UPSC Prelims Practice Questions — Cabinet approves Rs.14,500 crore Viability Gap Funding Scheme for development of 92 GWh Grid-Scale Energy Storage Systems

Q1. With reference to Viability Gap Funding (VGF) as an instrument of public finance for infrastructure, consider the following statements: Which of the statements given above is/are correct?

  1. Under VGF, the government guarantees the developer a minimum return on equity, so any later revenue shortfall is met from the exchequer.
  2. VGF caps the government's liability at a fixed share of the project, and construction and operating risk stays largely with the developer.
  3. VGF is a concessional loan that is disbursed after commercial operation begins and repaid from project revenues.
  • A. 2 and 3 only
  • B. 1 and 3 only
  • C. 2 only
  • D. 1 only

Q2. In a storage scheme, capacity is awarded through tariff-based competitive bidding, and the winning bidders receive Viability Gap Funding as a grant towards their projects. What is the most likely effect of this grant on the outcome of the bidding?

  • A. Tariffs stay unchanged, as the grant is recovered from consumers as a surcharge
  • B. Bidders can quote lower tariffs, as part of the project cost is met upfront
  • C. Bidders must quote higher tariffs, as the grant is repaid from project revenue
  • D. Tariffs are no longer bid, as the grant moves tariff-setting to the regulator

Q3. With reference to pumped hydro storage and battery energy storage systems, consider the following statements: Which of the statements given above is/are correct?

  1. Over a complete pumping-and-generating cycle, a pumped storage plant consumes more electricity than it returns to the grid.
  2. Battery energy storage systems are better suited than pumped storage to bulk storage lasting many days or across seasons.
  3. Unlike battery systems, pumped storage plants can be built at almost any location that has a grid connection.
  • A. 1 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q4. Consider the following statements in respect of the 2026 Viability Gap Funding scheme for grid-scale energy storage: Which of the following is correct in respect of the above statements?

  1. The scheme allots a larger share of its supported capacity to hydro pumped storage than to battery energy storage systems.
  2. Pumped storage plants can generally be built and commissioned faster than battery storage systems of comparable capacity.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q5. With reference to instruments for building domestic clean-technology manufacturing, consider the following statements: Which of the statements given above is/are correct?

  1. A domestic content requirement is a supply-side subsidy, because it consists of direct payments to domestic manufacturers.
  2. A production-linked incentive for battery cells is a supply-side measure, because payouts are linked to manufacturers' output.
  3. Viability Gap Funding for storage projects is a demand-side measure, because it lowers costs for buyers of storage and so creates assured orders.
  • A. 1 and 2 only
  • B. 1, 2 and 3
  • C. 1 only
  • D. 2 and 3 only

Q6. A WTO member requires publicly supported battery storage projects to source a minimum share of their components domestically. With reference to WTO rules relevant to such a requirement, consider the following statements: Which of the statements given above is/are correct?

  1. Such a requirement favours domestic over imported products and can therefore be challenged under the national treatment obligation of GATT.
  2. The Agreement on Trade-Related Investment Measures (TRIMs) applies only to investment measures related to trade in goods.
  3. The WTO Agreement on Subsidies and Countervailing Measures prohibits subsidies contingent on the use of domestic over imported goods.
  • A. 1 only
  • B. 2 and 3 only
  • C. 1, 2 and 3
  • D. 1 and 2 only

Q7. Under the 2026 grid-scale storage scheme, electricity distribution companies (DISCOMs), both public and private, are the designated bidders for battery and pumped storage capacity. Which one of the following best explains why storage procurement is placed with these entities?

  • A. They alone are licensed under law to own and operate electricity generating assets
  • B. Their retail tariffs are set by CERC, which shields them from state regulators
  • C. They collect the cess from which the viability gap grant is financed each year
  • D. They buy power for consumers and must match supply with demand in their areas