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Power Ministry Sets 20 % Domestic Content Requirement for BESS Projects Under VGF Framework

The Ministry of Power has directed that Battery Energy Storage System (BESS) projects supported under the Viability Gap Funding (VGF) Scheme must meet a minimum local content threshold of 20 per cent, including the use of indigenously developed Energy Management System (EMS) software, as a condition for fund disbursement.

The Ministry of Power has instructed states and power procuring entities to ensure that at least 20 per cent of the total project cost in BESS installations implemented under the VGF Scheme is sourced domestically. These projects are supported through the Power System Development Fund (PSDF).

According to a notification issued by the ministry, the local content requirement—covering hardware as well as indigenously developed EMS application software—will be mandatory for the release of funds from the PSDF.

The ministry clarified that Battery Energy Storage Systems are not presently listed among power sector items earmarked for exclusive procurement from Class-I local suppliers under the Public Procurement (Preference to Make in India) policy. As a result, both Class-I and Class-II local suppliers remain eligible to participate in BESS tenders.

However, following an amendment to the VGF Guidelines in August 2025, the development and deployment of indigenous EMS software has been made compulsory for all BESS capacity awarded under the scheme.

For tenders already issued by states without specifying local content requirements, the notification allows the procurement process to continue, provided bidders submit an undertaking confirming compliance with the 20 per cent local content mandate.

The directive comes in response to representations from several states seeking exemptions from the Preference to Make in India provisions for BESS projects. The ministry noted that during deliberations of the PSDF Techno-Economic Sub-Group (TSEG), beneficiary states were advised to approach the Ministry of Power for clarification or exemption, prompting the issuance of the directive.

The move is aimed at strengthening domestic manufacturing capabilities, encouraging indigenous technology development, and supporting India’s clean energy transition as grid-scale energy storage deployment gathers pace.