Execution of market reforms key to improve financial viability of PSP: Icra

Timely implementation of market reforms is important to improve the financial viability of pumped storage hydro project (PSP) in the country, an Icra report said on Tuesday.

The levellised tariff for pumped storage hydro projects in the base case, assuming a capital cost of Rs 6.5 crore per MW, is estimated at about Rs 5 per unit, and the landed tariff, including the cost of energy required for pumping, is estimated at Rs 9 per unit, said a statement in the Icra report.

It explained that while the tariff competitiveness of the storage component for PSPs is modest, the PSPs benefit from a long economic life of 40 years with a very mature and indigenous technology available.

PSPs are also estimated to remain cost competitive against the storage cost associated with battery energy storage.

"Nonetheless, the timely implementation of market reform measures as highlighted in the guidelines remains important to improve the financial viability of PSPs," stated Girishkumar Kadam, Senior Vice President & Co-Group Head - Corporate Ratings, Icra.

The report said that with the growing share of renewable energy (RE) i.e., from 12 per cent in FY23 estimated to increase to about 28 per cent in FY30, the hydro energy especially pumped storage hydro, remains systemically important from the grid stability perspective.

As a result, policy focus to incentivise the storage capacity continues to remain strong. This is reflected in the recent finalisation of guidelines by the Ministry of Power (MoP) in April 2023 which are positive for the pumped storage projects, it noted.

The guidelines comprise various measures such as for the monetisation of ancillary services, exemption from free power obligation/local area development fund, state GST (goods and services tax) reimbursement, and rationalisation of environment clearance.

PSPs offer significant benefits in the form of frequency regulation, storage/time shifting, ramping capability, black start capability, peak shaving, reactive power and voltage control, and spinning reserves. They are, therefore, best suited for supporting grid operations.