The Indian government has made a significant ruling on the Viability Gap Funding (VGF) scheme supporting battery storage projects.
Developers’ battery energy storage system (BESS) projects must utilise a minimum of 20% domestic content to be eligible for VGF incentives, according to a Ministry of Power directive issued a week before the end of last year.
VGF supports the development of infrastructure in India through financial assistance to Public Private Partnership (PPP) projects, which otherwise would not be financially viable.
Initially announced in the 2023-2024 Union Budget, offering support to 4GWh of energy storage projects worth up to 40% of project Capex for delivery in 2030-2031, the scheme was later expanded to support 13.2GWh of new capacity.
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Then, in June last year, Minister of Power Manohar Lal said that an additional IR54 billion (US$631.5 million) would support a further 30GWh of projects.
This all stems from the recognition that energy storage from batteries and pumped hydro energy storage (PHES) facilities will be required to enable India’s goal of adding 500GW of new non-fossil fuel resources by 2030, which would bring the national renewable energy share to about 50%.
Of the latest directive, Renewable Energy Society of India (RESI) wrote on 25 December that the 20% minimum local content order was made in response to requests from multiple states that had sought exemption from the Public Procurement (Preference to Make in India) (PPP‑MII) Order as it pertains to BESS resources.
The PPP-MII Order stipulates that unless global bids are invited, “only Class-I local suppliers (suppliers offering items with equal to more than 50% local content) and Class-II local suppliers (suppliers offering items with equal to 20% but less than 50% local content) are eligible to bid.”
The key highlights of the directive, as detailed by RESI, are as follows:
- At least 20% of BESS procurement cost by states and procuring entities must qualify as local content. This included energy management system (EMS) software, as previously ruled by the Ministry in August.
- BESS is still not included in the list of power sector investments that are reserved for Class-I suppliers exclusively and Class-I and Class-II suppliers remain eligible.
- For already issued tenders that did not include explicit domestic content requirements, states and procuring entities may obtain undertakings from bidders confirming their compliance with the 20% rule.
Halfway to 500GW non-fossil fuel goal, far from energy storage projections
RESI welcomed the new directive, calling it a “timely policy direction” and “a crucial enabler for India’s clean energy transition.”
The society said the mandating of indigenously developed EMS software and local content is aimed at encouraging domestic innovation in BESS software and control systems, supporting Indian manufacturers and system integrators, reducing dependence on imports for a crucial sector and aligning BESS development with national ‘Make in India’ policies.
The 20% requirement will, RESI said, catalyse increased collaboration between global OEMs and Indian technology partners, expand domestic EMS development capabilities, create new opportunities for Indian component suppliers and system integrators and increase transparency and standardisation in BESS procurement.
The Ministry of Power issued an update 18 December to the Press Bureau of India (PIB) that India’s total installed generation capacity had reached 505GW by the end of October. This included 245.6GW of fossil fuel resources and 259.43GW of non-fossil fuels, the latter including 250.643GW of renewable energy.
However, the adoption of energy storage has been less rapid. As of the end of June 2025, India’s cumulative energy storage capacity reached 490MWh, around half of which is represented by solar-plus-storage projects, according to market research firm Mercom.
Just 48.8MWh of new energy storage capacity went online in India in the first half of this year, a 74% year-over-year decline from 186MWh added in the first half of 2024, Mercom said.
In a Guest Blog published on this site in August, Charith Konda of the Institute for Energy Economics and Financial Analysis (IEEFA) wrote that while there have been positive developments in policies and tenders, challenges remain. These include aggressively low bidding in solicitations, delays in signing contracts and connecting projects to the grid, and high financing costs driven by perceived risks, Konda wrote.
India’s Central Electricity Authority (CEA) has estimated that 411.4GWh of energy storage capacity will be needed by 2031-2032, comprising 236.2GWh of BESS capacity and 175.2GWh of pumped hydro.
