The Indian government has made a bold move in its renewable energy strategy by significantly increasing its subsidized battery energy storage system (BESS) target under the viability gap funding (VGF) program. The target has more than tripled from 4 GWh to 13.2 GWh, reflecting the rapid cost reductions in battery technology and India’s ambitious clean energy goals.
Why Is India Increasing Its BESS Target?
Battery storage plays a crucial role in balancing the intermittency of renewable energy, ensuring grid stability, and enhancing energy security. When the VGF program was originally budgeted in 2023, battery costs were higher. Now, as prices drop, the same budget can support a much larger capacity. The government has chosen to optimize resources rather than increase funding, keeping the allocated INR 37.6 billion ($435 million) unchanged.
How Will the Funding Be Distributed?
The VGF program will provide up to 40% of capital cost subsidies for BESS projects. The funds will be allocated across multiple entities and regions:
- NTPC’s Vidyut Vyapar Nigam (VVN): INR 4.6 billion to finance 1 GWh of BESS.
- Solar Energy Corporation of India (SECI): INR 3.24 billion for 1.2 GWh of BESS.
- State Governments: INR 16.2 billion for 6 GWh of BESS across Rajasthan, Tamil Nadu, Karnataka, Gujarat, Maharashtra, Telangana, Bihar, and Kerala.
- Public Sector Entities: INR 13.5 billion allocated to NTPC, NHPC, and Satluj Jal Vidyut Nigam for 5 GWh of BESS projects.
The government has set a clear timeline, requiring contracts to be awarded by June 2025 and full project commissioning by June 2027.
What Are the Market Implications?
1. Increased Investment Opportunities
For energy storage developers and investors, India’s expanded target means a larger market with significant government support. Companies specializing in lithium-ion and alternative battery technologies may find India a lucrative destination, especially with state-backed financial assistance reducing risk.
2. Competitive Pricing Through Reverse Bidding
VGF-backed BESS projects will be awarded through reverse-bidding auctions, ensuring competitive pricing. For instance, the December 2024 Vidyut Vyapar Nigam tender for 500 MW/1 GWh secured a monthly price of INR 226,000 per MW, a 4.6% drop from the INR 237,000/MW/month secured in October 2024. This trend suggests that as more players enter the market, prices could fall further, benefiting end users.
3. A Catalyst for Large-Scale Renewable Integration
With India aiming for 500 GW of non-fossil fuel capacity by 2030, energy storage is essential. The expanded VGF target will accelerate renewable adoption by making storage solutions more affordable. This also aligns with India’s push for domestic battery manufacturing under the Production Linked Incentive (PLI) scheme, reducing dependence on imports.
What Should Industry Players Do Next?
The rapid expansion of India’s BESS market presents a timely opportunity for international battery manufacturers, project developers, and EPC contractors. Companies should actively monitor VGF tenders, engage with local stakeholders, and position themselves for upcoming contracts.
Additionally, as costs continue to decline, developers may explore hybrid models combining solar, wind, and storage to maximize project returns. Given the government’s aggressive push, those who act early will have the advantage in securing partnerships and funding.
India’s bold move signals a strong commitment to energy storage as a backbone for its clean energy transition. With clear policy direction and financial backing, the sector is poised for exponential growth. The question for businesses and investors now is—how will you seize the opportunity?
