Why in the News
India’s grid-scale energy storage is set to grow from about 54 gigawatt-hours (GWh), a measure of how much energy can be stored, by a further 92 GWh. The Union Cabinet has approved a viability gap funding (VGF) scheme, a government grant covering part of a project’s cost, with an outlay of Rs 17,500 crore for 2026-27 to 2030-31.
What is an energy storage system, and why does India need one?
- What it is: An energy storage system stores electricity from solar and wind when it is plentiful and turns it back into power when needed. It works like a rechargeable power bank for the grid.
- The problem it solves: India is rapidly adding renewable capacity to meet its climate goals, but solar and wind supply is abundant in some hours and short in others.
- How it helps: Storage absorbs surplus renewable power when generation is high and releases it when demand rises but generation is low.
- The takeaway: Storage lets India rely more on renewables without leaving the grid short when the sun sets or the wind drops.
What will the scheme fund?
- Battery storage: 30 GWh will come from Battery Energy Storage Systems (BESS), which store electricity chemically. Lithium-ion batteries, especially lithium iron phosphate (LFP), dominate because they are getting cheaper, waste little power and last long.
- Pumped hydro storage: 60 GWh will come from pumped hydro, which uses surplus power to pump water to a higher reservoir. At peak demand the water flows down through turbines to generate power.
- Emerging technologies: 2 GWh is set aside for newer storage technologies.
- Investment needed: Building this capacity needs about Rs 97,600 crore in total, of which VGF support covers Rs 14,500 crore.
How will the capacity be allocated?
- Competitive bidding: Capacity will be awarded through tariff-based competitive bidding, where developers compete on the price they will charge for storage and the lowest bid wins.
- Distribution companies: Public and private electricity distribution companies can receive VGF for battery and pumped hydro projects.
- Other technologies: Public and private sector entities will implement projects based on alternative storage technologies.
- Domestic content: Battery projects must meet a domestic content requirement (DCR) of 40%, a minimum share made in India, to build a domestic storage manufacturing base.
How far does it take India?
- Scale of the addition: The new capacity equals 170% of India’s existing grid-scale storage.
- Distance to target: India’s target is 411 GWh by 2031-32, so existing and new capacity together still cover only about a third of it.
Challenges
- Slow pumped hydro: Pumped storage takes years to build, yet it makes up about two-thirds of the new capacity. Eg. 11 pumped storage projects remain under construction.
- Unviable bids: Storage prices set in competitive bids have been called too low to cover costs, so some awarded projects may never be built.
- Import dependence: The battery content rule meets an industry almost fully import-dependent for lithium and nickel. Eg. China controls 90% of global critical mineral processing.
- Remaining gap: Even full delivery of the scheme leaves most of the 2031-32 storage target unbuilt.
Way Forward
- Redesigned auctions: The Ministry of Power should redesign storage auctions so that winning tariffs cover project costs.
- Early pumped storage pipeline: Identify and clear pumped storage sites early so that long build times do not delay the scheme.
- Link with mineral processing: Align battery content rules with the Rs 2,814 crore critical mineral processing scheme approved the same day, which funds lithium and nickel plants.
- Follow-on tranche: Plan the next storage scheme around the capacity still needed to reach the 2031-32 target.
Conclusion
The scheme gives storage a funded pipeline across batteries, pumped hydro and newer technologies, but delivery rests on bids that pay and pumped hydro built on time. Whether the first auctions attract developers will show if storage can keep pace with renewable growth.
Back2Basics: Viability Gap Funding (VGF)
- Origin: The Department of Economic Affairs introduced VGF in 2006 for projects that are economically justified but commercially unviable.
- Bid parameter: Under the general VGF scheme, private partners are chosen by open competitive bidding, with the VGF sought as the bid parameter.
- First storage scheme: The Cabinet approved the first VGF scheme for battery storage in September 2023, with Rs 3,760 crore.
- Second storage tranche: A June 2025 tranche of Rs 5,400 crore from the Power System Development Fund supports battery storage.
Matching Previous Year Question
“[2024] Recently, the term “pumped-storage hydropower” is actually and appropriately discussed in the context of which one of the following? (a) Irrigation of terraced crop fields (b) Lift irrigation of cereal crops (c) Long duration energy storage* (d) Rainwater harvesting system ANSWER: (c)”
