Viability Gap Funding

What is Viability Gap Funding

Viability Gap Funding (VGF) is a capital subsidy mechanism providing a one-time grant from government to bridge the gap between a project’s total cost and its commercial viability. The grant covers the difference between what the project can earn at competitive tariffs and the capex required for the project to be built. VGF supports infrastructure and emerging technologies that are socially or strategically desirable but not yet commercially viable.

In Indian solar, the most significant current VGF programme supports Battery Energy Storage Systems (BESS) connected to the grid for renewable energy. Approved by the Union Cabinet in September 2023 with ₹3,760 crore of budgetary support (about ₹9,400 crore total initial outlay), the first tranche targets 4,000 MWh (4 GWh) of storage by 2030-31 with support of up to 40 percent of capital cost. A second tranche announced by the Ministry of Power in June 2025 provides ₹5,400 crore for 30 GWh at ₹18 lakh per MWh (about ₹72 lakh per MW for 4-hour storage). Together they are part of a broader wave of BESS-plus-solar tenders reshaping India’s renewable pipeline (see India Solar Statistics 2026, Complete Data Reference).

VGF mechanisms have historically been used for various infrastructure and emerging technology areas, including earlier grid solar projects. The BESS VGF is the main VGF programme linked to solar in India today.

Why VGF matters

Storage rollout. Bridges cost gap for utility-scale BESS not yet commercially viable, a different track from the household PM Surya Ghar subsidy, which funds rooftop capex directly rather than grid storage capacity.

Renewable integration. Enables high renewable penetration through firm dispatch.

Round-the-clock power. Supports solar-plus-storage hybrid plants.

Domestic capacity. Funds Indian BESS development supporting PLI for cells.

Technology validation. Funds real-world demonstration of emerging storage.

BESS VGF scheme details

Sources: newsonair.gov.in on the September 2023 Cabinet approval and pv magazine India, 10 June 2025, read 14 October 2026. Check the Ministry of Power guidelines for current rates and eligibility, since the scheme has been revised.

Technical deep dive

Eligibility

Eligibility, minimum project size, equipment requirements and bidding rules are set in the Ministry of Power guidelines and the individual tender documents. Read the current versions for the tranche a project applies under.

VGF impact on economics

Developers typically run these VGF-adjusted scenarios through dedicated solar financial modelling tools before submitting SECI bids.

Related programmes

Real-world applications

Utility-scale standalone BESS.

Solar + storage hybrid plants, typically laid out with solar-plus-storage design software.

Wind + storage plants.

Grid frequency regulation services.

Renewable energy round-the-clock supply.

Advantages

Reduces effective capex for storage projects.

Bridges commercial viability gap.

Supports Indian storage market emergence.

Aligns with Indian energy security goals.

Complementary to PLI for manufacturing.

Limitations

Fixed per-MWh support in tranche 2, so it covers a limited share of capex.

Disbursement tied to milestones (cash flow timing).

Limited capacity allocation.

Tender-based with competitive pressure.

Indian market context

SECI tendering BESS under VGF framework.

NTPC, NHPC, SJVN participating in tenders.

Major developers: Adani Green, ReNew Power, Tata Power.

PLI manufacturers (Reliance, Ola Electric) supporting domestic cell supply.

Future expansion expected in 2025-2027.

Standards and certifications

Key takeaways

VGF (Viability Gap Funding) is a capital subsidy bridging gap between project cost and commercial viability. Indian BESS VGF: tranche 1 ₹3,760 crore for 4,000 MWh (up to 40 percent of capital cost, 2023), tranche 2 ₹5,400 crore for 30 GWh at ₹18 lakh per MWh (2025). Run by the Ministry of Power. Critical for early-stage storage rollout. Complementary to PLI for cells. Likely to expand to round-the-clock renewable and green hydrogen.

Further reading

For how Viability Gap Funding plays out in real projects, these guides go deeper:

• Solar Subsidy in Gujarat 2026, Surya Gujarat
• KUSUM Yojana: Agricultural Solar Subsidy Guide
• PM Surya Ghar Muft Bijli Yojana, Complete 2026 Guide
• Solar Subsidy in Uttar Pradesh 2026, UPNEDA

Sources

• Union Cabinet approval of the BESS VGF scheme, 6 September 2023 (newsonair.gov.in), and Ministry of Power tranche 2 announcement, June 2025 (pv magazine India).
• SECI Battery Energy Storage System tenders.
• Press Information Bureau releases on VGF.
• Ministry of Power notifications.
• IEA Energy Storage Outlook 2024.
• BloombergNEF Battery Storage Outlook.
• IRENA Energy Storage Report.
• IEA India Energy Outlook 2024.
• Industry analysis of BESS economics.