The Union Cabinet has sanctioned ₹14,500 crore in viability gap funding to build 92 GWh of grid-scale energy storage by 2031. This initiative aims to help the national grid handle the variability of renewable energy. Investors should track how this impacts infrastructure and battery manufacturing firms, as the policy includes a mandate for local production.
The Union Cabinet has approved a ₹14,500 crore viability gap funding (VGF) scheme to accelerate the development of 92 gigawatt-hour (GWh) of grid-scale energy storage capacity. This financial support, which will be rolled out between fiscal years 2027 and 2031, is designed to help India’s power grid manage the fluctuating supply from renewable energy sources like wind and solar. By providing this funding, the government aims to bridge the financial gap in projects that might otherwise be unviable, thereby encouraging private sector participation in the power sector.
The plan focuses on a diverse energy storage mix. The largest portion, 60 GWh, is allocated for hydro pumped storage plants. These facilities use gravity and water to store and release energy, acting as large-scale batteries. Another 30 GWh is earmarked for battery energy storage systems (BESS), which are faster to deploy but often rely on complex supply chains. The remaining 2 GWh is set aside for emerging storage technologies. The total capital expenditure required for these projects is estimated at ₹97,600 crore, with the government subsidy intended to reduce the initial financial burden on developers.
To promote domestic industry, the government has introduced a 40% domestic content requirement for battery projects. This means that a significant portion of the materials or components for these battery systems must be sourced or manufactured within India. While this move is aimed at reducing dependence on global supply chains and boosting local manufacturing, it also shifts the focus for developers toward finding reliable local suppliers to meet these regulatory standards.
For the power and infrastructure sector, this move creates a pipeline of work for engineering, procurement, and construction (EPC) companies. Renewable energy producers also benefit, as storage solutions allow them to provide consistent power even when natural conditions are not ideal. However, investors should be aware of the specific challenges in this space. Hydro pumped storage projects, for instance, typically involve long gestation periods, often taking five to eight years to complete. This means revenue from these projects will not be immediate.
Furthermore, while the 40% domestic content rule supports local manufacturers, the battery industry still faces global supply chain dependencies, particularly for critical raw materials and battery cells. The eventual success of this initiative will depend on how efficiently the tariff-based bidding process is managed and how quickly state distribution companies can integrate these new storage solutions into the existing grid. As tenders are issued, tracking order books, project execution timelines, and the ability of companies to manage these specific manufacturing requirements will be important for understanding the impact on company balance sheets.