The Ministry of Power has released guidelines to regulate and promote the development of pumped storage projects (PSP) in the country. These guidelines clarify the methods for allotment of project sites through competitive bidding and rule out any upfront premium for project allocation to make it financially viable.

The ministry has also envisaged tax waivers and participation in power markets to make these projects financially viable and attractive for developers and investors alike.

The development of PSPs in India is expected to be driven by various factors related to the energy transition. PSPs are essential to increase the use of variable renewable energy sources in the energy mix, provide critical backup during periods of excess demand, and maintain grid stability.

The Central Electricity Authority (CEA) has estimated that India will require 26.7 GW of PSP and 47.2 GW of battery energy storage systems by 2032 to integrate renewable energy capacity.

Measures

The state governments may allot project sites to developers in different ways, including on a nomination basis to Central Public Sector Undertakings (CPSUs) and State PSUs.

The guidelines say governments can also choose methods of competitive bidding, tariff-based competitive bidding, or self-identified off-stream pumped storage projects.

Further, developers must start construction work within two years from the date of allotment of the project, failing which allotment of the project site will be canceled by the concerned state.

However, a relaxation of one year may be granted to those projects where the delay in the start of construction is attributable to pending environment clearance and forest clearance.

To ensure the viability of PSPs, states must ensure that no upfront premium is charged for project allocation.

The appropriate regulator must ensure that services like spinning reserves, reactive support, black start, peaking supply, tertiary and ramping support, faster start-up, and shutdown, which help in supporting grid stability, are suitably monetized.

The regulator must notify peak and off-peak tariffs for the generation to provide appropriate pricing signals to peak and base load-generating plants.

PSPs and other storage projects will be allowed to participate in all market segments of the power exchange, including the high-price segment of the Day Ahead Market (HP-DAM). This will ensure they can take advantage of the price differential between peak and off-peak tariffs.

The ministry has identified that discarded mines, including coal mines, in various parts of the country could be used as hydro storage and thus become natural enablers for developing PSPs.

It has initiated efforts to identify and develop exhausted coal mines as prospective PSP sites in consultation with the other stakeholders in the government.

Advantages of Pumped Storage Projects

PSPs are crucial in India’s transition to a more sustainable energy system. As wind and solar energy may be generated when energy demand is low, PSPs can offload excess energy during off-peak hours, increasing the load factor of other systems and providing additional capacity during peak hours. PSPs also provide critical backup during periods of excess demand while maintaining grid stability.

According to the ministry, full decarbonization of the electricity sector will not be achievable without PSPs. PSPs have a minimal environmental impact and are generally designed for longer discharge durations, making them relatively immune to grid conditions compared to battery energy storage systems.

Potential

The CEA has estimated a significant potential for on-river pumped storage in India, with a capacity of up to 103 GW. Currently, there is one operational project with a capacity of 4,745.6 MW, four projects with a capacity of 2,780 MW under construction, and 27 projects with a capacity of 29,930 MW allotted by the states and are under various stages of development.

There is also a large potential for off-river pumped storage currently being evaluated.

In February, the Ministry proposed supporting pumped storage projects through concessional climate finance. Sovereign green bonds issued for mobilizing resources for green infrastructure may be deployed in developing these projects, which utilize renewable energy for charging.

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