The pumped storage segment has witnessed significant uptake in recent months, with the announcement of massive GW-scale projects by large developers. This growth spurt can be largely attributed to the increasing renewable penetration in the grid and the growing requirement for large, grid-balancing energy storage systems. The government has also taken proactive measures to promote the segment, such as the recent waiver of interstate transmission system (ISTS) charges and guidelines for pumped storage projects (PSPs). Against this backdrop, representatives from leading PSP development firms discussed their plans and the segment outlook at a recent Renewable Watch conference…
Greenko is currently working on eight PSPs aggregating roughly 15 GW. One of these projects, with a capacity of 1,680 MW, is in advanced stages of implementation, and we expect to commission it by the end of this year. Additionally, two projects based in Madhya Pradesh and one project in Karnataka are currently in the take-off stage, where the ground breaking is being done. India has a target of installing 500 GW of non-fossil-fuel-based power by 2030. Even a quick glance at these ambitious targets reflects a common thought – that storage infrastructure is a necessity. Establishing adequate storage infrastructure is a prerequisite for us to be able to harness our energy potential as well as utilise the produced energy effectively, in addition to maintaining grid stability. The onus for such storage infrastructure presently relies majorly on pumped storage, as other technologies such as BESS are still at the R&D stage. The lifecycle of these emerging storage technologies has not yet been established. However, in another three to four years, as more technologies advance in line with PSPs, their share in storage projects may increase. Thus, pumped storage is the most crucial need of the hour and cannot be ignored. However, the scale and type of PSP to be deployed may be deliberated upon and considered. While as of now PSPs try to provide six hours of storage, in the coming years we anticipate the duration to increase to eight to nine hours as the focus shifts to round-the-clock supply of renewable energy.
In terms of constructional challenges, clearances are often a key issue. As a first mover in this space, we have had a tough time convincing the authorities that PSPs are a viable use case. However, once they were convinced, we received the desired support in terms of clearances. The government continues to take initiatives for modifying policies and improvising to provide the desired support to players in the sector. Yet, due to their inherent limitations and imposed conditions, so far, the policies have not provided the support required.
Construction-wise, off-stream projects present several advantages vis-à-vis hydro projects, as they operate 24×7. These projects do not entail any issues with respect to floods, as there is no need to divert the river. Consequently, off-stream projects can work round the clock. Another advantage of off-stream projects is that, if properly located, these projects can be developed quickly. For instance, our Pinnapuram project began construction in July 2021, and the first unit was commissioned by November of the same year. Yet off-stream projects often have challenges associated with the initial infrastructure, because these are large projects that require big machinery and have transportation limitations. However, as far physical construction is concerned, off-stream projects have fewer challenges than hydro projects. For Greenko, most projects will be undertaken in the form of off-stream projects, within which we have both open loop and closed loop projects.
To understand the cost economics of a standalone project as against an integrated renewable energy storage project, it is important to emphasise the role of the cost of PSPs across both categories. Be it a standalone project or an integrated one, the cost effectiveness of the PSP will determine which category would be more economical, as the cost of renewable energy remains consistent across both categories. Moreover, off-stream PSPs are highly cost-effective, as they entail limited variation on their project cost range. Even the upper limit of this cost range for off-stream projects is fairly viable.
Going forward, the real competition in the storage space will begin when other technologies start creeping in. Emerging storage technologies that eventually establish themselves in the market may offer cheaper solutions to market players, thereby increasing competition for PSPs. However, there exist disparities in the bidding mechanism for storage technologies at present. In the coming years, it will be crucial to provide a level playing field for all storage technologies – existing and emerging – and focus on what benefits one can reap from each, including PSPs.
At the Adani Group, we have an extensive pipeline of PSPs. We have signed MoUs with states such as Andhra Pradesh and Maharashtra, and plan to install a total of 15 GW of PSP capacity. Specifically, 6 GW will be allocated to six projects in Andhra Pradesh, while 9 GW will be allocated to PSPs in Maharashtra. Our first project is set to commence construction between August and September 2023, and we have already initiated the bidding process. We are considering states such as Madhya Pradesh, Karnataka, Tamil Nadu, Gujarat and Uttar Pradesh for future projects. Andhra Pradesh, like other states, has greatly facilitated these endeavours.
For hydropower, we are primarily focused on the north-eastern regions of Sikkim and Arunachal Pradesh. Additionally, we are exploring hydropower opportunities in Nepal and have an interest in regions such as Laos, Cambodia and Georgia. As for renewable energy, we already have a pipeline of projects amounting to 20 GW, with most projects either finalised or nearing finalisation. As a company, we are well positioned to achieve our renewable energy targets and leverage pumped storage development in a positive manner.
To address current misconceptions, it is crucial to separate PSPs from their exclusive association with hydropower. While the construction and execution of PSPs may be related to hydropower, their applications extend beyond it. PSPs can be utilised for various purposes, such as merchant power sales, ancillary services and grid stability. India has committed to install 500 GW of non-fossil-fuel-based energy by 2030. To accommodate this significant increase in renewable energy, effective storage solutions are essential. PSPs offer the advantage of long-duration storage, distinguishing them from batteries that provide shorter-duration storage. This inherent benefit drives interest and investment in PSPs. Additionally, commercial and industrial customers often require a dedicated power supply, particularly during peak periods. PSPs cater to these demands effectively. As developers, we must adapt to the evolving market dynamics and fluctuations in demand, which further highlights the importance of PSPs.
