The Ministry of Power (MoP) has directed all states and implementing agencies to award all Battery Energy Storage System (BESS) contracts by June 2025 to enable the Viability Gap Funding (VGF) program to be completed by May 2027.

The ministry recently told the Parliamentary Standing Committee on Energy that once the contracts are awarded by June, it will take 18 to 24 months for the VGF program to be completed.

Due to a decline in BESS prices in the recent past, a higher BESS capacity of 13,200 MWh, up from 4,000 MWh, is envisaged as part of the VGF program under the following components:

• Market Component: The first tranche with 1,000 MWh BESS capacity and ₹4.6 million (~$53,069)/MWh as VGF is allocated to NTPC Vidyut Vyapar Nigam (NVVN).

1,200 MWh has been allocated to SECI under the Market Mechanism Tranche-II, with VGF support of ₹2.7 million (~$31,150)/MWh).

• State Component: 6,000 MWh has been allocated to Rajasthan, Tamil Nadu, Karnataka, Gujarat, Maharashtra, Telangana, Bihar, and Kerala, with VGF of ₹2.7 million (~$31,150)/MWh).
• Central Public Sector Undertaking Component: 5,000 MWh has been allocated to NVVN, NHPC, and SJVN with VGF support of ₹2.7 million (~$31,150)/MWh).

The selection of bidders for developing 500 MW/1000 MWh BESS capacity under Tranche-I through Market Mechanism was completed on October 22, 2024. NVVN signed the Battery Energy Storage Purchase Agreement on December 23, 2024. Under the State Component, the letter of award has been issued for 2,500 MWh BESS capacity, including 1,000 MWh in Gujarat, 500 MWh in Maharashtra, and 1,000 MWh in Rajasthan.

The VGF program had initially targeted adding at least 4,000 MWh of BESS by 2028 by providing a VGF of ₹37.6 billion (~$433.84 million) in capital subsidy. Under this program, VGF would be provided for BESS until the financial year FY 2026. The program was started in FY 2024.

The government approved the VGF program in September 2023 with an allocation of ₹94 billion (~$1.08 billion), which includes budgetary support of ₹37.6 billion (~$433.84 million).

The operational guidelines for the program were issued in March 2024.

VGF disbursement for BESS projects will be in five tranches — 10% on the financial closure of the project, 45% on the project’s commercial operation date (COD) and 15% year-wise up to three years from the COD.