Indian government: No funds for BESS in FY25 as projects fail to secure financial close

No funds were spent under the Indian government’s viability gap funding (VGF) scheme for battery energy storage systems (BESS) during 2024-25, as none of the BESS projects reached financial close, minister of state in the ministry of power, Shripad Naik, said in his recent parliament address.

The union cabinet approved the VGF Scheme for BESS on Sept. 6, 2023, to support the development of projects. As per the scheme, VGF support is provided for BESS approved during 2023-26. The fund disbursement occurs in five tranches: 10% upon financial close, 45% upon achieving the commercial operation, and 15% per year over the period of three years following the commercial operation date. Under the scheme, BESS projects are awarded based on tariff-based competitive bidding guidelines issued by the Ministry of Power.

With the decline in battery prices, the BESS capacity to be supported with the scheme has been increased from 4000 MWh to 13,200 MWh without any increase in the approved budgetary allocation of INR 3,760 crore.

A budgetary allocation of INR 96 crore was initially made for the 1000 MWh BESS in 2024-25, based on an assumption of 10% disbursement upon financial close. However, due to a decrease in BESS costs, the VGF amount was reduced from INR 96 lakh per MWh (estimated in 2023-24) to INR 46 lakh per MWh or 30% of the capital cost, whichever is lower.

Central Electricity Authority (CEA) is responsible for monitoring the scheme, while the Ministry of Power oversees the scheme to ensure timely completion and efficient fund utilisation.

The National Electricity Plan 2023 estimates that 236 GWh BESS would be required by 2031-32 to address the challenges of intermittency and also reduce the renewable energy curtailment with increasing integration of renewable energy in the power mix. The VGF-supported BESS projects will support integration of renewable energy and help minimize costs during peak demand periods in non-solar hours.