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Informist, Monday, Mar. 23, 2026

 

By Shakshi Jain

 

NEW DELHI – The Central Electricity Authority has kick-started discussions with the government regarding viability gap funding for pumped storage projects, a member of the statutory body told Informist last week. "The discussion has started already and we have at least come to this level that PSP (pumped storage projects) requires a VGF (viability gap funding)...The total quantum will not be very high because there are fund limitations," the member said.

 

The approved funding may be to the extent of INR 1.8 million per megawatt-hour for a total capacity addition of up to 25 gigawatt-hour, as per the source. This suggests, the scheme, if approved, could have an outlay of as much as INR 45 billion. "It is at the discussion level...We are trying for up to 25 GW. If we ask that much then government will give something," the official said.

 

According to industry players, the overall cost of setting up 1 MW pumped storage capacity can range anywhere between INR 40 million to INR 80 million depending on factors such as location and geology, among others. "(The cost of) per MWh is depending on the operations, how many times we operate that project. Maybe this INR 18 lakh (INR 1.8 million) would be somewhere around 15%," a senior executive of a listed hydro energy company said.

 

Viability gap funding refers to financial support in the form of grants to economically desirable but commercially unviable infrastructure projects. It bridges the gap between a project's cost and its potential revenue with a view to make it commercially viable and is carried out through public-private partnerships.

 

According a report by the Central Electricity Authority, the required energy storage capacity in India by 2029-30 (Apr-Mar) is estimated at 60.63 GW with 18.98 GW from pumped storage plants and 41.65 GW from battery energy storage systems. The statutory body serves as the primary technical advisor to the government on all matters regarding electricity generation, transmission, distribution, and utilisation.

 

The Ministry of Power had last year approved an expanded viability gap funding scheme for 30 GWh of battery energy storage systems by 2028 at INR 1.8 million per MWh and an overall outlay of INR 54 billion. It built upon the previous 2023-scheme that had aimed for 13.2 GWh capacity by 2026 with an allocation of INR 37.60 billion.

 

Meanwhile, talks regarding similar scheme for pumped storage projects have not fructified yet, even as it remains a consistent request from the industry to complement battery energy storage systems in the country for grid stability. "We are asking for hybrid support–-VGF as well as milestone-based. VGF will help bring the project faster into execution because upfront equity requirement, capital requirement would be taken care of," the hydro energy company executive said.

 

While batteries offer flexibility, pump storage is a more viable, long-term, and cost-effective solution for extensive storage, according to players in the sector. Further, from a grid stability and longevity perspective, pumped storage projects are clearly superior. Once commissioned, a pumped storage project can operate reliably for 70-80 years, whereas batteries have to be refurbished or recycled every six to eight years. 

 

A viability gap funding scheme for pumped storage projects would be a good news for several listed companies in India, including NHPC Ltd., JSW Energy Ltd., Adani Green Energy Ltd., SJVN Ltd., and NTPC Ltd., among others.   End

 

Edited by Akul Nishant Akhoury

 

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