Union Cabinet approves ₹14,500 crore VGF scheme to develop large scale energy storage in India
The scheme is designed to provide for the development of hydro pumped storage plant (PSP) capacity, battery energy storage system (BESS) capacity, as well as alternative energy storage technologies
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Context
The Union Cabinet has approved a ₹14,500 crore Viability Gap Funding (VGF) scheme for developing grid-scale energy storage systems from 2026-27 to 2030-31. This initiative aims to add 92 GWh of new energy storage capacity, crucial for integrating variable renewable energy sources into the national grid and meeting the target of 411 GWh capacity by 2031-32.
UPSC Perspectives
Economic
This policy intervention directly addresses the intermittency problem of renewable energy (solar and wind power are not available 24/7). By providing Viability Gap Funding (VGF)—a capital grant provided by the government to render economically justified but financially unviable infrastructure projects viable—the scheme aims to attract an estimated ₹97,600 crore in private investment. The allocation includes 60 GWh of Hydro Pumped Storage Plant (PSP) capacity and 30 GWh of Battery Energy Storage System (BESS) capacity. The use of a tariff-based competitive bidding process ensures cost discovery through market mechanisms, promoting efficiency and potentially lowering electricity costs for end consumers. This strategy is essential for achieving India's ambitious goal of 500 GW of non-fossil fuel capacity by 2030.
Infrastructure & Governance
The scheme introduces a critical Domestic Content Requirement (DCR) of 40% for BESS projects. This governance tool aligns with the and initiatives, aiming to build a resilient domestic supply chain for critical energy technologies. By mandating local sourcing, the government is actively attempting to reduce dependence on imports (particularly from China, which dominates global battery manufacturing) and stimulate domestic manufacturing capabilities. The scheme also complements existing supply-side interventions like the Production Linked Incentive (PLI) scheme for Advanced Chemistry Cell (ACC) battery manufacturing. This creates a synergistic ecosystem where supply (PLI) meets demand (VGF supported projects), a crucial aspect of industrial policy that UPSC often tests in GS 3.
Environmental
Large-scale energy storage is the linchpin of India's Energy Transition. Grid-scale storage allows for load balancing (storing excess energy during peak generation times and releasing it during peak demand), which is necessary to decarbonize the power sector. The inclusion of Hydro Pumped Storage—a mature technology that uses two water reservoirs at different elevations to store and generate power—alongside newer BESS technologies demonstrates a diversified approach to energy security. This shift away from fossil-fuel-based peaking power plants is vital for India to meet its under the , specifically the target of achieving 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.