In a significant step towards strengthening the country’s renewable energy infrastructure, the Ministry of Power (MoP) has released new tariff-based competitive bidding (TBCB) guidelines for procuring storage capacity and stored energy from pumped storage projects (PSPs). These guidelines aim to promote the development of PSPs, and provide a transparent, fair and standardised procurement framework based on open competitive bidding, ensuring appropriate risk-sharing among stakeholders.
While guidelines for procurement and utilisation of battery energy storage systems (BESSs) are already in place, these new guidelines for PSPs aim to highlight the unique characteristics and requirements of PSPs such as land acquisition, permitting processes, project timelines and performance, and address the unique challenges and opportunities associated with PSP development. The guidelines provide a structured framework for procurement, aiming to promote fair competition and attract investments in the PSP sector.
As India accelerates its transition to renewable energy, the inherent variability of sources such as solar and wind power poses challenges for grid stability. Energy storage systems (ESSs), particularly PSPs, play a crucial role in mitigating these challenges by storing excess energy during periods of low demand and releasing it during peak times. This mechanism ensures a reliable power supply and enhances the efficiency of renewable energy utilisation.
The National Electricity Plan 2023 projects a substantial increase in energy storage requirements, estimating approximately 74 GW/411 GWh of ESS by 2031-32, with PSPs contributing 27 GW/175 GWh. This projection underscores the critical role of PSPs in India’s energy strategy, complementing other storage solutions such as BESSs.
Guidelines for PSPs
Applicability: These guidelines are for the procurement of storage capacity or stored energy from PSPs through competitive bidding. They apply to developers as well as procurers, both end procurers and intermediary procurers. Furthermore, the guidelines are applicable to the procurement of storage capacity or stored energy from existing, under-construction or new PSP projects.
Mode of procurement: The guidelines outline a single-stage, two-part (technical and financial) bidding process, preferably conducted through electronic means to ensure efficiency and transparency. The procurement of storage capacity from PSPs can be carried out through two modes. Mode 1 involves procurement from a PSP developed on a site identified by the procurer. If the site is government-owned, the project will be developed on a build-own-operate-transfer basis for 25-40 years, ensuring inter-generational equity. After this period, the project will be transferred to a state government-identified entity at a pre-specified amount. To de-risk the project, the procurer will establish a special purpose vehicle (SPV) for pre-feasibility activities, including securing environmental, forest and land clearances. The SPV, set up as a wholly-owned subsidiary with a minimum shareholding of Rs 100,000, will be transferred to the successful bidder at a pre-specified cost. The procurer will also provide a detailed project report (DPR) in the bid.
Mode 2 involves procurement from a PSP on a site identified by the bidder or from an already commissioned or under-development PSP. In this case, the project will be developed on a build-own-operate basis for 15-40 years, as specified in the bid. Developers may propose new sites or offer storage from existing projects. They will be responsible for obtaining all statutory clearances, including approvals under Section 8 of the Electricity Act, before construction. The procurer will not be liable for any delays in obtaining clearances, and the selected bidder may be required to submit an approved DPR before signing the power purchase agreement (PPA).
Bidding parameters: The bid structure follows a TBCB process, with the bidding parameter determined as per the special conditions outlined in the request for selection (RfS). The tariff must be quoted at the specified delivery point. Under the composite tariff model, the developer bears all charges and losses unless stated otherwise in the RfS. In the tolling tariff model, the responsibility for these charges is defined in the RfS. The minimum bid capacity for projects is specified in the special conditions of the bid, while the procurer may also set a maximum capacity per bidder based on factors such as economies of scale, land availability, competition and market development. Additionally, for projects developed under Mode 1, the developer may set up a higher capacity, and in such cases, the procurer retains the first right of refusal to contract the additional capacity or energy.
Contractual framework: After successful bidding, a PPA will be signed between the procurer and the successful bidder or SPV. If an intermediary procurer is involved, it will sign a PPA with the developer and a power sale agreement (PSA) with the end procurer, with the PSA mirroring the PPA terms. The intermediary procurer will be entitled to a trading margin. Further, centralised power procurement entities are to be classified as procurers rather than intermediaries.
The execution of PPAs must ideally be completed within six months of issuing the letter of award (LoA), with an allowable extension of up to 12 months. Failure to comply with this timeline may result in the cancellation of the allocated capacity. The procurer will be responsible for publicly disclosing the details of the successful bidder and the tariff after the execution of the PPA. Furthermore, the procurer must submit an application to the appropriate commission for tariff adoption within 30 days of issuing the LoA.
Upon the expiration of the PPA, the developer retains the right to continue operating the PSP. In cases where the procurer designates the project site, its responsibility for land arrangements is limited to the duration of the PPA. Further, performance parameters, operational conditions and other project-specific requirements should be outlined in the special conditions of the contract.
Transmission connectivity: The responsibility of obtaining transmission connectivity to the ISTS network under GNA regulations, or the InSTS network, will lie with the developer and will be at the developer’s cost. Within 60 days of the issuance of the LoA, the developer must apply for connectivity, GNA, or open access to the central transmission utility (CTU)/state transmission utility (STU) grid, as required, to assess the technical feasibility of connecting the plant to the InSTS/ISTS substation. The end procurer will be responsible for interstate/intra-state transmission charges and losses beyond the delivery point in accordance with applicable laws, while the developer will bear the interstate/intra-state transmission charges and losses up to the delivery point. The energy supplied to the procurer will be measured at the metering point or any additional points specified in the bidding document. The metering point is defined as the low voltage bus bar of the InSTS/ISTS substation where power is injected into the transmission system of the STU/CTU. Unless otherwise specified, the transmission of power up to the point of interconnection, where metering for energy accounting occurs, will be the developer’s responsibility and expense, with additional conditions detailed in the special conditions of the contract.
Other guidelines: The guidelines provide detailed technical requirements for PSPs, including performance parameters and timelines. Besides, to ensure the selection of competent entities, the guidelines specify eligibility and qualification criteria for bidders, including technical experience and financial capacity. This includes assessments of net worth, assets under management and liquidity, along with rules for consortium participation.
Conclusion
The MoP’s TBCB guidelines for PSPs mark a significant step towards building a sustainable and resilient energy future for India. By establishing a transparent and competitive framework for PSP development, these guidelines are set to play a crucial role in integrating renewable energy sources, ensuring grid stability and meeting the country’s growing energy demands.
Akanksha Chandrakar