The Forum of Regulators has recommended exempting electricity duty and cess on input energy for pumping to reduce costs and promote investments in pumped storage projects (PSP).

Input energy for pumping in PSPs should not be treated as ‘consumption,’ and therefore, electricity duty should not be levied on these projects, it has said.

The forum also suggested extending the waiver of Interstate Transmission System (ISTS) charges for new PSPs and hydropower projects beyond June 30, 2025. ISTS charges will be levied on renewable energy projects, including solar, wind, PSP, and battery energy storage systems that are commissioned after June 30.

Constituted under the Electricity Act, the forum consists of the chairpersons of the Central Electricity Regulatory Commission and State Electricity Regulatory Commissions.

In its report on ‘Accelerating the Development of Hydropower, Particularly Pumped Storage for Grid Stability in India,’ the forum proposed introducing a renewable energy certificate (REC) multiplier for PSPs (e.g., 3x-4x) as a policy measure to facilitate the demand growth for PSP development.

It established a working group in 2024 to assess the regulatory framework, policies, and practices governing PSP and hydropower development and to identify any challenges hindering the growth of these segments.

Among other recommendations, the forum suggested measures such as leasing government land at nominal costs and exempting stamp duty to lower project capital costs for PSPs and hydropower projects.

It also proposed adjusting the debt-to-equity ratio for public sector PSPs from 70:30 to 80:20 to lower generation costs and improve financial viability.

Tariff Structure

The Forum of Regulators has recommended a three-part tariff structure for PSPs to help distinguish between charges for energy conversion, ancillary services, and fixed cost recovery, addressing grid services and energy usage for pumping. To improve tariff acceptability, steps must be taken to reduce them in the initial years.

It referred to differing interests between project developers, distribution companies, and system operators, which could lead to conflicts, particularly when scheduling PSPs for either pumping or generation. In this context, the forum said a clear regulatory framework must be established to outline the procedure for scheduling PSPs and a compensation mechanism for situations where the system operator requires the PSP to generate power instead of storing energy.

The forum said these initiatives would help project developers assess PSP viability and ensure fair compensation for any changes in operational modes required for grid stability.

The report noted that despite the increase in renewable energy capacity, PSP installations are sluggish, with a total operational capacity of 4.745 GW.

As of September 2024, India has 58 PSPs with a total capacity of 69.9 GW in various stages of development. Eight PSPs have been constructed specifically as standalone projects with a combined installed capacity of 4,745.6 MW.

In April, the Central Electricity Commission greenlighted detailed project reports of six PSPs with a total capacity of 7.5 GW.

The intermittent nature of renewable energy presents unique challenges in balancing the quality of grid infrastructure. Energy storage systems allow stored wind and solar energy to be used when needed. With a power system lacking sufficient gas resources for flexibility and dominated by thermal sources, hydropower resources can play a crucial role in providing the necessary generation-side flexibility, the report said.

The forum highlighted that PSPs can be bundled in any energy domain, be it generation, transmission, or distribution. With fast ramp rates, PSPs can provide frequency control, voltage control, quick response, and ancillary services over time horizons ranging from seconds to minutes. Ancillary services are necessary to support the power systems in maintaining system reliability and avoiding disturbance in grid operation.

PSPs can maintain a continuous frequency in a desirable range (normally 50 Hz) of active power and to keep the power system free from any fluctuations. When the frequency of the grid exceeds 50 Hz, power can be drawn from the grid for pumping mode operation. Conversely, when the frequency drops below 50 Hz, the PSPs can be run in generation mode, maintaining a constant frequency on the grid.