Often overlooked by governments, a lack of effective market mechanism
is holding new hydro and pumped storage back
STORAGE NEEDS Electricity grids will require larger and longer storage options as the share of variable wind and solar generation grows VITAL ROLE Hydropower is a dispatchable, flexible source of electricity so can replace traditional polluting forms of energy KEY QUOTE Once you have no combined-cycle gas plants and a week with no wind, batteries won’t do anything for you
Often described as the workhorse of electricity generation, hydropower accounts for 16% of all power production globally. It is bigger than all other sources of renewable power combined, although figures from the International Energy Agency (IEA) show its share of renewable electricity declined to 61% in 2020 from 92% in 2005—indicating the scale of wind and solar deployment. Lately, however, this workhorse has shown signs of fatigue, with droughts stretching from Europe to the United States and China contributing to a reduction in production from hydroelectric plants, prospects for the sector are cloudy. A lack of good project sites and widespread opposition to hydropower facilities on environmental grounds have also stifled development in mature markets. Despite challenges, hydropower is widely seen as essential to the energy transition. The International Renewable Energy Agency (IRENA) has estimated hydropower capacity must more than double by 2050 if the goal of the Paris Agreement to keep the increase in global temperature to 1.5C above 1990 levels is to be achieved. EMERGING INTEREST Most potential for new hydroelectric generation capacity is expected from developing and emerging markets. The IEA expects about 85% of the growth in mature markets of North America, Eurasia and Europe this decade will be due to the need to modernise fleets, with the average age of hydroelectric plants in North America 50 years and that in Europe coming in at roughly 45 years. “We don’t see many new investments with the exception of countries with low hydropower penetration and China, where everything’s growing,” says James Ryan Kronk of Rystad Energy, a Norwegian energy consultancy. There remains significant untapped potential globally, he adds. China, already the market leader with over 340 gigawatts (GW) of installed hydropower, is expected to continue to lead growth in new capacity through 2050, while Rystad sees India, Vietnam, Pakistan and Indonesia ranking among the biggest growth markets. PUMPED STORAGE HYDRO Even in some markets where hydroelectric generation appears to be reaching its limits, however, one segment of the market appears to be enjoying a renaissance. Pumped hydro storage has been around for more than a century. Water is pumped from a lower reservoir to a higher one using electricity from the grid when there is more power than needed and prices are low. The energy can then be “stored” to generate power when needed by releasing the water back through turbines to the lower reservoir. If the pumps are powered by renewables-generated electricity, the stored hydropower can be considered green. Pumped storage is a tried-and-tested technology, accounting for over 90% of energy storage, with batteries and other technologies providing the remainder. Traditionally, pumped storage plants began operating when inflexible sources of generation like nuclear and coal-fired plants were producing more power than needed but could not easily be ramped down, thereby making use of the excess energy. Interest in the technology is now driven by the need for storage and flexibility in energy systems that will rely on variable renewable energy resources. The IEA estimates that nearly 30%, or about 65 GW, of new hydropower capacity additions globally in the decade through 2030 will come from pumped storage. In the United States, pumped storage hydro is expected to dominate new hydropower investments. 
HUGE POTENTIAL In July 2022, Spanish utility Iberdrola inaugurated its Tâmega “gigabattery” on the Tâmega river in Portugal. The centrepiece of the 1158 megawatt (MW) complex is an 880 MW pumped storage plant, while the project also encompasses two run-of-the-river hydroelectric plants. Iberdrola says the facility can store 40 gigawatt-hours (GWh) of power, equivalent to the energy consumed by 11 million people over 24 hours in their homes. In the future, the complex will grow with the addition of two wind parks totalling 300 MW. They will be able to connect with the country’s grid through the site. The reversible turbines at the pumped hydro plant would generate power when the wind is not blowing and can make use of excess wind generation when pumping into the higher reservoir is necessary. While Tâmega is a greenfield project, Juan Rivier of Iberdrola expects major new hydroelectric investments in both Europe and the US are unlikely to receive environmental approval. Instead, Iberdrola is looking at installing reversible turbines and adding pumped storage capabilities to its other existing hydroelectric plants. Rivier believes the potential for pumped storage in Iberdrola’s home market of Spain is “huge”. By allowing the plant operator to manage water resources more flexibly, pumped storage can also help make facilities more drought-resistant, Rivier adds. Water can be moved from the upper to lower reservoir and cycled back again indefinitely. Rebecca Ellis of the International Hydropower Association (IHA) notes that the modernisation of existing hydroelectric plants can enable them to be more resilient to climate change. “But modernisation is also about how they can better support the grid and provide grid stabilisation [services],” Ellis says. One way they might do this is with the installation of variable-speed turbines at pumped storage sites, allowing generators to speed up and slow down the rotation speed of turbines based on the needs of system operators, she adds. Regulators often overlook hydroelectric power and pumped hydro storage as they concentrate on wind, solar and batteries, says Rivier. Peak demand needs now are often satisfied with combined-cycle gas plants. “You have to cover peak demand for two hours and they’re perfect but once you have no combined-cycle plants and a week without wind, batteries won’t do anything for you,” he says. FLEXIBILITY PROVIDERS With or without pumped storage, hydroelectric plants with reservoirs attached come with characteristics that are in demand from electricity system operators. These include dispatchable power, the ability to ramp up and down quickly, black start capabilities and inertia provided from their rotating turbines, which helps to stabilise grid frequency. In its net-zero emission scenario, the IEA sees hydropower as, “The backbone of global electricity security and the most cost-effective, dispatchable and flexible low-carbon electricity technology option to integrate VRE (variable renewable energy) shares of almost 70% by 2050.” CLOSED-LOOP STORAGE Most existing pumped storage hydropower stations have been built on river systems. Now, developers are increasingly looking towards “closed-loop” projects in which reservoirs are disconnected from rivers. This removes the need for new dams and reduces the environmental impact. Andrew Blakers of the Australian National University notes that land and water requirements for closed-loop pump hydro also pale in comparison to those on rivers. Blakers and his team identified over 600,000 possible closed-loop pumped hydro sites globally with a storage potential of 23 million gigawatt-hours (GWh), an amount, he says, is equivalent to about 100 times what the world needs to support 100% renewable energy systems. The sites were selected by identifying pairs of reservoirs and then using a cost model to only retain the best ones. One major element of the business case for pumped storage hydro is the “head”—or the altitude difference between upper and lower reservoirs. The head should be at least 100 meters, but 500-800 meters is preferable, says Blakers. “You double the head and you double energy storage and power, but the cost only increases very slightly.” The two reservoirs should also be sited close together given that pressure tunnels are expensive, he adds. 
