Context: As India moves ahead with increasing shift towards renewable Energy sources like solar and wind. There has been a greater focus on developing battery storage systems, which can store electricity. In this respect, there has been an increased focus on developing Pumped Storage Hydropower projects, which are giant batteries.

Pumped Storage Project

• Pumped storage plants use the principle of gravity to generate electricity using water that has been previously pumped from a lower source to an upper reservoir. 
• Operation of pumped storage power plants requires two reservoirs viz. upper and lower reservoir. Water in upper reservoir is used for generating power during peak demand hours. The water in the lower reservoir is pumped back to the upper reservoir during the off-peak hours and the cycle continues. 
• Pumped storage plants are of two types: ‘open loop’, which has an associated natural-water source (like a river) for one or both the reservoirs; and ‘closed loop’ (or off-river PSH), which does not have a connected natural-water source and the same water is cycled between the two reservoirs for pumping and generation.
• Energy storage capacity of a pumped hydro facility depends on size of its two reservoirs and the head between reservoirs, while the amount of power generated is linked to the size of turbine.

Need for Pumped Storage Hydropower Project

• Renewable energy sources like solar & wind energy are intermittent and variable in nature. This leads to challenges of grid-stability and temporal considerations in power availability. This requires immediate ramp-up & back down of generation for grid balancing & stability of grid frequency.
• Pump Storage Technology is the only long term technically proven, cost-effective, highly efficient & operationally flexible way of energy storage on a large scale & available at short notice.
• Currently, it is the largest energy storage system making it most effective for Renewable Energy Integration. 
• It offers following benefits:
  • Peak shaving: PSPs absorb off peak energy in the system.
  • Load balancing (Peak/off-peak balancing support): Provides peaking power. 
  • Helps in system stability.
  • Increases capacity utilisation of thermal plants.
  • Spinning reserve at almost no cost to the system
  • Black start capability
  • Fast ramp up & ramp down of generation
  • Large energy storage capacity
  • Long life
  • Energy conversion rates for pump-storage projects often exceeds 80%
  • Only PSP can meet most of the grid scale energy storage needs and no other storage system can and therefore almost 95% of the storage projects are Pump hydro

Status of Pumped Storage Hydropower:

• Current potential of ‘on-river pumped storage’ in India is 103 GW. Out of 4.76 GW of installed capacity, 3.36 GW capacity is working in pumping mode. About 44.5 GW including 34 GW off-river pumped storage hydro plants are under various stages of development. 
• Currently, operational Pumped Storage Plants: 

• Other Pumped Storage Projects
  • Kadana, Sardar Sarovar Project (
  • Tehri, Kundah, Koyna (Under Construction)
  • Turga, Upper Sileru

Advantages of Pumped Storage Projects

• Ecologically friendly: PSPs would have minimal impact on environment in their vicinity as they are envisaged on existing hydroelectric projects, or as off the river projects. All components of PSPs would be connected, operated and maintained in an environmentally friendly manner with no residual environmental impacts.
• Atmanirbhar Bharat: PSPs employ indigenous technologies and domestically produced materials. Most electrical & mechanical parts of PSPs are also made in India. Other alternate solutions to storage such as batteries are heavily import dependent.
• Tested technology: PSPs operate on time-tested technology thereby infusing confidence in lending institutions for a longer duration of loans. Cost of technologies involved in construction has reduced rendering PSPs a viable proposition. Technological surety associated with PSPs has opened possibility for developers to claim a higher debt-equity ratio in projects.
• Local development: Development of PSPs is highly capital intensive and involves development of local transport infrastructure for mobilisation of men and materials. Local industries such as cement & steel get impetus and drive domestic creation in the economy giving salutary effect on local area development, regional development, infrastructure upgradation and employment generation.
• Longer and reliable duration of discharge: PSPs are designed for a longer duration of discharge of more than 6 hours to meet peak demand or for compensating variability in the grid due to VREs. However, Battery Energy Storage Systems are designed for up to 4 hours of discharge generally. Firm capacity of PSPs during peak hours is guaranteed and relatively immune to grid conditions.

Challenges in the development of Pumped Storage Projects

• Environmental clearances: Currently, environmental and forest clearance process of PSPs is very cumbersome, since these projects are treated at par with conventional hydro projects for granting EC and FC. However, environment impact of PSPs constructed on existing reservoirs is generally less and does not lead to displacement of people. 
• Free power: PSPs are energy storage projects designed to cater to the need for grid stability during peak hours. PSPs do not produce any electricity and are net consumers of electricity. 
• Cost of pumping power: Cost of power from PSPs has three components – cost of storage, cost of conversion losses and cost of input power. For the commercial viability of a PSP unit input power should be available at affordable tariff. However, availability of solar power at relatively cheaper rates allows affordable input power for PSP units. 
• Value of peak power: Importance of PSP lies in its capability to offer peaking power. Other services offered by PSPs like spinning reserves, reactive support, black start ability etc. which are essential for grid stability are not adequately monetized.
• Taxation:

Measures taken by Government of India for promoting PSPs

• Utilisation of financial & project execution capabilities of CPSUs: Government of India has identified probable PSP sites with CPSUs to facilitate their development.
• Energy Storage Obligation: Government has notified Energy Storage Obligation for distribution companies to ensure capacities regarding storage as a grid element.  
• Waiver of Inter-state transmission and other transmission charges for PSPs.
• Budgetary support by Central Government for enabling infrastructure of hydropower & PSP projects as infrastructure create for hydropower/PSP enables further development of the area and the same is available for reuse for other purposes.

