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Business News/ Economy / Union Cabinet approves 3,760 crore viability gap funding to boost battery energy storage
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Union Cabinet approves ₹3,760 crore viability gap funding to boost battery energy storage

Electricity demand changes as per weather and the storage system will enable storing energy for usage at night or when generation is not possible

Minister of Information and Broadcasting, Youth Affairs and Sports Anurag Singh Thakur (AFP)Premium
Minister of Information and Broadcasting, Youth Affairs and Sports Anurag Singh Thakur (AFP)

New Delhi: The Union Cabinet approved a 3,760 crore viability gap fund (VGF)—grants aimed at enhancing the viability of infrastructure projects—for battery energy storage systems (BESS), in a boost for the renewable energy sector that banks on storage when green power generation is low or down.

Under the scheme, the government will provide financial support of up to 40% of the capital cost of BESS projects totalling 4,000 megawatt-hours (MWh) till FY31. An official statement on Wednesday said the scheme aims to reduce the levelized cost of storage (LCoS) to 5.50-6.60 per kilowatt-hour (kWh), making storage a viable option to manage peak power demand. According to industry estimates, the LCoS currently stands at around 10-11 per kWh.

Graphic: Mint
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Graphic: Mint

Union minister for information and broadcasting Anurag Thakur told reporters that the VGF would be disbursed in five tranches linked with various stages of implementation of BESS projects. “We have set the goal of meeting 50% of our energy requirement from renewable or non-fossil energy sources by 2030. We are committed to this. We have also met other targets before time. Today, a big decision has been taken in that direction to facilitate VGF for setting up BESS. For this, 3,760 crore will be spent. This a 100% central grant," the minister said, adding the move may attract investments of about 9,500 crore.

The plan for a 4,000 MWh VGF for battery storage was first announced by finance minister Nirmala Sitharaman in this year’s Union budget.

An official statement on Thursday said that to ensure that the scheme’s benefits reach the consumers and they get the power from storage projects developed through the incentive scheme, a minimum of 85% of the BESS project capacity will be made available to distribution companies (discoms).

“This will not only enhance the integration of renewable energy into the electricity grid but also minimize wastage while optimizing the utilization of transmission networks. Consequently, this will reduce the need for costly infrastructure upgrades," it said.

BESS developers will be selected for VGF grants through competitive bidding. This approach, according to the government, “will foster healthy competition and encourage the growth of a robust ecosystem for BESS, attracting significant investments and generating opportunities for associated industries".

Grid-scale battery storage systems are critical to energy transition since renewable power generation fluctuates depending on sunlight and wind conditions. Storage systems store energy for release at night or when generation is not possible. However, such systems are yet to pick up in India, given the high expenditure involved.

The government has been focusing on policies for the renewable sector amid the target to achieve 500 gigawatts (GW) of installed renewable energy capacity. Last year, the power ministry issued guidelines for the procurement and utilization of BESS as part of generation, transmission and distribution assets, along with ancillary services. Further, it also notified the Energy Storage Obligations (ESO) of 4% of the total consumption of electricity by FY30 for power discoms in line with the renewable purchase obligation.

The power ministry is also working on a production-linked incentive (PLI) scheme for battery storage. There is also a move to reduce the goods and services tax (GST) on grid-scale battery storage to 5%. Currently, the GST on lithium-ion batteries used for grid-scale power projects is 18%, and that on non-lithium-ion batteries is 28%.

As of FY23, India had around 37MWh of BESS capacity, and according to the Central Electricity Authority, the requirement for battery storage will reach 236.22 gigawatt-hours by 2031-32.

Separately, the cabinet also approved 1,164.53 crore for the Industrial Development Scheme (IDS), 2017, for Himachal Pradesh and Uttarakhand. Under the scheme, all eligible new industrial units and existing industrial units in the states on their “substantial expansion" in the manufacturing and service sector will be provided with a central capital investment incentive for access to credit at 30% of the investment in plant and machinery with an upper limit of 5 crore.

The industrial units will be eligible for reimbursement of 100% insurance premium on insurance of building and plant and machinery for a maximum period of five years from the date of commencement of commercial production and operation, said a statement.

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Gireesh Chandra Prasad
Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
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Updated: 07 Sep 2023, 12:05 AM IST
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