Context: The Union Cabinet approved the scheme for viability gap funding (VGF) of ₹3,760 crore for the development of battery energy storage systems (BESS).
About Viability gap funding of battery energy storage systems
- It 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.
- It also reduces 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.
- 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.
About Viability gap funding
- It provides financial support in the form of grants, one-time or deferred, to economically desirable but commercially unviable infrastructure projects undertaken through PPPs with a view to making them commercially viable.
- It means a grant one-time or deferred, provided to support infrastructure projects that are economically justified but fall short of financial viability.
- It was launched in 2004 to support projects that come under Public-Private Partnerships.
- It is a Central Sector Scheme of the Government of India. The Scheme is administered by the Department of Economic Affairs, Ministry of Finance.
- The revamped scheme (2020) includes higher VGF support of up to 60% of the Total Project Cost (maximum up to 30% by the Central and State Governments each) for the social sectors i.e. Water Supply, Waste Water Treatment, Solid Waste Management and Health, Education, and up to 80% of the Total Project Cost (maximum up to 40% by the Central and State Governments each) for Pilot/Demonstration Projects in Health and Education sectors.
- For other sector projects, Viability Gap Funding up to 40% of the Total Project Cost (maximum up to 20% by the Central and State Governments each) is available.