Cabinet Clears ₹14,500 Crore VGF Scheme for 92 GWh of Grid-Scale Energy Storage
The Union Cabinet approved a Viability Gap Funding (VGF) scheme of ₹14,500 crore for grid-scale energy storage. VGF is a one-time government grant that makes a useful but loss-making project worth doing for investors.
The scheme will support 92 GWh (gigawatt-hours) of new storage capacity over five years, from FY 2026-27 to FY 2030-31.
The 92 GWh is split into 60 GWh of hydro pumped storage plants (PSP), 30 GWh of battery energy storage systems (BESS) and 2 GWh of alternative (emerging) storage technologies.
Capacity will be given out through tariff-based competitive bidding: the developer who asks for the lowest charge wins. BESS projects must meet a minimum domestic content requirement of 40% (a share of parts and value must be made in India).
Public and private power distribution companies (discoms) can get VGF for BESS and PSP projects. Projects using other storage technologies can be built by public or private entities.
The total estimated investment is about ₹97,600 crore. The government says this will help India move towards its estimated need of 411 GWh of grid-scale storage by 2031-32.
Viability Gap Funding (VGF): How the Government Makes Infrastructure Projects Bankable
Viability Gap Funding is a one-time grant from the government to a project that the country needs but that cannot earn enough on its own to attract investors. The "gap" is the difference between what the project costs and what it can earn. By filling this gap, the government makes the project attractive for private or public developers, who then build and run it.
The new ₹14,500 crore scheme uses the VGF tool for storage. It is the largest storage VGF so far and, for the first time, covers pumped storage and emerging technologies along with batteries. By paying part of the upfront cost, it lowers the storage charge that discoms must pay.
Pumped Storage Hydropower
Pumped storage hydropower stores electricity using water and two reservoirs at different heights. When there is extra power (for example, at noon when solar plants produce a lot), it pumps water up to the upper reservoir. When power is needed (for example, in the evening), water flows back down through turbines to make electricity. It works like a giant rechargeable battery made of water.
Pumped storage gets the biggest share of the new scheme: 60 of the 92 GWh. VGF helps cover the high upfront cost of building dams, tunnels and reservoirs, which is the main reason such projects have been slow to come up.
Battery Energy Storage Systems (BESS)
A Battery Energy Storage System is a very large set of rechargeable batteries connected to the power grid. It stores electricity when there is too much and releases it when there is too little, like a giant power bank for the grid. Most BESS today use lithium-ion batteries. Batteries can respond in seconds, which makes them good at keeping the grid stable.
Batteries are the second-largest part of the new scheme. Because BESS cells depend on lithium, nickel and other critical minerals, the domestic content rule links this scheme to India's wider push to make batteries and process minerals at home.
- Scheme outlay: ₹14,500 crore (VGF), period FY 2026-27 to FY 2030-31
- Total storage supported: 92 GWh (60 GWh PSP + 30 GWh BESS + 2 GWh alternative technologies)
- Total estimated investment: about ₹97,600 crore
- Allocation method: tariff-based competitive bidding
- Domestic content requirement for BESS: at least 40%
- India's estimated grid-scale storage need: 411 GWh by 2031-32
- Earlier BESS VGF schemes: ₹3,760 crore budgetary support for about 4,000 MWh (2023); ₹5,400 crore for 30 GWh from the PSDF (June 2025)
- India's operating pumped storage: about 7.2 GW (December 2025); CEA target about 100 GW by 2035-36