New guide published to boost investment in pumped-storage hydropower plants

A new guide aimed at reducing investment risk in pumped storage (PSH) projects was released today. The guide, titled “Enabling New Pumped Storage: A Briefing Note for Policymakers on Reducing Investment Risk in Pumped Storage,” provides recommendations to help key decision makers navigate the development and financing of pumped storage projects.

Hydropower with peak storage is the largest form of renewable energy storage, with almost 200 GW of installed capacity worldwide, providing over 90% of all long-term energy storage. With over 400 projects currently in operation, PSH plays a key role in supporting the global transition to renewable energy.

The briefing, developed by a working group led by Bechtel Corporation with support from the International Hydropower Association (IHA), aims to streamline project development and implementation by providing tools for effective risk management and financial strategies.

IHA CEO Malcolm Turnbull highlighted the importance of long-term energy storage, stating: “The lack of adequate focus on this need for long-term electricity storage is an ignored crisis in the energy crisis. PSH has the unique ability to solve this challenge on a massive scale, far beyond the reach of even the largest batteries. Pumped-storage hydro systems can also provide inertia and grid stability without relying on fossil fuels. The recommendations in this briefing note set the course for delivering the energy storage solution the world needs. Policymakers and industry must act on these recommendations now to have a chance of achieving net zero emissions targets by 2050.”

Chris McMonagle, Global Business Development Manager at Bechtel and chair of the working group, highlighted the efficiency and reliability of PSH. He commented: “An efficient, reliable, net-zero grid cannot be achieved without combining renewables with large-scale, long-duration energy storage. PSH, sometimes known as ‘water batteries,’ is the most common, proven and efficient form of long-duration energy storage. This new briefing paper aims to explore how the PSH market can streamline the development process and provide reliability and certainty in project delivery. It is the result of excellent analysis, healthy debate and open sharing of industry best practices.”

The guide outlines the following key principles:

Delivering to the private sector, enabling the public sector:Success in a liberalised electricity market depends on the government recognising the need for storage, support mechanisms and long-term revenue transparency.
Investments in project development:Early investment and involvement of an experienced implementation team increase the chances of project success.
Good project management equals good risk management:To mitigate interface risks, teams must work together.
Optimal supply and trade models:Effective risk allocation is key. Risk is minimized by those best equipped to manage it, and residual risk is shared by those who are able to bear it.

The working group includes Brookfield Renewables, the European Investment Bank, the British Hydropower Association, GE Vernova, Stantec, KPMG, Mott Macdonald, the World Bank Group, Queensland Hydro, Dentons LLP and the University of Cambridge.

Donald Erpenbeck, Vice President and Global Leader of the Dam and Hydropower Sector at Stantec, shared his experience, stating, “I have been working on PSH projects for over 35 years, both in new construction and rehabilitation, and have seen far more projects fail than succeed. I continue to be surprised by experts/owners who oversimplify PSH and/or developers/owners who take PSH for granted in the energy transition mix. PSH is one of the most technically challenging projects in the heavy construction world due to the bi-directional flow of water and energy combined with tunneling and mountaintop dams, and when you scale it up to high pressure and long/large tunnels, you have a challenge that cannot be minimized. The only thing more complicated than the technical issues are the financial/commercial aspects, since PSH is long-term energy storage and has little to do with conventional hydropower in terms of economic modeling and utilization. PSH are more of a transmission/network asset than a generation asset, and the companies that own and operate them have a hard time modeling them, they just know they need them and they make money. I hope the guides developed by this group will increase the success rate of PSH projects in the development cycle and bring more projects to financial close in a more streamlined manner.”

Joaquín Jiménez Labadie, Global Head of Dams & Marine Works at Acciona, noted the potential of the guide to promote collaboration, saying: “I see this initiative as a great opportunity to bring together different parties and exchange ideas on how to approach pumped-storage projects, addressing the main issues of these projects in order to create industry guidelines and promote the sustainable development of pumped-storage plants. Developing a pumped-storage project involves navigating a complex web of contracts, licenses and permits. Effective management of these aspects is crucial to securing financing, ensuring regulatory compliance and achieving project success. Careful planning, stakeholder engagement and rigorous regulatory compliance can help mitigate risks and facilitate smooth project implementation. The briefing note will serve as a comprehensive reference for informed decision-making, promoting collaboration among stakeholders in the pumped-storage sector.”

Judith Plummer Braeckman, CISL Fellow at the University of Cambridge’s Institute for Sustainable Leadership, highlighted the financial challenges, stating: “Among other things, the briefing notes that a key risk to pumped-storage hydro is the difficulty of establishing a robust (bankable) revenue forecast in the absence of government support and regulation or a clear market mechanism. Overcoming this risk is key to unlocking the capacity of pumped-storage to help the grid absorb large amounts of variable renewable energy.”

Kate Gilmartin, Chief Executive of the British Hydropower Association, highlighted the importance of storage, saying: “Fossil fuels have historically been easy to store and have given us the ability to deliver rapid growth and decline. As we seek to decarbonise the global energy system with renewable energy, we have a long way to go to meet this fundamental requirement for storage and flexibility. Pumped hydro will be essential and the briefing note is a key document that will help policymakers move this essential technology from concept to viable projects.”

Michael Morgenroth, Senior Director of Hydropower and Dams at Stantec Canada, expressed his enthusiasm for the international collaboration: “I work in the hydropower industry and I am always interested in sharing my insights on challenges and solutions with a global group of experts. In addition to several project planning studies, I led a national report on the potential of pumped storage in Canada. No new projects have been implemented here, so I am pleased to take home all the knowledge I gained from the working group about international project planning and implementation.”

Roddy Cormack, Senior Associate at Dentons, highlighted the importance of long-term storage: “Long-term storage and pumped storage in particular are critical to providing our electricity grids with the stability and flexibility they need to transition to renewable energy generation and achieve net zero emissions targets. It has been a great privilege to play a role in guiding industry and policymakers to help such projects progress through FID and beyond at such a crucial time for our planet. The briefing note does not provide all the answers for every project, as each PSH project is unique. However, it does set out the key questions that policymakers need to consider and find solutions for, using the best practice examples we have provided. Stimulating early consideration of key issues will give decision-makers greater confidence in taking projects beyond the drawing board. It is essential that the business and financial models used in decision-making recognise the importance of PSH schemes in stabilising networks increasingly dependent on variable renewable generation. The total value of PSH includes both generation and storage elements, and the policy and regulatory frameworks within which such schemes are situated may need to address both aspects to make such schemes economically viable – otherwise such important projects may never pass the FID stage.

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