PSP_PHES_Pricining Mechanism.pdf

Pumped Hydro Energy Storage (PHES) Plant
Pricing Mechanism in India
Prateek Kashyap| 2023-06-05
Kikagati, Uganda
LAKEMAINIT HEP
(3 x 8.33MW + 10% COL)
Global Atlas for Pumped Storage by Dr Andrew Blakers
Courtesy: Australian National University

Index
Disclaimer : Internet Researched content for Information/Learning: Utilisation is at User's Discretion
• PHES Plant Introduction
o PHES Plant & its Utilization
o PHES Around the World
• PHES Plants Status in India
o Potential & Progress
o Dispatch Strategy of certain Plants
• PHES Plants Revenue
o Existing Mechanism in India
o Alternatives & Benefits
o Case study
o Ways towards Improved Viability
o Efforts by GOI towards Improved Viability

PHES Plant : Introduction
PHES Plant & its Utilization
Pumped Hydro Energy Storage Plant (PHESP) not only Generates Energy but also Stores it in
the form of potential energy of water.
PHESP operates with two Reservoirs at different altitudes which are both connected through
Penstock and Reversible Turbine system in the middle. Their operation is either in “Generation
mode” or in “Pump Storage mode”. They are classified as Either “Closed loop” or “Open Loop”
depending on Connectivity of Naturally flowing water stream. The efficiency of PSP is 70-80%.
PHESP have mainly three Configuration:
 Four Units : In this configuration, a separate pump is combined with a motor and a turbine and connected
toa generator. This involves significant space and is not being currently used
 Three Units : In this configuration, a single reversible motor/generator is combines with a pump and
Turbine. It can improve efficiency of both pump and turbine
 Two Units : In this configuration, a reversible Turbine/pump is connected with single reversible
motor/generator . This configuration requires lesser space but has lower efficiency as compared to other
configuration

PHES Plant & its Utilization
• PHES Plant because of its capability of Generation and
Energy Storage can efficiently support grid operation
by providing following Services
o Peak Load Shaving – Generating during Peak Load
Demand Period
o Energy Arbitrage- Generating & Consuming Energy based
on the Tariff status during various times in a day
o Load following- maintaining grid stability by taking care of
sudden changes in Load
o RE smoothing- In large scale integration of Intermittent RE
, by smoothing out the variability by storing energy
o Ancillary Services
 Mitigating Voltage Fluctuation caused by imbalance of
supply/demand of Reactive Power
 Maintain Grid Frequency acting as spinning reserve
 Energizing part of the grid during blackouts
 Seasonal Storage -catering to mismatch of RE generation

PHES Around the World
• As per data from IHA- 2022 Hydro Power Status Report , Globally ~ 162 MW is the installed
PHESP capacity as indicated in the figure below. Among this China has the largest installed
PSHEP capacity with 36GW and India is fifth largest with 4.7GW of Installed PSHEP
Capacity
• Australian National University has completed Global Audit if 530,000 potential sites for
PHESP . The short term off river pumped hydro energy storage (STORES) has a global
potential storage capacity of 22M GWH through which is 100 times Global Renewable
electricity grid

PHES Plants Status in India
Potential & Progress
• CEA has identified a PHESP potential of 96,529.6 MW in different parts of Country. Region
wise, the western region has the highest PHESP potential of 37,845MW
• As on 31.12.2022 , the PHESP based installed capacity in India is 4,746 MW from 08 Plants
out of total of 51,786 MW of Installed Hydro ( Large& PHESP 46,850 MW and Small Hydro of
4,936 MW) . Only projects with capacity of 3,306MW are working in pump mode
• Under Construction & Planned Capacity of PHESP for FY 2022-27 & 2027-32 is 2,700MW & 80
MW, respectively
• By end of 2026-27, total installed capacity of PHESP is targeted to be 7,446 MW. The Region
wise installation is envisaged to be 1,000MW from Northern, 1,840MW from Western, 3,706 MW
from Southern and 900MW from Eastern. None envisaged from North-Eastern region.
• By end of 2031-32, total installed capacity of PHESP is targeted to be 26,686MW and is
required to be 19,160MW

