New pricing mechanism for pumped storage in India – pv magazine India


A new report recommends a differential pricing mechanism for pumped hydroelectric energy storage (PHES) projects in pumped mode (off-peak operation) and generation mode (peak operation). The PHES pricing mechanism should be based on specific use cases such as peak load shaving and renewable generation smoothing.

A new report from the Center for Study of Science, Technology and Policy (CSTEP) recommends a differential pricing mechanism for pumped hydropower storage (PHES) projects in India.

The proposed pricing mechanism has different pump and generation prices, instead of only generation-based energy charges. The report indicates that developers can use profitable production from the differential pricing mechanism for recovery of fixed costs.

The current tariff mechanism considers PHES only as a generator, which must recover its cost by selling electricity at a fixed tariff to the beneficiaries/consumers. The price of a PHES project includes fixed costs and variable costs.

The fixed cost element, or capacity charge, is used to recover the capital cost incurred each year in the plant, such as plant and machinery, labor and administration costs. The variable cost component, or energy charge, is used to recover the cost incurred during plant operation.

However, PHES acts as both a generator and a consumer. The PHES draws its energy from the network and acts as a consumer when water is pumped from the lower reservoir to the upper reservoir during off-peak hours. And it acts as a generator at the time of releasing water and generating power.

Therefore, the report highlights the need to develop a differential pricing mechanism for PHES during its pumping (off-peak operation) and generation (peaking operation) mode. The report also recommends that the PHES pricing mechanism be based on specific use cases. The current pricing mechanism does not take into account the flexibility aspects of the PHES network. The report highlights the need to develop a pricing mechanism for each specific service offered by PHES.

Differential tariffs

The report proposes new tariff calculation methods for peak shaving and smoothing of renewable energies. For peak load shaving, PHES can be operated in the market (like the Indian Energy Exchange) as a merchant power plant with different prices for pumping (off-peak tariffs) and generation (peak tariffs). The peak price should be 1.33 to 1.35 times the off-peak price to generate profit.

Grid-connected PHES plants that use renewable energy for their pumping needs and are co-located with renewable energy plants allow for round-the-clock support of those renewable energy plants. The report says that incentives should be provided in such cases. Incentives could be one or a combination of the following: compensation to avoid the reduction of renewables, cost avoided through the high price purchase of thermal or gas-fired power plants, an incentive for grid flexibility similar to auxiliary unit power plants and production-based incentive in the range of INR 1 ($0.01) per kilowatt-hour to attract more investment in the sector.

In addition to the pricing mechanisms above, the report recommends financing mechanisms for financing the full cost of the PHES project. These include budget subsidies on financing the sustainability gap, expenditure allocation (resources, assets and investment allocation) through collaboration between the local government and the developer, and foreign direct investment in the sector. PHES.

The report states that the new pricing mechanisms will result in higher revenue generation for PHES projects. Developers can recoup fixed costs from their revenue. PHES projects can also benefit from competitive prices by operating in the market.

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