India has announced a new VGF scheme to support 92 GWh of energy storage, including 30 GWh of BESS
The VGF scheme introduces a minimum domestic content requirement to encourage local manufacturing and reduce dependence on imports
The government will also support lithium and nickel processing plants through a 30% capital subsidy under another scheme
India is stepping up efforts to build a domestic battery supply chain, with the Union Cabinet approving two schemes to support grid-scale energy storage deployment and critical mineral processing.
The government has allocated INR 14,500 crore in viability gap funding (VGF) for 92 GWh of energy storage capacity and INR 2,814 crore to develop domestic lithium and nickel processing capabilities.
A lion’s share of the total ESS capacity, 60 GWh, to be supported under VGF will come from pumped storage projects (PSP), while 30 GWh will come from battery energy storage systems (BESS), and 2 GWh from emerging storage technologies.
VGF, the Ministry of Power (MoP) explained, will improve the financial viability of the projects that together will attract an investment of approximately INR 97,600 crore.
Public and private sector companies will be eligible for VGF support for both PSP and BESS projects, which will be awarded through tariff-based competitive bidding. Alternative storage technologies will be implemented by public and private sector companies.
Funding will be provided over five years, from FY 2026-27 to FY 2030-31. According to the MoP, the scheme aims to add capacity equivalent to 170% of India’s existing grid-scale energy storage capacity to help meet the projected requirement of 411 GWh by FY 2031-32.
A highlight of the VGF Scheme for the Development of Grid-Scale Energy Storage Systems is its focus on local BESS manufacturing. The government has made it mandatory for eligible projects to ensure a minimum domestic content requirement (DCR) of 40%.
This 'demand-side' financial support will encourage domestic manufacturing and reduce reliance on imported components, stated the MoP.
“The requirement will encourage domestic manufacturing, create opportunities for Indian industry and complement existing supply-side incentives for battery manufacturing,” added the ministry.
Alongside creating demand for domestic BESS component production, the government is also offering funding support for local manufacturing. The INR 2,814 crore Capex Support Scheme to Promote Critical Mineral Processing aims to develop India’s processing facilities for critical minerals – lithium and nickel. Lithium-ion technology currently dominates the BESS space.
The scheme will provide a 30% capital subsidy on eligible investments to set up four processing plants: two lithium facilities with a minimum capacity of 30,000 tons each and two nickel facilities with a minimum capacity of 50,000 tons each. Support is capped at INR 500 crore per lithium plant beneficiary and INR 900 crore per nickel plant beneficiary.
These facilities will process lithium and nickel ores and intermediate products into high-purity compounds, with cobalt expected to be recovered as a by-product of nickel processing.
Beneficiaries will be selected through two-phase techno-commercial bidding, based on the lowest CapEx support sought. Incentives will be disbursed in three tranches.
These measures come as India seeks to reduce its dependence on China for battery materials, components, and technology. The Asian giant dominates the global battery supply chain, particularly in processing critical minerals and manufacturing battery cells and components.
Compared to landed Chinese benchmark prices, Indian manufacturers face cost disability ranging from 18% for Cathode Active Material and Nickle Manganese Cobalt (CAM-NMC) to 61% for Anode Active Material-Synthetic Graphite (AAM-SG), as per a Ministry of Heavy Industries study.
Advanced Chemistry Cell (ACC) comprises CAM, AAM, electrolyte, separator, and current collectors. ACC components account for about 76% of total cell manufacturing cost, with the cathode at 34% and the anode at 25%, according to the study.
According to The Economic Times, the Ministry of Heavy Industries is considering capital subsidies of up to 50% and sales-linked incentives to boost domestic manufacturing of battery materials and components.
The proposed incentives would implement existing government support for battery manufacturing, including the INR 18,100 crore Production Linked Incentives (PLI) scheme for ACC battery manufacturing.