Energy Efficiency

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24 Apr, 2023

Pumped storage key to energy transition

Transitioning to clean energy requires managing the intermittent nature of renewable energy (RE) generation. Therefore, sources of flexible power, i.e., those with a capacity to get ramped up and down fast, with quick start/stop, are essential. Typically, the solution is to add storage. Therefore, the ability to meet the RE target under the Nationally Determined Contributions (NDC) commitments will depend on storage.

Several questions arise in the context of storage. First, the periodic assessment of resource adequacy and the optimum level of storage. Second, should technologies be selected purely on the least-cost considerations? Last but not the least, what should be the procurement strategy?

In this context, the guidelines issued by the government of India on Pumped Storage Projects (PSP) is an important step. We evaluate this development, considering the above questions. At the outset, we recognise PSP potential exceeding 100 GW, but also note the need for an updated assessment, given the advancements in technology. Off-river potential assessment should be the top priority.

The Draft National Electricity Plan (DNEP) suggests PSP capacity of 18.8 GW and five-hour battery storage of 51.5 GW by 2032. However, the rationale for a greater reliance on batteries is not presented. We believe that it is important to conduct a thorough cost-benefit analysis of various technologies. Such an analysis should internalise externalities, such as the environmental cost of different options, including potential methane emission from reservoirs, and other considerations such as employment generation, Make in India, etc. It is likely that PSPs are a better option after internalising externalities, given low maturity of waste management, including battery recycling, in the country.

Further, PSPs also provide ancillary services such as inertial support, black start capability, reactive support, and reserves. PSPs should therefore have a higher priority if the overall cost-benefit economics is better, relative to batteries. Recent bids for storage indicate that PSPs may rank higher even on a purely financial cost-benefit basis. Now that transmission capacity has expanded, shared PSPs with Nepal, Bhutan can also be explored.

The guidelines provide for competitive bidding, which is welcome. The guidelines provide for a two-stage bidding process. However, bidding is practically difficult for hydro projects due to uniqueness of site, etc, making ex ante cost estimation challenging. There are two alternative solutions.

First, initial investigations maybe done by a public entity, and results shared with all prospective bidders, similar to thermal UMPP case 2 bidding. Alternatively, individual entities maybe allowed to prepare initial proposals under the Swiss Challenge methodology. Under this approach, the originator of the proposal conducts the initial exploration. The proposal is then opened for counter offers. The winning bidder pays for the cost of initial exploration in case the counteroffer is accepted. The guidelines need to be elaborated to enable such options.

Further, the guidelines provide for projects to be awarded on a nomination basis to PSUs. However, this should be done only if benefits of a particular project exceed cost and the competitive bidding does not evince any interest.

Since the clean energy transition is crucial to India’s NDC targets, PSPs require a dedicated focus, particularly the newer technologies l


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