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Accelerating Renewable Integration: A New Era for Pumped Storage Projects

Summary: This article examines the recent amendment to the approval framework for pumped storage hydro projects in India, analyses applicable current policies and incentives, and provides an overview of such projects in other key jurisdictions. It is critical for developers, investors, and other stakeholders in the renewable energy sector to apprise themselves of this regulatory change for achieving renewable energy targets.

India is ushering in a transformative chapter in renewable energy storage, catalysed by groundbreaking regulatory reforms. In a strategic move aimed at dramatically accelerating India’s renewable energy ambitions, on August 01, 2025, the Ministry of Power unveiled a pivotal notification[1] that redefines the approval framework for pumped storage hydro projects (“PSPs”).

Under the new directive, off-stream closed-loop PSPs are now exempt from the requirement of Central Electricity Authority (“CEA”) concurrence, regardless of project expenditure. This reform supersedes the earlier mandate dated April 18, 2006, and aims to expedite the development of energy storage infrastructure by eliminating bureaucratic hurdles for select projects.

Traditionally, hydroelectric projects exceeding INR 3,000 crore have faced rigorous approval procedures, including comprehensive technical, environmental, and multi-agency reviews, frequently hampering progress. While conventional hydro-generating stations remain subject to stringent CEA clearances, developers of off-stream closed-loop PSPs can voluntarily seek technical guidance without compulsory oversight. Crucially, all projects must still align with the National Dam Safety Act, 2021.[2]

This regulatory overhaul is strategically designed to bolster India’s National Electricity Plan (Transmission) (“NEP”),[3] which outlines bold objectives, including 26.7 GW of PSPs and 47.2 GW of battery energy storage, to seamlessly incorporate 600 GW of renewables by 2032. These measures dovetail with India’s international climate pledges articulated in the Panchamrit Action Plan[4] at COP26:

  • Attain 50 per cent of energy requirements from renewables by 2030,
  • Curtail GDP emission intensity by 45 per cent compared to 2005 levels by 2030,
  • Achieve net-zero carbon emissions by 2070.

At present, India boasts 3.5 GW of operational hydro-PSP capacity, with a further 7.5 GW sanctioned for fiscal year 2024–25. Industry leaders[5] such as Greenko, JSW Energy, and Adani Green Energy are actively shaping the landscape, aiming to deliver a substantial share of the targeted capacity by 2032.

The escalating integration of Variable Renewable Energy sources (“VREs”), notably wind and solar, have introduced unprecedented challenges for grid stability. Here, pumped storage technology emerges as a linchpin, offering robust large-scale energy storage and dispatch solutions crucial for balancing VRE fluctuations. Unlike traditional systems, off-stream closed-loop PSPs rely on two isolated reservoirs connected indirectly to natural rivers, substantially mitigating ecological disruption.

Globally, pumped storage power plants account for more than 95 per cent of long-duration energy storage, underlining their pre-eminence in the sector. Countries worldwide are deploying sophisticated policy mechanisms to accelerate green energy storage:

  • China targets 120 GW of installed PSP capacity under its ambitious policy blueprint,[6] leveraging quotas,[7] subsidies, state investment, tax exemptions,[8] and capacity payments.
  • United States incentivises clean energy production through market-based policies embedded in the Inflation Reduction Act, 2022, offering[9] Investment or Production Tax Credits to eligible producers.
  • European Union channels financial resources via Horizon Europe[10] grants and the European Investment Bank[11] to back innovative storage initiatives.
  • United Kingdom implements the “Cap and Floor” scheme,[12] ensuring minimum income for storage operators while passing surplus revenues to consumers.

To propel PSP deployment, the Indian government has earmarked INR 12,461 crore under the Enabling Infrastructure for Hydro Electric Projects (“EI-HEP”)[13] scheme, supporting 15,000 MW of new capacity. Recent guidelines[14] foster project viability by introducing:

  • open competitive bidding;
  • freedom for developers to scout and propose optimal sites;
  • waivers of upfront project allocation premiums;
  • relaxed construction timelines linked to forest and environmental clearance delays;
  • full participation across all power exchange markets;
  • access to sovereign green bonds and preferential loans from PFC and IREDA;
  • inter-state transmission charge waivers; and
  • reimbursements for SGST and stamp duties at the state level.

