India’s Energy Storage Market Gets Major Boost with Policy Reforms, ISTS Waiver, and ₹5,400 Crore VGF Support

The Indian energy storage market has witnessed exponential growth in the last 6-7 years, with over 160 GWh of Energy Storage Systems (ESS) capacity tendered under the utility-scale competitive bidding regime. This includes 54 GWh of Battery Energy Storage Systems (BESS) and 106 GWh of Pumped Storage Projects (PSP). The market has matured rapidly in recent years, fueled by declining battery costs, regulatory support in the form of Viability Gap Funding (VGF), and growing emphasis on firm and dispatchable renewable energy (FDRE).

In a transformative policy shift that is set to unlock large-scale investments in India's energy storage sector, the Central Government has rolled out a series of strategic interventions that will significantly strengthen the commercial viability and long-term growth of Battery Energy Storage Systems (BESS). These include the launch of a stakeholder consultation to amend Rule 18 of the Electricity (Amendment) Rules, a comprehensive waiver of Inter-State Transmission System (ISTS) charges for ESS, and a ₹5,400 crore Viability Gap Funding (VGF) scheme for the development of 30 GWh of BESS capacity. Together, these announcements represent a decisive move to create a robust regulatory and financial ecosystem for grid-scale energy storage, critical for India’s renewable energy integration and 24x7 power reliability goals.

The Ministry of Power has initiated a public stakeholder consultation to revise Rule 18, aiming to formally integrate Energy Storage Systems into the renewable energy procurement and compliance framework.

The ministry has invited comments from stakeholders on the draft amendment, opening the door for broad industry participation in shaping this landmark policy.

ISTS Waiver

In a significant policy development aimed at catalyzing investments in energy storage and accelerating the country’s clean energy transition, the Ministry of Power has announced a waiver of ISTS charges for electricity drawn from the grid to charge Energy Storage Systems (ESS). This decision, effective immediately, aligns with India’s broader commitment to achieving 500 GW of non-fossil fuel capacity by 2030 and improving grid flexibility for enhanced renewable energy integration.

The notification, issued on June 10, 2025, states that no ISTS charges shall be levied for the transmission of electricity generated from a pump storage plant (PSPs) and co-located Battery Energy Storage System (BESS). This incentive is aimed at supporting standalone PSS and co-located BESS projects that are essential for grid stability, peak load management, and integration of variable renewable energy sources like solar and wind.

Key Highlights of the ISTS Waiver Policy:

a) ISTS charges waiver for Hydro PSP Projects for which the construction work has been awarded on or before 30th June 2028 shall be 100%.

b) ISTS charges waiver for co-located Battery Energy Storage System (BESS) Projects commissioned on or before 30th June 2028 shall be 100%, if the power from such BESS projects is consumed outside of the state, where such BESS project is commissioned.

Provided that a BESS project shall be considered as co-located if the BESS and RE projects are connected at the same ISTS substation.

c) There will not be any ISTS charges waiver for Hydro PSP Projects, for which the construction work is awarded after 30th June, 2028, and for co-located BESs commissioned after 30th June, 2028.

d) For BESS projects which are not co-located, the ISTS charges waiver shall be as per the extant orders issued by the Ministry of Power and CERC Regulations.

Impact on India's Energy Sector:

This move is expected to dramatically reduce the cost of energy storage projects, which are crucial for meeting evening peak demands and mitigating intermittency in RE supply. By removing ISTS charges, the cost of stored electricity—often referred to as "round-trip energy cost"—could be reduced by 8–10%, making ESS more financially viable.

The waiver also supports India’s National Electricity Plan 2023, which estimates the need for 41.65 GW / 208.25 GWh of storage capacity by 2031-32 to ensure a secure and reliable grid operation. Furthermore, central and state agencies have already initiated tenders for Viability Gap Funding (VGF) and without VGF, which complements this policy move.

Industry Reactions:

"Energy storage is the backbone of a modern, flexible, and clean power system. This exemption will encourage private sector participation and make large-scale storage solutions more attractive."

Industry experts believe this could significantly boost battery manufacturing under the PLI Scheme, drive gigawatt-scale deployments, and reduce India’s dependence on fossil fuel-based peaking power plants.