Go with the flow Most existing pumped storage hydropower stations have been built on river systems
CIRCULAR ECONOMY In Estonia, state-controlled utility Eesti Energia is taking a circular economy approach to its planned 225 MW closed-loop pumped storage facility. Oil shale mining infrastructure will be refashioned into a pumped hydro storage station, with mining tailings used to raise the height of the upper reservoir. The altitude difference between the two reservoirs is 120 meters, which Margus Vals of Eesti notes is “a lot in the Estonian context”. Estonia currently has no pumped hydro plants and little hydroelectric capacity. Eesti’s plant will help ensure the security of supply after Estonia disconnects from the Russian grid and synchronises with that of continental Europe, slated to take place in 2026 at the latest. It also comes as Estonia looks to cover 100% of annual power consumption by 2030 with renewable energy, mainly from a planned 1 GW offshore wind farm. Before making its final investment decision, Eesti is waiting for the introduction of a balancing market on which to offer its services alongside the existing day-ahead and intra-day power markets. Such a market does not yet exist in the Baltic states as balancing tasks are covered by the Russian electricity system operator, notes Vals. Vals says the pumped storage project is, “One piece in the puzzle of stabilising tomorrow’s grid, where there are a lot of renewables and increasing electricity consumption.” Battery storage is also seen as essential, whether that be from freestanding batteries or those on electric vehicles. Pumped hydro allows the storage of green electricity for longer, while distributed storage can help relieve local strains on power networks, he notes. The duration of lithium-ion batteries is generally seen as topping out at about four hours. According to the IEA, pumped storage generally provides storage capabilities ranging from five to 175 hours and sometimes more. AUSTRALIAN AMBITIONS Elsewhere, Australia, where the new Anthony Albanese government has increased the country’s 2030 renewable electricity target to 82%, is also rapidly preparing for managing high shares of wind and solar. Along with building up the transmission network and battery storage, new pumped hydro capacity is a priority. After four decades of no new Australian pumped hydro projects, two sites are now under construction. Developer Genex Power is refashioning two pits from the decommissioned Kidman goldmine to create the reservoirs for its 250 MW/2 GWh pumped storage plant, which is expected to be completed in 2024. With its Snowy 2.0 project, which involves connecting two existing reservoirs with 27 kilometres of tunnels and an underground power station, utility Snowy Hydro is expanding its pumped hydro capabilities by 2 GW/350 GWh. Commissioning is slated to be completed progressively, starting from 2025. The Australian government sees large-scale, long-duration energy storage like pumped hydro as key to guaranteeing the reliability of the electricity grid. In September 2022, the New South Wales government provided funding of A$44.8 million ($30 million) to five pumped hydro developers with a potential combined capacity of 1.75 GW. In October 2022, the government is also launching a tender for 600 MW of long-duration storage capacity, the first step in plans to build 2 GW of long-duration storage by 2030. It considers long-duration storage that can be dispatched for eight hours or more per cycle. MISSING MONEY Iberdrola’s Rivier highlights the “missing money” problem that is impeding the construction of new pumped storage hydro in Spain and many other countries. Iberdrola is waiting to make the final investment decision for adding pumped storage capabilities to several existing hydropower plants in Spain. “But there needs to be some recognition of the services pumped storage will provide in the long term,” Rivier says. Spain’s 2030 national energy and climate plan sees the need for 3.5 GW in additional pumped storage capacity. The national government is in discussions with the European Commission about a market framework that would also incentivise long-term storage. Ellis of IHA notes that several pumped storage projects have stalled or been delayed due to the lack of a suitable market mechanism. “It comes down to two things: hydropower has high upfront Capex and needs long-term revenue visibility,” Ellis says. WAITING GAME In Italy, new pumped storage projects are also being developed but not built. “[Project developers] know they that are not economically feasible now but also that they will be necessary,” says Julio Alterach of Italian energy research group RSE. The country already has about 6700 MW in pumped storage capacity but that is under-utilised as arbitrage opportunities have decreased with the narrowing of the differential between peak and off-peak power prices, a trend that has been seen elsewhere. Nonetheless, RSE estimates at least 4000-5000 MW of new pumped storage capacity will be needed in Italy in the next 20 years. Plans are underway to create a market for storage capacity, in which pumped storage could also participate. Italy’s energy regulator Arera in August 2022 published a document for consultation on the conditions and criteria for a future market to procure storage. In countries including Italy and Spain, expiring concessions are also impeding investments in modernising hydroelectric plants. Plant operators are waiting to see whether the governments extend concessions or put them up for a new tender before making major additional investments. •
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Heather O’Brian