Potential & Progress
• The installed PHES Plants are as follows:
o Nagarjuna Sagar (705MW) & Srisalam Left Bank Power House ( 900MW) in Telangana
o Ghatghar ( 250MW) & Bhira (150MW) in Maharashtra
o Kadamparai (400MW) in Tamil Nadu
o Purulia (900MW) in West Bengal
o Kadana (240MW), Sardar Sarovar (1200MW) in Gujrat
• The following PHES Projects are under construction as on 31.03.2022
o Tehri Stage II- 1,000 Mwin Uttrakhand by THDC Limite
o Koyna left bank- 80MW in Maharashtra by water Resources Department of maharashtra
o Kundah Pump Storage Project stages I,II,III,IV- 500MW in Tamilnadu by TANGEDCO
o Pinnapuram Pump Storage Project -1200 MW in Andhra Pradesh by Greenko

Dispatch Strategy of Certain Plants
The Typical Dispatch Strategy of PHES Plants in a day is as
follows:
• Purulia PHES - The PHES Plant operates in pumping mode
when the state demand is low or for the off-peak duration
and operates in generation mode during the peak hours of
state demand
• Kadamparai PHES - The PHES Plant is linked with RE
generation ( wind source).It operates in pumping mode
during high-wind generation and in generation mode during
low-wind generation in the state and during peak load.
Kadamparai PHES
Purulia PHES

PHES Plants Revenue
Existing Mechanism in India
• As per CERC Tariff Regulations 2019-24, PHES projects have two-part tariff consisting of Fixed
Cost and Variable Cost Components.
• Fixed Cost component ( also known as Capacity Charge) is used for recovering the capital
cost incurred by the plant on Annual basis(Cost of Plant & machinery. Manpower, admin cost
etc.). Its calculated as:
o If actual generation is >= 75% of pumping energy consumed by station during the month :
Capacity Charge= (AFC x NDM/NDY)
o If actual generation is < 75% of pumping energy consumed by station during the month :
Capacity Charge= [(AFC x NDM/NDY)x (Actual generation/75%of Pumping Energy)]
AFC =Annual Fixed cost specified for the year ( INR);
NDM = No. of days in Month;
NDY= Number of days in the Year

PHES Plants Revenue
• As per CERC Tariff Regulations 2019-24, PHES projects have two-part tariff consisting of Fixed
Cost and Variable Cost Components.
• Variable Cost component ( also known as Energy Charge) is used for recovering the cost
incurred in Operating Plant. Its calculated as a flat rate of 20 paise/kwh of total energy
scheduled ( in excess of design energy) PLUS 75% of the Energy consumed in pumping from
the lower reservoir to the upper reservoir
Energy Charge= 0.2 x [SEm-(DEm+75% of energy utilized in pumping water from lower to upper reservoir)]x
(100-FEHS)/100
SEm =Monthly Scheduled Energy;
DEm = Design Energy for the month specified for the hydro generation station, in MWh;
FEHS= Free Energy for Home state ( as a percentage)
o If Sem < Dem+75% of Energy utilized in pumping than the Energy Charge is Zero

PHES Plants Revenue
The details of the existing, under-construction, and proposed PHES plants in India, along with
their approved tariffs is indicated in table as below for reference:

PHES Plants Revenue
• Under the Current PHSEP Pricing mechanism, the PHSEP is considered primarily as the
Generator that needs to recover its cost by selling power at specific tariff as determined
by the regulatory authorities from the beneficiary /consumer
• The yields from the energy charge are zero, as the monthly scheduled energy will
always be less than the designed energy and the 75%pumping energy combined.
• Furthermore, as seen in above, many PHES plants have a tariff that is above INR 6/kWh.
Considering that the average power procurement cost is declining, it would be difficult for a
PHES plant to earn profits at the determined tariff by operating as a standalone
generator in the market or by signing long-term bilateral agreements with distribution
companies.
• The current pricing mechanism provides a generic tariff, ignoring the various services
offered by PHSEP to the grid. Because of the generic tariff, PHES is not able to fully
leverage its usability. Hence, making it non Lucrative, no profit generation from operations

PHES Plants Revenue
Alternatives & its Benefits
• In order to bring Viability of PHESP, a comprehensive consideration is to be done to operate the
plant with consideration of Tariff as applicable at different times of the days influenced by the
peak/off peak durations i.e. Differential Pricing Mechanism and should be based on the
Services being offered by PHES plant to the Grid i.e. Energy-Arbitrage, Peak Load
Shaving and the Load following etc. , as follows:

PHES Plants Revenue
Alternatives & its Benefits
• In order to bring Viability of PHESP in case of its utilization as RE Smoothing, the PHES
Plant utilizes the excess RE available, to charge, and discharge during low-RE instances and
high load, thereby helping the RE plant to provide dispatchable power. This will also avoid the
cost of RE curtailments and help the DISCOMS to mee their Renewable Purchase obligation
targets. Further, incentive to PHESP integrated with RE can be extended for a) Avoiding
RE Curtailment, b)Avoided cost for high priced purchase of thermal/gas plants by
DISCOMS, c) rid Flexibility compensation, d) Generation based Incentive

PHES Plants Revenue
Case Study
• A Case Study to test the affect of Revenue from Energy Sale /Purchase for Tehri PHES
(1000MW) with round-trip efficiency of 80% with Differential Pricing Mechanism and
while operating in profit maximizing scenario and peak load shaving scenario is done as
follows considering N2 region( U.P., U.K., Rajasthan , Delhi) and Market Clearing Price
minute in Indian Energy Exchange. The simulation results are as following Dispatch Plots.
a) Profit Maximizing b) Peak Load shaving

PHES Plants Revenue
Case Study
• The Figure “a” above shows the profit maximizing scenario where Low-price minute is used
for pumping and high-priced instances are used for generation. The Figure “b”shows the
peak-load-shaving scenario where low-priced price minute is still used for pumping, while
the PHES plant generates power during high peak-load periods.
• The profit earned while operating the plant for the Profit-Maximising scenarios INR
38,25,323 with an average peak tariff of 3.94 INR/kWh and an off-peak tariff of 2.15
INR/kWh.
• Similarly, the profit earned while operating PHES as a peak-load-shaving asset, is INR
16,34,214 with an average peak tariff of 3.32 INR/kWh and an off-peak tariff of 2.15
INR/kWh.
• There is a clear reduction in profit when the PHES plant is operated in the market as
a peak-load-shaving asset though, there is profit from such operation. In both cases,
the point of connection (POC) charges, transmission losses, and IEX fees are considered

PHES Plants Revenue
Case Study
• Further, to tackle the price variability, the profit-maximising scenario was repeated for
the whole year and the revenue for the different days was plotted, as shown below. It is
seen that the PHES plant should not be operated on some days as doing so will incur
losses. The results are summarized in the below Table .
• The profit earned through Differential pricing Mechanism with profit maximizing
scenario provided fixed cost recovery of 16% & 7% in 2019,2020, respectively.

PHES Plants Revenue
Ways Towards Improved Viability
• PHSE Projects being high Capital Cost as well as High Operational Cost based projects, the
Conventional funding method of 70:30 debt equity-based funding at fixed interest rate may
not work like in other RE projects. The following may be the ways w.r.t. funding to wards
Improved viability of PHSEP:
• International Funding with Lesser Rate of Interests than domestic funding
• Viability gap Funding mechanism for Large Scale Project
• Expense Distribution model (Resources, Assets and Investment Distribution) through
collaboration between local government & Developers based on Geographical distribution of
potential PHSEP sites across country
• Better opportunities for FDI in PHSES sector

PHES Plants Revenue
Efforts by Government of India towards Improved Viability
• Extending Budgetary support towards cost of Enabling Infrastructure i.e. Road/bridges
• Waiver of Interstate Transmission charges w.r.t. Electricity used by PSHEP from Solar/Wind
Sources
• Inclusion of PSHEP as part of RE source
• Renewable Purchase Obligation and energy Storage Obligation by DISCOMs as per
Growth trajectory till 2029-30
• Aligning target “to reduce the emission intensity of its Gross Domestic Product (GDP) by
45% by 2030”, “get to 50% of installed capacity from nonfossil fuel sources by 2030” and
“achieve net zero carbon emissions by 2070” with the Variable Renewable energy and
utilizing of PSEHP for Grid stability and ancillary services consideration
• No Liability of Free Power to PSHEP & No Local area Development Fund by PSHEP

Information compiled are sourced from the Internet and accessible to all . The Credit
of Information primarily to the following organizations:
• Australian National University
• International Hydropower Association
• National Electricity Plan Vol 1 Generation –May 2023
• Notifications issued by Ministry of Power/CEA
• Center for Study of Science, Technology and Policy Report on Pricing Mechanism
published in November 2021 ( Major Content to this Compilation for learning is referred
from the Report which is available in internet for detailed learning)

PSP_PHES_Pricining Mechanism.pdf

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