Further incentives such as benchmark tariffs and cost-linked bonuses are currently under evaluation. Despite the allocation of INR 26,549.38 crore[15] to green energy finance for FY25–26, India does not presently provide feed-in tariffs or direct gap funding for PSPs, amplifying the importance of efficient capital mobilisation and streamlined approvals.[16]

Policy innovation remains essential to unlock the full potential of PSPs. Measures including green certificates, guaranteed incomes, tax incentives, fixed-price purchase agreements, mandatory renewable procurement by states, accelerated environmental clearances, and simplified processes could unleash a new wave of investment especially in offshore projects.

Within the renewable portfolio, PSPs stand out for their longevity, reliable returns, scalable capacity, and indispensable grid services. As India intensifies efforts towards a resilient, low-carbon energy future, the expanded adoption of PSPs promises to anchor national strategies for climate adaptation and sustainable growth.

[1] Notification dated August 01, 2025, Ministry of Power, https://www.eqmagpro.com/wp-content/uploads/2025/08/MOP-Notification-1-August-2025-Concurrence-limits-Hydro-PSP_compressed.pdf.

[2] The Dam Safety Act, 2021, Act No. 41 of 2021, A202141.pdf.

[3] National Electricity Plan (Volume II Transmission), Central Electricity Authority, January 15, 2019, NEP-Trans1.pdf; https://www.pib.gov.in/PressReleasePage.aspx?PRID=2064751.

[4] India’s Stand at COP-26, February 03, 2022, Press Release: Press Information Bureau.

[5] Greenko, Adani, JSW to build bulk of India’s 51 GW pumped storage pipeline, The Indian Express, May 26, 2025,Greenko, Adani, JSW to build bulk of India’s 51 GW pumped storage pipeline | Business News – The Indian Express.

[6] The 14th Five-Year Plan of the People’s Republic of China—Fostering High-Quality Development, Asian Development Bank, June 2021, The 14th Five-Year Plan of the People’s Republic of China—Fostering High-Quality Development | Asian Development Bank.

[7] Managing Water Resources For Sustainable Socioeconomic Development, Asian Development Bank, December 2018, Managing Water Resources for Sustainable Socioeconomic Development: A Country Water Assessment for the People’s Republic of China.

[8] Guidelines on Preferential Tax and Fee Policies Supporting Green Development, July 19, 2024, Guidelines on Preferential Tax and Fee Policies Supporting Green Development.

[9] Summary of Inflation Reduction Act provisions related to renewable energy, United States Environmental Protection Agency,July 29, 2025, Summary of Inflation Reduction Act provisions related to renewable energy | US EPA.

[10] Horizon Europe, European Commission, Horizon Europe – European Commission.

[11] Spain: EIB and Iberdrola sign two loans totalling €108 million for investments in energy storage infrastructure in Extremadura, European Investment Bank, April 14, 2025, Spain: EIB and Iberdrola sign two loans totalling €108 million for investments in energy storage infrastructure in Extremadura.

[12] Long Duration Electricity Storage: cap and floor application window 1, OFGEM, Long Duration Electricity Storage: cap and floor application window 1 | Ofgem.

[13] Cabinet approves Modification of the scheme of Budgetary Support for the cost of Enabling Infrastructure for Hydro Electric Projects, September 11, 2024, Press Release: Press Information Bureau.

[14] Guidelines to promote development of Pump Storage Projects (PSP), April 10, 2023, 20231006572476372.pdf.

[15] Budget 2025-26: Allocation to renewable energy jumps 53%, here’s what analysts say about Suzlon, Waaree, Adani, others, Business Today, February 01, 2025, Budget 2025 26: Allocation to renewable energy jumps 53%, here’s what analysts say about Suzlon, Waaree, Adani, others – BusinessToday.

[16] Energy Storage-Enabling Firm And Dispatchable Renewable Energy, eTECHnxt, energy_storage_enabling_firm_&_dispatchable_renewable_energy.pdf.