Viability Gap Funding (VGF) Scheme for Development of Grid-Scale Energy Storage Systems : GS TIMES IAS-PCS

Why in News?

The Union Cabinet approved the Viability Gap Funding (VGF) Scheme for Development of Grid-Scale Energy Storage Systems on 4 November, with financial support of ₹14,500 crore for FY 2026–27 to FY 2030–31.

Key Features of the Scheme

Target capacity: Support the development of 92 GWh of new, yet-to-be-commissioned energy storage capacity across India.
Contribution to national capacity: The proposed capacity is equivalent to 170% of India’s present grid-scale energy storage capacity.
National target: Help achieve the required grid-scale Energy Storage System (ESS) capacity of 411 GWh by 2031–32.
Technology-wise capacity:
- Hydro Pumped Storage Plants (PSPs): 60 GWh.
- Battery Energy Storage Systems (BESS): 30 GWh.
- Alternative energy storage technologies: 2 GWh.
Estimated investment: ₹97,600 crore.
Allocation: Energy storage capacity will be allocated through a tariff-based competitive bidding process.
Eligible entities:
- Public and private sector electricity distribution companies will be eligible for VGF support for BESS and Hydro PSP projects.
- Public and private sector entities can implement projects based on alternative energy storage technologies.

Objectives and Significance

Improve the financial viability of large-scale energy storage projects.
Accelerate the deployment of energy storage infrastructure across the country.
Support the integration of renewable energy into the electricity grid.
Improve grid stability and reliability by helping balance fluctuations in electricity supply and demand.
Strengthen India’s capacity to meet its growing energy storage requirements.

About Viability Gap Funding (VGF)

The Department of Economic Affairs (DEA), Ministry of Finance, launched the VGF Scheme to support infrastructure projects that are economically or socially desirable but financially unviable.
It provides financial assistance, particularly to encourage Public-Private Partnership (PPP) projects.
The revamped VGF Scheme was launched in 2020 with an outlay of ₹8,100 crore up to 2024–25 to encourage private investment in infrastructure and social sectors.

Extent of VGF support: