The Ministry of Power (“MoP”), on February 15, 2023, released the draft guidelines to promote the development of Pump Storage Projects (“PSP”) in the country to provide for a separate framework to govern and promote the development of PSPs with active involvement and support of the respective State Governments (“Draft Guidelines”). In furtherance of the Draft Guidelines and the comments received from various stakeholders, including the State Governments, the MoP issued the Guidelines to promote the development of Pump Storage Projects on April 10, 2023 (“Guidelines”). The key aspects of the Guidelines are as follows:

Allotment of project sites: The Guidelines have empowered the State Governments to allot project sites for PSPs through any of the following methods:

1. The State Governments may allot projects directly to hydro central public sector undertakings (“PSU”) or state PSUs or joint ventures of central and state PSUs, on a nomination basis.
2. PSP projects may be awarded to private developers through a two-stage competitive bidding process. Further, PSUs may also be allowed to participate in such a bidding process.
3. ln case of allocation through nomination or competitive bidding, the concerned state will have the right of first refusal up to 80% of the project capacity, and the appropriate commission will fix the tariff under Section 62 of the Electricity Act, 2003. In such case, the developer may sell the balance storage space under short/ medium/ long term PPA, or in power markets, or through a bilateral contract.
4. The State Governments may award projects through a tariff-based competitive bidding and an SPV under a central or state PSU may be given the job to conduct survey and inspection and prepare detailed project report (“DPR”). The DPR may be bid out for construction and SPV be transferred to the successful bidder based on:
   1. Composite tariff where the input power is arranged by the developer; or
   2. Tariff for storage on a per MW/ hour basis where the input power is to be arranged by the procurer of storage capacity.

5. Additionally, the developers may self-identify potential off-stream sites for the construction of PSP and all the requisite statutory clearances will be obtained from State and Central agencies prior to beginning of construction. Such projects will be eligible for all applicable concessions, subject to the directions issued by the Government from time to time.

Timelines to start construction: The developers will be required to begin construction within two years from the date of allotment of the project, failing which the allotment will be cancelled by the State. However, a further relaxation of one year may be granted if the project is delayed due to pending environment clearance and forest clearance.

Upfront premium: States are required to ensure that no upfront premium is charged for project allocation to developers.

Reforms: The following additional reforms will be undertaken to promote the growth of PSPs:

1. The appropriate commission is required to ensure monetization of ancillary services such as spinning reserves, faster startup and shutdown etc. which help in supporting grid stability. The appropriate commission will notify peak and off-peak tariffs for generation to provide appropriate pricing signal to peak and base load generating plants.
2. PSPs and other storage projects will be allowed to participate in all market segments of the power exchange, including the high price segment of the day ahead market (HP-DAM) to enable the developers to take suitable advantage of the price differential between peak and off-peak tariffs.
3. Further, the developer may transfer the usage of capacity to other interested entities if the contracted capacity is not being utilized by the contracting agency and the profits will be shared with the original beneficiary in the ratio of 50:50.

Tax Waivers: The State Government will consider reimbursement of SGST on PSP project components and may exempt stamp duty and registration fees on land to be acquired by off-the-river PSPs. Government land may also be provided to the developers at a concessional rate on annual lease rent basis. Additionally, electricity duty and cross-subsidy duty will not be applicable on pumping power for charging of PSPs.

Other exemptions: PSPs will not have the liability of free power or the requirement to create a local area development fund.

Exhausted mines: The discarded mines including coal mines in different parts of the country, may be used as hydro storage and efforts would be made to identify and develop such sites in consultation with the Ministry of Coal, Ministry of Mines and respective State Governments.

Green finance: PSPs may be supported through concessional climate finance and sovereign green bonds issued for mobilizing resources for green infrastructure as part of the Government’s overall market borrowings.

Please find a copy of the Guidelines, here.

This update has been contributed by Rachika Agrawal Sahay (Partner) and Sakshi Sharma (Associate).

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