that the battery industry would have access to non-dilutive capital, that is, they would receive funding without having to give up any equity. This, Mr. Sharma, said, would offset the pressure on battery technology startups to raise funds.
Expressing his opinions on the matter, Mr. N Venu, MD & CEO, India and South Asia, Hitachi Energy also welcomed the VGF scheme for BESS developers. “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”, he explained. He also said that the aforementioned VGF scheme will attract more investments in the BESS segment in the years to follow and that it would help make “the country’s renewable power system more flexible, scalable and secure”.
Importance of India’s VGF Scheme in View of the Current BESS Scenario
Reuters, in a report dated 6th June 2023, stated that the current BESS capacity of India stands at 37 MWh. As per Hyderabad-based Mordor Intelligence, India’s requirement for BESS would be about 38 GWh by 2030, which is over 1,000 times the current installed capacity. Further, the BESS market in India is expected to grow at a Compound Annual Growth Rate (CAGR) of 11.2% from USD 3.01 billion in 2023 to USD 5.27 billion by 2028.
GoI’s VGF scheme would support the development of BESS projects across the country, which would supplement the ongoing growth of RE installations in India.
Therefore, considering India’s target of achieving 500 GW installed RE generation capacity by 2030, and the country’s BESS capacity requirement, the aforementioned VGF scheme assumes substantial importance.