The Indian government has set a transformative benchmark for battery energy storage projects with the introduction of a 20% domestic content rule under its Viability Gap Funding (VGF) scheme. This initiative, aimed at enhancing local manufacturing capabilities, is designed to incentivize the integration of domestic components into battery energy storage systems (BESS) to qualify for essential financial support.
Understanding the 20% Domestic Content Requirement
As outlined by the Ministry of Power, the new rule mandates that at least 20% of the procurement costs for BESS projects must consist of locally sourced content. This includes not only hardware but also critical software—specifically, energy management system (EMS) software. The directive seeks to align with the broader objectives of the Public Procurement (Preference to Make in India) Order (PPP-MII), which encourages local suppliers by categorizing them into Class-I and Class-II suppliers based on their local content percentage.
Boosting Local Manufacturing and Innovation
The introduction of this requirement is expected to catalyze local innovation in battery technology and EMS software. By fostering partnerships between global original equipment manufacturers (OEMs) and Indian firms, the initiative aims to reduce reliance on imports and bolster the domestic industry. The Renewable Energy Society of India (RESI) has hailed this rule as a significant step towards India’s clean energy transition, emphasizing its potential to create new opportunities for Indian suppliers and enhance the transparency and standardization of BESS procurement processes.
Impact of the Viability Gap Funding Scheme
Initially launched in the 2023-2024 Union Budget, the VGF scheme was designed to support the deployment of 4 GWh of BESS capacity by 2030-2031, offering up to 40% of capital expenditure as financial assistance. The scheme has since expanded significantly, now encompassing up to 13.2 GWh of new capacity with additional funding aimed at addressing financial viability gaps in public-private partnerships.
- Current funding supports up to 30 GWh of capacity through a financial injection of ₹5,400 crore (approximately $631.5 million).
- Allocations include 25 GWh for 15 states and 5 GWh for NTPC, focusing on grid-scale storage solutions.
These developments are crucial as India strives to achieve a target of 500 GW of non-fossil fuel capacity by 2030, with energy storage playing a pivotal role in maintaining grid stability. Currently, the Central Electricity Authority projects that approximately 411.4 GWh of storage will be required by 2031-2032 to meet these goals.
Challenges Ahead for Battery Storage Implementation
Despite the promising framework, challenges persist in the implementation of energy storage projects. Data from market research firm Mercom indicates that cumulative BESS capacity in India reached only 490 MWh by June 2025, with a significant decline in new installations, illustrating execution gaps in this evolving sector. Issues such as low bidding, contract delays, and high financing costs remain critical obstacles that need addressing to realize the ambitious storage capacity targets.
To further support this initiative, complementary measures like the Production-Linked Incentive (PLI) scheme for advanced chemistry cell manufacturing have been introduced, aiming to enhance local production capabilities and reduce costs in the long run.
Conclusion: A Step Towards Sustainable Energy
The 20% domestic content rule under the Viability Gap Funding scheme is a strategic move towards enhancing India’s energy independence and fostering a robust domestic battery manufacturing sector. As this policy unfolds, it holds the promise of not only accelerating the deployment of battery storage technologies but also paving the way for a sustainable energy future.
