MoP Sets New Bidding Guidelines for Pumped Storage Projects

The Ministry of Power (MoP) has introduced a new set of rules to promote the development of Pumped Storage Plants (PSPs). The government’s latest norms aim to provide a standardized procurement framework based on open competitive bidding. They also establish clear risk-sharing mechanisms among various stakeholders. The government’s latest notification applies to developers and procurers (End Procurers or Intermediary Procurers). It will be applicable for the procurement of storage capacity or stored energy by the Procurers from existing, under-construction, or new PSP projects.

These guidelines align with the government National Electricity Plan 2023 which foresees a need for approximately 74 GW/411 GWh of ESS by 2031-32, including 27 GW/175 GWh from Pumped Storage Plants (PSP) and 47 GW/236 GWh from Battery Energy Storage Systems (BESS).

MoP’s PSP tariff bidding guidelines are intended for PSP developers before the generation/storage source has matured, with progressive steps to address project allocation, which has been a bottleneck. The rules include clauses outlining the Mode of Procurement, Indicative Timelines, Bidding Parameters, and Minimum Bid Capacity.

For instance, MoP’s latest guidelines define the bid structure, stating, “In the case of the Composite Tariff Model, all charges and losses up to the Delivery Point will be borne by the Developer unless otherwise specified in the document. The Procurer may also define the maximum capacity to be allotted to a single bidder, considering factors such as economies of scale, land availability, competition, and market development.”

The document also sets the minimum bid capacity for ISTS and InSTS projects. It states, “For inter-state (ISTS) connected projects, the minimum bid capacity offered by the bidder should be 50 MW. For InSTS-connected projects, the minimum bid capacity may be at least 10 MW. For projects in North-Eastern States, Special Category States, and other InSTS-connected projects, a smaller minimum capacity may be allowed based on the availability of land and transmission facilities, but this should be clearly specified beforehand in the RfS.”

Technical Criteria

The regulation establishes certain technical criteria, stating, “Applicants must demonstrate experience in developing infrastructure sector projects within the past five years. The total capital expenditure for all qualifying infrastructure projects undertaken in the last five years must meet a requisite threshold.”

Financial Eligibility Criteria:

The regulation stated key financial criteria, according to which bidders for PSP projects are expected to have a net worth, or Investible Funds equivalent to at least 20% of the estimated capital cost. Furthermore, the estimated capital cost will be determined by the Bidding Agency.

The rule also stated, “The Earnest Money Deposit (EMD) should not be less than 2% of the estimated capital cost of the contracted capacity in MW for the new PSP for the year in which bids are invited, or as per the upper limit stipulated by the Ministry of Finance from time to time, whichever is lower.”

It also mandates that the EMD be released within 15 days of the issuance of the LOA for bidders other than the selected one. Furthermore, regarding the Performance Guarantee (PG), it states that the PG should not be less than 5% of the estimated capital cost of the contracted capacity in MW for the new PSP for the year in which bids are invited, or as per the upper limit stipulated by the Ministry of Finance from time to time, whichever is lower.

The guidelines are a welcome move to add clarity to the Pumped Energy Storage segment, where India has high expectations. Due to the longer gestation of these projects and lower prices  BESS has picked up pace in recent months and looks set to garner a larger share of storage capacity in the medium term. But in the long term, PSP projects will be vital as well to ensure energy security and stability.