With global investments in energy storage expected to surpass $620 billion by 2040 (IEA forecast), India’s timely regulatory support, including this ISTS waiver, could place the country as a global hub for energy storage deployment and manufacturing.

This policy, in conjunction with Green Open Access Rules, Time-of-Day Tariffs, Carbon Market Framework, and PLI for Advanced Chemistry Cells, demonstrates India’s integrated approach to energy transition, decarbonization, and grid modernization.

VGF Tr-II for BESS

Crowning these efforts, the Government of India has taken a major step to accelerate the deployment of Battery Energy Storage Systems (BESS) by approving a Viability Gap Funding (VGF) scheme worth ₹5,400 crore (approximately $631 million) to support the development of 30 GWh of BESS capacity. This initiative, announced in June 2025 by the Ministry of Power, is aimed at boosting grid-scale energy storage, essential for integrating intermittent renewable energy sources and ensuring round-the-clock power supply. Under this scheme, developers will receive a maximum of ₹18 lakh per MWh as financial support, disbursed in a phased manner: 20% at financial closure (backed by a bank guarantee), 50% upon achieving Commercial Operation Date (COD), and the remaining 30% after one year of successful operation.

The 30 GWh capacity is strategically split—with 25 GWh to be deployed across 15 Indian states and the remaining 5 GWh earmarked for NTPC, India’s largest power utility. Major allocations include 4 GWh each for Rajasthan, Gujarat, and Maharashtra; 2 GWh each for Andhra Pradesh and Karnataka; and 1.5 GWh each for Tamil Nadu, Madhya Pradesh, Telangana, and Uttar Pradesh. Smaller allocations of 0.5 GWh each have been made to Haryana, Kerala, Punjab, Chhattisgarh, Odisha, and Uttarakhand. States are required to submit project proposals within 30 days, which will be evaluated and approved by the Central Electricity Authority (CEA) within 60 days.

This move builds upon the first VGF round of 13.2 GWh, bringing the total subsidized capacity under this scheme to 43.2 GWh. It is expected to catalyze an estimated ₹33,000 crore (around $3.96 billion) in private investment and significantly expand India's energy storage infrastructure. To further strengthen the policy ecosystem, the government has extended the waiver of Inter-State Transmission System (ISTS) charges for BESS and pumped hydro storage projects until June 30, 2028. This incentive is a key enabler for renewable-rich states to export stored clean energy cost-effectively.

The scheme aligns with India’s broader energy transition goals, especially its commitment to install 500 GW of non-fossil fuel capacity by 2030. Renewable energy generation has already seen record highs, with May 2025 witnessing 24.7 billion units (kWh) of power from clean sources—about 15.4% of total electricity consumption. To support the integration of this growing renewable base, the government has also announced plans for nine new 1,100 kV Ultra High Voltage AC transmission lines by 2034, alongside improvements in Right of Way (RoW) compensation—boosting it to 200% for tower land and 30% for corridor access.

This comprehensive policy framework is expected to accelerate storage deployments, enhance grid stability, reduce reliance on fossil fuels, and open new opportunities for the private sector. With timelines clearly laid out—proposal submission, CEA approvals, tenders by Q3 2025, and commissioning by late 2026—the 30 GWh BESS program marks a pivotal advancement in India's energy security and sustainability roadmap.

These three converging initiatives—regulatory clarity under Rule 18, cost reduction through ISTS waivers, and capital support through VGF—together represent a comprehensive policy framework that is expected to trigger exponential growth in the Indian energy storage market. Industry analysts anticipate that these moves will lead to greater participation by domestic and global ESS manufacturers, project developers, and financiers, especially as India aims to integrate over 500 GW of non-fossil energy by 2030. Moreover, the reforms align closely with India’s net-zero commitments by 2070 and provide the operational backbone for enabling 24x7 renewable energy, critical for sectors such as transport electrification, industrial decarbonization, and smart grid development.

With the enabling framework now taking shape, the energy storage industry is poised for a decade of accelerated deployment and innovation, potentially turning India into one of the world’s most dynamic markets for grid-connected storage solutions.

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