Government Proposes Green Finance Support for Pumped Storage Projects

Ministry of Power also proposed duty concessions in draft guidelines


The Ministry of Power has proposed that pumped storage projects be supported 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.

The ministry has issued draft guidelines for pumped storage projects in the country. The guidelines seek to utilize the immense potential of pumped storage projects in grid stabilization and in meeting the peak power demand.

Stakeholders have 15 days to submit their comments and suggestions.

Storage has emerged as the crucial link to bridge the intermittency of wind and solar power, the lowest-cost renewable energy sources in the world.

Financial Viability 

The draft guidelines suggested that the central government notify a benchmark storage cost for investment decisions of central public sector undertakings (CPSUs) for pumped storage projects considering 6-8 hours of operation. Efforts would be made to ensure that only those projects are taken up for development whose levelized cost of storage is within the benchmark cost of storage.


It further said that the state governments should consider reimbursement of State Goods and Service Tax (SGST) on hydropower project components. For land acquisition, states may provide exemptions from payment toward stamp duty and registration fees. Government land, if available, will be provided at a concessional rate to the developers on an annual lease rent basis.

Market Reforms 

Further, the guidelines said that the appropriate commission should ensure that ancillary services like spinning reserves, reactive support, peaking supply, ramping support, and faster start-up and shutdown, which help in supporting grid stability, are monetized.

It added that the commission should notify peak and off-peak tariffs for the generation to provide appropriate pricing for peak and base load-generating plants.

Pumped storage projects should be allowed to participate in the proposed day-ahead market (HP-DAM) to take advantage of the price differential between peak and off-peak tariffs.

If the contracting agency is not fully utilizing the contracted capacity, the developer should be free to transfer the capacity usage to other entities.

Allotment of project sites

As per the proposed guidelines, the state government may allot project sites to developers in the following manner:

  • On a nomination basis to CPSUs and state PSUs: States may award projects to central public sector undertakings (CPSUs) or state public sector undertakings (PSUs) on a nomination basis. Further, the CPSU or the state PSU should ensure that award of contracts for the supply of equipment and construction of the project is done based on competitive bidding.
  • Allotment through competitive bidding: Pumped storage projects may also be awarded to private developers under a two-stage competitive bidding process. The first stage will be pre-qualification based on financial strength, experience in developing infrastructure projects, past track record, turnover, and ability to meet performance guarantees. In the second stage, bids will be called based on parameters such as the concession period of the project or any other parameter specified by the central or state government.
  • Allotment through tariff-based competitive bidding: The projects may also be awarded through a tariff-based competitive bidding process. The projects will be awarded based on a combined tariff (including the cost of input power) if the input power is arranged by the developer or tariff for conversion of power from off-peak to peak if the input power is arranged by the procurer.

Utilization of Exhausted Mines

The discarded mines, including coal mines, could be used as hydro storage and thereby become natural enablers for the development of pumped storage projects.

Environmental Clearances for Off-river Pumped Storage Projects

The off-river pumped storage projects, located away from the river course, may be treated differently for grant of environmental clearance. Such projects, where both reservoirs are built off-river or where one is built off-river, and the other on-river reservoir undergoes minor modification to connect it with the new reservoir, may be treated as B-2 category projects. Such projects may be exempted from environmental impact assessment.

Recently, the Greenko Group said it would invest ₹100 billion (~$1.2 billion) in setting up a pumped storage project in the Neemuch district of Madhya Pradesh. The company said the daily storage capacity of the pumped hydro storage would be 11 GWh.

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