Pumped storage is the least expensive large-scale storage technology that can balance intermittent wind and solar energy sources. It is a mature technology with unique features such as quick start and ramping capability, black start, and frequency regulation. However, the development of pumped storage projects (PSPs) in the country has been marred by a number of challenges such as delays in obtaining forest and environmental clearances, land acquisition issues, and a lack of differential tariff for peaking generation.
The Ministry of Power (MoP) recently released the long-awaited guidelines for the promotion of PSPs in the country. The policy followed the finance minister’s budget speech in February 2023, which mentioned the creation of a separate framework for the development of PSPs in India and the issuance of guidelines for project execution. The draft guidelines propose market reforms to incentivise ancillary services provided by PSPs, exempt PSPs from free power obligations and rationalise environmental clearances for PSPs.
MoP’s draft guidelines to promote development of PSPs
Allotment of project sites: The draft guidelines stipulate three modes of allotment for hydro PSP sites to developers. First, for early development of HEPs, the states may award projects directly to hydro central PSUs or state PSUs on a nomination basis, with consideration given to their experience and financial strength. Second, PSPs may be awarded to private developers through a two-stage competitive bidding process. Third, PSPs may be awarded to developers through the tariff-based competitive bidding route based on either the composite tariff (including the cost of input power) if the developer arranges input power, or tariff for conversion of power from off-peak to peak if the procurer of the storage capacity arranges the input power.
Charges to be paid by the developer: Developers will begin construction within a period of two years from the date of allotment of the project, failing which, allotment of the project site will be cancelled. The states will ensure that no upfront premium is charged for project allocation.
Market reforms: The comparison of PSPs with other conventional and variable renewable energy sources purely based on financial aspects undervalues and de-emphasises its economic benefits. The monetisation of ancillary services provided by PSPs will give a much-needed impetus to the sector. The draft guidelines propose the following market reforms:
- The appropriate commission will ensure that services such as spinning reserves, reactive support, black start, peaking supply, tertiary and ramping support, faster start-up and shutdown are suitably monetised.
- The appropriate commission shall notify peak and off-peak tariffs for generation to provide appropriate pricing signals.
- PSPs and other storage projects will be allowed to participate in the high-price segment of the day-ahead market.
- If the contracted capacity is not being fully utilised by the contracting agency, the developer will be free to transfer the capacity to other interested entities so that the resources do not remain idle.
Taxes and duties: The state governments will consider a reimbursement of state goods and service tax on hydropower project components. Government land, if available, may be provided at a concessional rate to the developers on an annual lease rent basis. Since storage is an intermediary system where energy is stored and released later, in line with the principles of double taxation avoidance, power from PSPs may be suitably considered to avoid double taxation.
Exemption from free power obligation: PSPs are energy storage schemes. They do not produce energy and are net consumers of energy. Therefore, PSPs should be exempt from free power liabilities.
Local area development fund: PSPs have a minimal environmental impact and no rehabilitation and resettlement issues. Therefore, there will be no requirement for the creation of a local area development fund.
Some of the measures in the guidelines that concern other ministries are:
- Utilisation of exhausted mines to develop PSPs: Discarded mines (including coal mines) could be used to build PSPs.
- Rationalisation of environmental clearances for off-river PSPs: The off-river PSPs, located away from the river course, may be treated differently for grant of environmental clearances. PSPs, where both reservoirs are built off-river or where one reservoir is built off-river and the existing on-river reservoir undergoes minor structural changes, may be exempted from environmental impact assessment and public hearing and be required to prepare an environment management plan.
- Green finance: In order to accelerate the pace of establishment of PSPs, they can be supported through concessional climate finance and sovereign green bonds.
As per the Central Electricity Authority (CEA), India has eight PSPs with a total capacity of 4,745.6 MW. These are installed in various locations across the country including Telangana (two), Maharashtra (two), Tamil Nadu (one), West Bengal (one) and Gujarat (two). However, only six plants with an installed capacity of 3,305.6 MW are working in pumped mode. The remaining 1,440 MW of capacity across two sites in Gujarat is currently not operating in pumped mode due to delays in construction of the tail reservoir and vibration-related issues in the system.
Three PSPs with a total capacity of 2,700 MW are under construction – THDC Limited’s 1,000 MW Tehri Stage II project in Uttarakhand; Tamil Nadu Generation and Distribution Corporation Limited’s 500 MW Kundah PSP and Greenko’s 1,200 MW Pinnapuram Integrated Renewable Energy Project (IREP) in Andhra Pradesh. Notably, the Pinnapuram IREP is a first-of-its-kind integrated renewable energy project in India, conceived as a gigawatt-integrated project with solar, wind and pumped storage components. The project features an off-stream closed loop standalone storage system and will have a cycle efficiency of 75 per cent.
With regard to survey and investigation, as of October 2022, a total of 23 projects aggregating 25,630 MW are under survey and investigation. There has been increased interest among private players in the development of pumped storage projects. Various private sector players have announced PSP projects in recent times. In October 2022, JSW Energy Limited signed an agreement with the Maharashtra government to set up a 960 MW PSP project in Raigarh district. In April 2022, JSW expressed interest in developing the 1,000 MW Hasdev Bango PSP in Chhattisgarh and the 1,500 MW Komoram Bheem PSP in Telangana. More recently, in January 2023, the Greenko Group announced the setting up of a PSP project in Neemuch, Madhya Pradesh, while Adani announced plans to set up a PSP in Madhya Pradesh. Further, in December 2022, Adani Green Energy Limited received approval to set up 1,600 MW of PSPs in Andhra Pradesh.
As per the CEA’s draft National Electricity Plan, 18,826 MW of pumped storage capacity will be required to meet the peak electricity demand and energy requirement up to 2031-32. While PSP capacity of 6.81 GW will be required to meet the projected peak electricity demand and energy requirement in 2026-27, an additional PSP capacity of 12.02 GW (along with a five-hour BESS capacity of 51.56 GW) will be required to meet the peak electricity demand and energy requirement in 2031-32. On the financing front, the CEA has estimated a fund requirement of Rs 430.99 billion from 2022-23 to 2026-27 and Rs 355.32 billion during 2027-28 to 2031-32 for the development of the projected PSP capacity.
To conclude, there is a huge potential for the development of pumped storage capacity in the country and the recently announced draft guidelines to promote PSPs are expected to give a much-needed fillip to the segment by providing the right incentives, expediting the process of approval and clearances, and attracting investor interest in the segment. Overall, the development of PSPs is essential to achieve the country’s goal of increasing the share of renewable energy generation and providing 24×7 reliable and quality power supply.