Regulatory clarity on long-duration power storage augurs well for the sector
India’s rapid transition to renewable energy has made energy storage a crucial component for grid stability and integration of intermittent renewable energy sources into the grid. Pumped hydro storage (PHS) offers a flexible and efficient long-duration energy storage solution, essential for the country’s renewable energy strategy.
The National Electricity Plan 2023 projects India’s energy storage capacity requirement at approximately 74 GW/411 GWh by fiscal 2032, with 27 GW/175 GWh from pumped storage plants (PSPs) and the remaining from battery energy storage systems.
As of April 2024, India’s installed PSP capacity stood at 4.7 GW, with 3.3 GW currently operational. The Central Electricity Authority (CEA) estimates the country’s total potential for PSP capacity at about 134 GW, comprising 60 GW and 74 GW of on-river and off-river PSP projects, respectively.
Plans are underway to add PSP capacity of 1 GW in the northern region and 1.7 GW in the southern region by FY27. Moreover, approximately 60 GW of capacity are currently being surveyed and investigated, with 19.2 GW of that needing to be operationalized by fiscal 2032 in order to meet the CEA plan.
Figure: Region-wise PSP capacity addition plan until fiscal 2032 as per CEA (MW)
Source: CEA; Bridge to India – CRISIL MI&A Research
To facilitate the development of PSPs, the Ministry of Power issued draft guidelines on August 22, 2024, for the procurement of storage capacity or stored energy from PSPs through a competitive bidding process.
The guidelines outline two modes of procurement:
- Mode 1 involves procurement from a PSP developed on a site pre-identified by the procurer. The project will be developed on a build-own-operate-transfer (BOOT) basis for a term of 25-40 years. The procurer will form a special purpose vehicle (SPV) to handle pre-feasibility activities, including clearances and land procurement. The indicative timeline for commencement of the storage schedule is 48 months and 66 months for on-river and off-river PSP projects, respectively.
- Mode 2 involves procurement from a PSP developed on a bidder-identified site or an existing commissioned PSP. The project will be developed on a fuel-offer-own (FOO) basis for a period of 15-25 years. The bidder will submit the approved detailed project report (DPR) before signing the power purchase agreement (PPA). The timeline for commencement of the storage schedule will be as per the procurer’s requirement.
The guidelines also specify the bidding parameters, including storage charge or tolling tariff, storage charge with a specified pre-viability gap funding (VGF)/annuity support, and composite tariff. The minimum bidding capacity is 50 MW for inter-state transmission system (ISTS)-connected projects. It is 10 MW for intra-state transmission system (InSTS)-connected projects, except those in the north-eastern region (NER) states.
These guidelines come at a time when the tariff framework, specifically for PSPs, is inadequate. States such as West Bengal, Maharashtra and Telangana have their own specific regulations, while others lack a tariff framework that differentiates between hydro and PSP projects.
Key differentiating provisions are needed to distinguish between hydro and PSP projects, including accounting for the cost of pumping energy within the tariff framework and offering incentives for peak shaving over and above normal tariffs.
The draft guidelines for the procurement of storage capacity from PSPs through competitive bidding are a step in the right direction. This allows developers to set tariffs through a fair and established process, consistent with the other clean energy segments.
The guidelines bring much-needed clarity and enable fair compensation, unlike current policy structures that treat PSP capacity on par with normalised hydro supply. That said, policy innovations to also give an option to use PSP as an ancillary service would add another crucial dimension to the tariff framework.
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