Challenges occur in two phases: pre-construction and post-construction. The government and NITI Aayog have introduced favourable initiatives for PSPs, notably the ISTS waiver and enabling infrastructure. The ISTS waiver notification clarifies that the award of construction needs to be within the specified deadline to avail of the benefits. Furthermore, the inclusion of transmission infrastructure in the enabling infrastructure category will positively impact our financial models as developers.
However, there are still areas where improvement is desired, such as motivating developers. One significant challenge arises from the timeline misalignment between input power and PSPs. Input power from renewable energy sources has a deadline of June 2025 for availing of the ISTS waiver, while most PSPs are expected to come online after 2026-27. Developers face the dilemma of having to construct input power sources before 2025 and waiting for PSPs to become operational.
JSW Group has commissioned almost 9.8 GW of generating capacity. For PSPs, we have very aggressive plans, with almost 72 GWh of committed capacity. We are working on projects aggregating 120-180 GWh. Recently, we were awarded 2.4 GWh of capacity from Karnataka. Moreover, we are building some PSPs for our own use. We also have some transmission assets, and we do have interests in generation transmission, distribution and consumption. Thus, we have a holistic approach, and we want to attain almost 20 GW of installed capacity within the next five to six years.
PSPs is a mature technology compared to other energy storage systems. The increasing announcements of PSPs in the country is, overall, representative of how we are moving in terms of generation, demand and price discoveries on exchanges. In the last two to three years, there has been an increase in discom power tariffs, making consumers switch to more affordable renewables.
Going forward, as renewable energy generation increases, and as we move closer to our net zero targets, growth in the PSP segment is imminent. There are lots of studies that support the assertion that there is a huge requirement in terms of storage capacity. whether battery storage or PSPs. The security of the grid is another paramount factor. The government is also focusing on these aspects. Thus, the market itself is leading towards PSP movement in response to price discovery and renewable energy penetration. I believe that we must popularise the notion that this business is not for sale of energy. This is a service business, wherein you are procuring a service to deposit your energy and then take it back at the right time.
I think that the major issue in the PSP segment is that its allocation is now being compared with hydro projects. Though guidelines on PSPs have been issued by the Ministry of Power, independent state policies add to the challenge.
Also, there are a few operational issues in the segment. First, there are various business cases such as peak load shifting and round-the-clock renewable power supply. Maybe the government can work on these and help in combining different revenue streams with these storage facilities. If a developer is allowed to adopt more revenue streams, then the cost for peak load shifting will fall. This would create a win-win situation, as discoms will not get burdened by grid management issues while developers simultaneously ensure different revenue streams. The second issue is related to the recently launched ancillary service regulation. It says that the developer must quote the same price for input and output energy, which can be difficult for storage facilities. This is because, while you may only have to deal with the cost of generation for input, you have to consider that as well as the storage cost for output. Thus, the regulator should consider this from another perspective.
As of now, there is the option to choose from various pricing mechanisms. A PSP can either be ancillary, or tie up with a captive plant or industry wanting to shift its load, or supply its facilities to discoms. There are many ways that PSPs can support the grid, especially for voltage and frequency regulation.
In the hydropower space, we have a portfolio of 7 GW, and 3 GW will be added this year. As PSP is the need of the hour, it is important for NHPC to move towards PSPs as well. In the PSP segment, we are in discussions with various states about projects, and have already signed MoUs with Gujarat, Odisha and Maharashtra. NHDC, which is a joint venture between NHPC and the Madhya Pradesh government, has been allotted a PSP near Indira Sagar and Omkareshwar, Madhya Pradesh. We are trying to promote the PSP segment in a big way, but it is at a nascent stage right now.
The key driver for promoting PSP is the need for greater integration of renewables in the grid. If we promote the hydropower segment and PSP more, the impact on grid stability will be reduced and it will be able to absorb the growing capacity of renewables. Hydropower and PSPs have become even more relevant given the ambitious climate targets set by the country.
In the case of PSPs, the site selection procedure is much more stringent than for hydropower projects. However, for off-the-river projects, this is comparatively less challenging. Another challenge in this space is navigating each state’s policy on the promotion of PSPs, which may or may not align with the central government’s policy. The allotment of projects is yet another key concern. Going forward, self-identified projects should be allotted on priority. In addition, as PSPs are negative energy generation projects, their evaluation on the basis of tariff in peaking mode is not a good strategy. Furthermore, transmission cost is a major concern, as many PSPs will be set up in remote locations. NHPC’s forte is working in difficult locations, so we will be keen to develop such projects in remote regions. Going forward, to develop PSPs, enabling infrastructure such as green energy corridors will be needed.
Going forward, government support in terms of viability gap funding will be required for PSPs. While the government has been proactive in this space in terms of policy announcements, a lot more needs to be done to give a fillip to this segment.