MoP Guidelines Open Doors for 5 GW Pumped Hydro Energy Storage: CRISIL Ratings

Representational image. Credit: Canva

The Ministry of Power (MoP) has released new guidelines that could breathe new life into pumped hydro energy storage (PHES) projects in India. These guidelines are expected to stimulate the addition of approximately 5 GW of PHES capacity over the next five fiscal years. The increasing share of renewable energy, particularly solar power, during non-peak hours has created a pressing need for storage infrastructure investment.


Solar energy, which currently constitutes half of India’s renewable generation, is primarily produced during daytime hours, whereas peak power demand occurs during evening hours from 5 PM to 8 PM. As the proportion of solar power in the overall renewable energy mix is projected to rise to approximately 58% over the next two fiscal years, the absence of storage facilities limits solar power’s ability to meet peak-demand requirements.


Energy storage systems (ESS), including pumped hydro and battery energy storage, address this issue by storing excess electricity generated during off-peak hours and discharging it when needed. The MoP guidelines focus on PHES projects, citing their advantages over battery energy storage systems, such as a longer project lifespan of around 50 years with minimal maintenance costs, low residual waste generation, and extended storage duration.

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Despite their advantages, PHES projects have faced challenges in terms of site identification, complex implementation processes, long gestation periods, and high capital costs, leading to negligible capacity additions since March 2017. Additionally, lengthy approval processes for land acquisition, as well as forest, wildlife, and environmental clearances, have hindered progress.

The newly released guidelines by the MoP aim to expedite environmental clearances for off-river PHES projects and offer concessional rates for land lease rentals. They also allow for the utilization of exhausted mines for PHES projects and provide a one-year relaxation for projects facing construction delays due to pending forest and environmental clearances. These measures aim to mitigate implementation challenges and increase the number of available sites at attractive costs.

Approximately 2.8 GW of the expected 5 GW of PHES capacity is currently under construction, with the remaining capacity planned for potential sites identified by the Ministry of New and Renewable Energy, totaling 29.9 GW.

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To enhance the viability of PHES projects, the guidelines provide budgetary support for enabling infrastructure, such as road connectivity and transmission lines to project sites. The guidelines also pave the way for PHES projects to generate additional revenue streams by offering ancillary services, including reactive support and peak hour shaving, potentially increasing annual cash flow by approximately 5%.

If successfully implemented, PHES projects capable of storing electricity for over six hours could provide power at a levelized tariff of Rs 6-7 per unit, including a budgetary benefit of around Rs 0.3 per unit. While this tariff may be higher compared to the average procurement price for distribution companies (discoms), it would enable discoms to increase the share of green energy in their power mix and comply with the MoP’s renewable and storage purchase obligations.

The adoption and progress of PHES projects will rely on measures to make tariffs attractive to discoms and mitigate implementation risks to encourage private sector participation.

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Says Ankit Hakhu, Director, CRISIL Ratings, “The MoP guidelines could speed up environmental clearances for off-river PHES projects as these are being offered under a separate window. Further the guidelines provide for the government to provide land at concessional rates on annual lease rental basis. They also enable utilisation of exhausted mines for PHES projects and provide a relaxation of one year for projects where construction is delayed due to pending forest and environmental clearance. This should help mitigate implementation challenges and increase the pool of available sites at attractive cost.”

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