Guidelines for promotion of PSPs

Allotment of project sites: State Governments may allot project sites to developers in following manner.

• On-nomination basis to CPSUs and State PSUs: States may award projects directly to hydro CPSUs or State PSUs or to JVs between Central & State PSUs on a nomination basis. CPSU/State PSUs shall ensure that award of contracts for supply of equipment and construction is done through competitive bidding.
• Allotment through competitive bidding: PSP project may be awarded to private developers by following a two-stage competitive bidding process. PSUs can also participate in the bidding process. Home State shall have right of first refusal up to 80% of the project capacity and tariff shall be fixed by State Government. The developer will be free to sell the balance storage space under short/medium/long-term PPA, on in power markets or through bilateral contract.
• Allotment through Tariff Based Competitive Bidding (TBCB): PSPs may be awarded on a TBCB basis to developers based on competitive bidding based on:
  • Composite tariff (including cost of input power) in case input power is arranged by developer.
  • Tariff for storage on a per megawatt hour basis if input power is arranged by procurer of the storage capacity.
• Self-identified off-stream PSPs: Developers may also self-identify potential off-stream sites where PSPs can be constructed. This will help in harnessing off-stream potential in the country at a faster pace. Since, these sites are away from riverine system and do not utilise natural resources like river streams, allotment from State Governments would not be required for PSP projects on such sites. However, all statutory clearances need to be obtained from State & Central agencies before starting construction. 

Incentives for Pump Storage Projects

• States shall not charge any upfront premium for PSP project allocation.
• Exemption from free power obligation as PSPs are energy storage schemes i.e., net consumers of energy and do not produce any energy.
• No requirement for creation of a Local Area Development Fund as these projects have minimal environmental impact and have no R&R issues.
• Utilisation of discarded mines including coal mines to develop PSPs. 
• Developers should start construction work within a period of 2 years from project allotment, otherwise the project allocation will be cancelled. 
• Market reforms for PSPs by Appropriate Commission
  • shall ensure that services which help in supporting grid stability are suitable monetized.
  • Notify Peak and Off-Peak tariffs for generation to provide appropriate pricing signal to Peak and Base Load Generating plants.
  • PSPs and other storage projects shall be allowed to participate in all market segments of power exchange.
  • 80% power generated when PSPs operate as conventional hydropower stations during monsoon period would be offered to Home State at the rate of secondary energy fixed by CERC.
  • If capacity contracted for energy storage in PSP is not fully utilised by contracting agency, the developer would be free to transfer the usage of the capacity to other interested entities so that resources do not remain idle.
• Financial Viability: 
  • Central Government may notify a benchmark tariff of storage for investment decisions of developers considering 6-8 hours of operation of PSP based on prevailing and anticipated difference between peaking and non-peaking rates.
  • Financial institutions like PFC, REC and IREDA shall treat PSPs at par with other renewable energy projects while extending long-term loans of 20-25 years tenure. 
  • The debt-to-equity ratio of PSP projects can be up to 80:20, in consultation with financial institutions.
• Taxes & Duties:
  • State Government shall consider reimbursement of SGST on PSP project components. States may exempt land to be acquired by off-the-river PSPs from payment towards stamp duty and registration fees.
  • Government land may be provided at a concessional rate to the developers on annual lease rent basis.
  • Electricity Duty and Cross Subsidy Surcharge not applicable on pumping power for charging of PSPs as PSPs are merely facilitating conversion of energy.
  • No water cess will be leviable on PSPs (like conventional hydro) as there is no consumptive use of water.
• Rationalisation of Environmental Clearances for PSPs: According to draft notification issued by MOEFCC would evaluate under B2 for grant of Environmental Clearance irrespective of power generation.
  • Projects which do not attract Forest Clearance (FC) and Wildlife Clearance (WC).
  • Projects where no new reservoir is/are created.
  • Projects where existing reservoir is not expanded or structurally modified.
• Green Finance: Since PSPs will be utilised for avoiding greenhouse gas emissions. Hence, PSPs will be supported through concessional climate finance. Sovereign green bonds issued for mobilizing resources for green infrastructure as a part of Government’s overall market borrowings for development of PSPs which utilise renewable energy for charging.