Ministry of Power Issues Competitive Bidding Guidelines for Pumped Storage Plants to Boost Renewable Energy Integration

Posted On - 17 March, 2025 • By - King Stubb & Kasiva

Introduction

The Ministry of Power has published detailed guidelines for the development of Pumped Storage Projects (PSPs) through competitive bidding with a view to speeding up the integration of renewable energy sources into the national grid.[1] With India planning an ambitious shift in energy towards non-fossil fuels, PSPs are important in stabilizing grid operations, smoothing out renewable energy variability, and increasing energy storage capacity. The competitive bidding structure aims to draw private investment, provide transparency, and bring about efficiency in PSP roll-out, in support of the country’s clean energy aspirations.

Explanation (Key Points)

1. Competitive Bidding Framework for PSPs

The Ministry of Power has introduced a structured process for allocating PSP development rights through:

  • Nomination Basis: Direct allotment of PSP sites to Central and State Public Sector Undertakings (PSUs) to expedite early development.
  • Competitive Bidding Process: Private developers can secure PSP projects through a two-stage bidding system, which involves pre-qualification based on financial and technical criteria, followed by bid evaluation on quantifiable parameters.
  • Tariff-Based Competitive Bidding (TBCB): Developers can bid for PSP projects based on composite tariffs, ensuring cost-effective energy storage solutions​.
  • Self-Identified Off-Stream PSPs: Developers can propose their own PSP sites away from natural water bodies, subject to regulatory approvals​.

2. Timelines and Project Implementation Guidelines

To ensure timely execution, the guidelines mandate:

  • Construction commencement within two years of allotment (extendable by one year for projects awaiting environmental and forest clearances).
  • No upfront premium for project allocation to maintain financial viability.
  • Accelerated approval timelines: The Central Electricity Authority (CEA) has reduced the time required for preparing and approving Detailed Project Reports (DPRs)​.

3. Market Reforms and Revenue Mechanisms

Recognizing the value of PSPs beyond energy storage, the guidelines introduce reforms to:

  • Monetize ancillary services such as spinning reserves, frequency regulation, and black start capabilities.
  • Allow PSPs to participate in all power exchange markets, including the high-price Day-Ahead Market (HP-DAM).
  • Enable home states to procure up to 80% of PSP output at regulated tariffs while allowing developers to sell excess capacity in open markets​.

4. Financial and Regulatory Incentives

The government has introduced multiple incentives to attract investments in PSPs, including:

  • Waiver of Inter-State Transmission System (ISTS) charges for PSPs that commence construction by June 30, 2025​.
  • Long-term concessional loans (20-25 years) from financial institutions like PFC, REC, and IREDA.
  • Reimbursement of State GST (SGST) and stamp duty exemptions for off-river PSP developments.
  • No water cess or electricity duty on PSP input power, recognizing their role as energy storage rather than energy generation projects​.

5. Environmental and Land-Use Policies

  • Exemption from free power obligations as PSPs are net consumers of electricity.
  • Use of exhausted mines for PSP development, reducing the environmental impact and repurposing existing infrastructure​.
  • Rationalized environmental clearance process for off-river PSPs, differentiating them from traditional hydroelectric projects​.

Conclusion

The issuance of competitive bidding guidelines for PSPs is an important milestone in India’s clean energy shift. By establishing a transparent and investor-friendly environment, these steps will speed up PSP deployment, enhance integration of renewable energy into the grid, and improve energy security overall. With financial and policy incentives available, the private sector will be well positioned to help India achieve its goal of a sustainable and resilient power sector.

[1] https://powermin.gov.in/sites/default/files/webform/notices/Guidelines_to_Promote_Development_of_Pump_Storage_Projects.pdf