Power ministry plans tax breaks for pumped storage hydro projects

To promote pumped storage hydro-power projects in India, the Ministry of Power has proposed giving incentives such as tax breaks, easy environment clearance and providing land at concessional rates.

The ministry has released draft guidelines on pumped storage projects (PSPs) to seek comments from states and state-run companies as well as private firms within a fortnight till March 2, 2023.

Keeping in view the immense utility of the PSPs in grid stabilisation as well as meeting the peaking power demand, a need for formulating separate guidelines to promote PSPs was felt to set the direction of its development, the minsitry said in the guidelines.

The Central Electricity Authority (CEA) estimates regarding on-river pumped storage potential is 103 GW in India. Apart from this, a large number of off-river pumped storage potential is also available, the ministry added.

As of now, eight projects (4,745.60 MW) are presently operational, four projects (2,780 MW) are under construction, and 24 projects (26,630 MW) have been allotted by states which are under different stages of development, according to the ministry.

The draft National Electricity Plan (NEP) published by the CEA indicates that 18.8 GW of PSPs and 51.5 GW of BESS (5-hour battery energy storage system) are required to integrate the planned RE (renewable) capacity addition till 2032.

However, it stated that additional development of PSPs at viable cost would bring down the requirement of BESS.

Presently, the environmental clearance (EC) and forest clearance (FC) processes of PSPs are very cumbersome, since these projects are treated at par with the conventional hydro projects for the purpose of grant of EC and FC.

The environmental impact of PSPs constructed on existing reservoirs at on-the-river sites and off-the-river sites are generally less as compared to conventional HEPs (hydroelectric projects), it noted.

Unlike conventional hydro projects, the development of PSPs does not lead to significant displacement of people and thus, requires minimum R&R (resettlement).

Therefore, the draft guidelines provided that PSPs constructed on existing reservoirs on on-the-river sites and off-the-river sites are required to be treated as a separate category for the processing of clearances of an infrastructure project.

The off-the-river sites PSPs are located away from the river course and have minimum impact on the riverine ecology.

Hence, they may be treated differently for granting the environmental clearance, it added.

It explained that the PSP projects, where both reservoirs are built off-river or where one reservoir is built off-river and the existing on-river reservoir undergoes minor structural modification to connect it with the new reservoir may be treated as B-2 category projects.

Such projects may be exempted from Environmental Impact Assessment (EIA) and public hearings and may only require the preparation of an Environment Management Plan (EMP), it suggested.

With the approval of the Union Cabinet, the PSPs have been declared as RE.

However, associate concessions which are available to other renewable sources, are yet to be extended to PSPs, it noted

The guidelines noted that the PSP components continue to be taxed at GST (goods and services tax) rate of 18 per cent/28 per cent, whereas the GST on RE such as solar and wind has been kept at 12 per cent.

This affects the viability of PSPs, it pointed out.

It provided that the developers shall begin construction within a period of 2 years from the date of allotment of the project, failing which, allotment of the project site shall be cancelled by the state.

Further, in order to ensure the viability of the PSPs, states should ensure that no upfront premium is charged for project allocation, it added.

It also provided that to ensure that only viable PSPs are taken up for construction.

To reap the long-term benefits and socio-economic development of states due to hydropower projects, states shall consider reimbursement of SGST (state GST) on hydropower project components, it suggested.

States may exempt land to be acquired by off-the-river PSPs from payment towards stamp duty and registration fees, it suggested.

Government land, if available, may be provided at a concessional rate to developers on annual lease rent basis, it added.

Storage is an intermediary system where energy is stored and released later. In line with the principles of double taxation avoidance, power from PSPs may be suitably considered to avoid double taxation, it suggested.

PSPs have a minimal environmental impact and have no R&R issues. Therefore, it stated that there will be no requirement of creation of a Local Area Development Fund.

PSPs are energy storage schemes. They do not produce energy. They are net consumers of energy. Hence, the PSPs would be kept out of the liability of free power, it provided.

The discarded mines, including coal mines in different parts of the country, could be used as hydro storage and thereby become natural enablers for development of Hydro PSPs, the ministry suggested.

Efforts would be made to identify and develop exhausted mines/ coal mines as prospective PSP sites in consultation with the Ministry of Coal and the Ministry of Mines, it stated.

It also provided that the PSPs may be supported through concessional climate finance.

Sovereign green bonds issued for mobilising resources for green infrastructure as a part of the government's overall market borrowings may be deployed in the development of PSPs which utilise renewable energy for charging, it stated.