MoP Proposes New Guidelines to Facilitate Pumped Storage Hydro Projects

In a bid to give an impetus to India’s pumped storage hydro power projects, the Ministry of Power has come up with a proposal that seeks to provide multiple incentives entailing tax breaks. It has also set sights on facilitating the process of environment clearance by making it easier. Land may also be made cheaper.

The proposed guidelines by the ministry of power is now awaiting response from states, firms operated by the state as well as private firms by March 2, 2023.

Potential of PSPs

Pumped storage projects play a crucial role in stabilising the grid along with helping to meet peaking power demand, the ministry said, while adding that because of this significance that they hold, there is a need to issue a new set of guidelines for PSPs and encourage their development.

As per the CEA (Central Electricity Authority), on-river pumped storage capability can be pegged at 103 GW. As per the ministry, there is large potential in off-river pumped storage as well.  Currently, eight projects are in operation, four are in the works. Another 24 projects are in various phases of implementation.

According to the draft National Electricity Plan, close to 19 GW of PSPs and over 51 GW of Battery Energy Storage System (BESS) must be integrated for planned capacity addition of renewable energy until 2032. Notably, the development of pumped storage projects at a cost that is viable will help reduce the need of BESS.

Tax sops, easier clearances envisioned under guidelines

At present, the process of clearances on forest and environment are complex and slow-moving. The guidelines proposed by the ministry seek to address this.

Currently, the tax applied on the components of pumped storage projects is 18%/28%. This is a major figure when pitted against the tax on renewable energy- wind and solar- at 12%. This greatly impacts the viability factor of PSPs, making them more expensive.

Further, the guidelines state that developers are to start construction within two years from the time that the project is allotted. If developers fail to achieve this, the project site will be cancelled by the state.

Additionally, to make sure that the project is made more viable, states are to oversee that there is no upfront premium that is charged on projects assigned. Besides, only the projects that are viable are to be considered for construction.

In another major initiative, states will consider the reimbursement of SGST on components needed for hydropower projects.

To make the land process easier, states may exempt land to be acquired by off-the-river PSPs from payment towards stamp duty and registration fee. In case government land is available, developers will be provided land at concessional rates. Power that is released from pumped storage projects may also be exempted from the double whammy of twofold taxation. As these projects are energy storage schemes that do not provide power, they are to be exempted from the liability of free power.

The ministry also suggested sites for pumped storage hydro projects, such as abandoned coal mines. With the approval of the Ministry of Coal and the Ministry of Mines, such sites could be developed as sites for PSPs. Climate finance at concessional rates and sovereign green bonds are other initiatives being mulled over to give PSPs that employ RE for charging a significant push.

In November 2021, the Ministry of Power, had announced orders that sought to benefit BESS and Pumped Storage Projects in the hydro sector. A waiver of ISTS charges was announced on them.