PSP Emerges Cost Competitive To BESS: CareEdge Ratings Analysis

PSP Emerges Cost Competitive To BESS: CareEdge Ratings Analysis

CareEdge Ratings a research-based company in its recent estimate for this year found PSP and BESS to be two leading technologies for energy storage. The CareEdge report found that Pumped Storage Projects (PSP) and Battery-Energy Storage Solutions (BESS) technology can become leading technologies in the mainstream mediums for energy storage. It holds the potential to become a key enabling technology that can potentially aid the integration of variable renewable energy (RE) in the grid.

As per CEA estimates, by 2030 India will require 19 GW of pumped storage projects (PSP) and 42 GW of battery-enabled storage solutions (BESS). The CareEdge Ratings reports the overall capex of 425 GW with RE + storage would be Rs. 19 Lakh crore and necessitate incremental debt funding of Rs. 14 lakh crores.

It emphasized PSP as preferable from a cost standpoint and storage point of view as it can deliver for longer durations. It elaborated, “BESS on a relative basis has a shorter gestation period of one–two years as compared to five+ years for a PSP. However, PSP has emerged as the preferred solution today due to its ability to supply 20 hours of RE power in a day i.e. CUF requirement over 80% annually.”

Projected installed capacity in the generation mix

It estimated, “The levelized cost of storage from PSP is expected to remain competitive at Rs. 4.81 per unit as against Rs. 11.64 per unit from BESS. This would allow the shift towards PSP assuming that the round-the-clock supply of RE, and the landed cost from PSP is Rs. 4.74 per unit as against Rs. 6.59 per unit from BESS. Significant technological advancements, cost economies and financing stimulus are needed to uplift BESS.”

PSPs given their longer gestation are prone to witness time and cost overruns.

The report also explores the possibility of using a combination of variable RE (VRE) and storage components. It mentioned, “Drawing a relative comparison between PSP and BESS it assumes that power from ESS will be supplied for 6 hours a day and VRE will be used for the remaining 14 hours. This brings the levelized cost from PSP to Rs. 4.7 per unit, whereas the levelized cost from BESS comes to be Rs. 6.6 per unit.”

It explained, “To leverage this technology, in September 2023, the government has launched a viability gap funding (VGF) scheme for the development of 4 Gwh of BESS by FY31. The scheme targets bringing down the levelized cost of storage (LCoS) from the current high of ~ Rs 11 per kWh to Rs. 5.50-6.60 per kilowatt-hour (kWh).”

An increase in the share of ESS Tenders in CY23 has been observed and the proportion of tenders wherein storage is a part of the overall requirements has been increasing. The same is also reflected by the fact that out of the 20+ GW capacity awarded during CY23, ~4 GW pertains to ESS.

It mentioned four key ESS bids awarded last year are shown in Exhibit 7. The determined tariff was sub-Rs. 5 per unit in three bids whereas the determined tariff in one bid was Rs. 6.69 per unit. The determined Tariff was higher in the RUVNL bid primarily on account of the following reasons:

• Relatively weaker counterparty as compared to central off-takers• Higher energy requirement during the peak hours i.e. 3 hours in a day in RUVNL tender as against 2 hours a day in other tenders.
• Higher penalties for non-fulfilment of energy during peak hours with penalties in RUVNL bid being 2.5x.
the PPA tariff into the shortfall units whereas the other tenders have a penalty of 1.5/2.0x the PPA tariff.

Bids and Tender Issued in 2023 CY

CareEdge Ratings forecasts the future capacity in the renewable energy segment or the non-fossil fuel capacity addition. It is estimated the generation mix till FY30 is to be based on the assumptions.

(i) Nonfossil fuel capacity to increase in a phased manner and reach 400 GW in case 1 and 450 GW in case 2

(ii) Growth in energy demand at a CAGR of 6%.

The CareEdge forecasts the nameplate non-fossil fuel-based capacity to overtake fossil fuel capacity by FY27 in either case. Further, it anticipated the non-fossil fuel share to exceed 35% of the overall generation, even with an installed non-fossil fuel-based capacity of 400 GW.