VGF SCHEME FOR BATTERY (Syllabus: GS Paper 3 – Economy)

Context: Recently, after announcing a ₹3,760-crore viability gap funding (VGF) support for battery energy storage systems, the Centre is now considering a VGF scheme for pump storage projects (PSP) as well.

• In PSPs, excess energy is used to pump water to an upper reservoir when power demand is low. When demand rises, water is released, turning a turbine which generates electricity.

VGF Scheme for Battery Storage

• About: VGF stands for Viability Gap Funding, which aims at supporting infrastructure projects that are economically justified but fall marginally short of financial viability.
• Initiated: In 2004, supports projects falling under Public-Private Partnerships (PPP).

oThis scheme operates as a Plan Scheme, with budget allocations made on an annual basis by the Ministry of Finance.

• Aim: VGF grants are given as capital subsidies to encourage private sector involvement in financially unviable PPP projects.

oThese projects often lack commercial viability due to extended gestation periods and limited future revenue prospects.

Benefits of VGF

• VGF grants for Battery Energy Storage System (BESS) developers are awarded through a competitive bidding process.
• VGF supports a production-linked incentive program that encourages domestic manufacturing, driving technology innovation.
• VGF serves a crucial role in covering the development costs for battery manufacturers during technology development phases.