Policy frameworks for pumped storage hydropower development
This framework details the barriers for delivering policy solutions to pumped storage development and the appropriate mechanisms needed to drive this growth
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Pumped Storage Hydropower (PS) is the largest form of renewable energy storage, with nearly 200 GW installed capacity, providing more than 90% of all long duration energy storage across the world with more than 400 projects in operation.
Recommendations for policymakers, policy solutions, applications and countries’ PS targets are mapped out across this framework. There is clear evidence of overcoming the barriers to implementation of PS, however, further solutions and recommendations are needed to meet global storage targets and needs. These are outlined below.
Recommendations for policymakers, policy solutions, applications and countries’ PS targets are mapped out across this framework. There is clear evidence of overcoming the barriers to implementation of PS, however, further solutions and recommendations are needed to meet global storage targets and needs. These are outlined below.
Key recommendations for policymakers
Assess how much long duration storage and system flexibility is needed in the long-term
Pumped storage (PS) takes a long time to develop, build and pay back. At the same time, energy systems are rapidly transforming to accommodate changes in demand and supply, particularly growth in wind and solar power, making it essential to plan for future reliable energy systems which have sufficient long duration energy storage. If developers have confidence in the need for PS projects and the quantity of long duration energy storage required, then they can put the right amount of development money in upfront, de-risking projects and bringing them in on time and on budget. To deliver this win-win, Governments should seek expertise on how to assess, plan for, and build reliability, flexibility and security into energy systems.
Identify appropriate sites for pumped storage plants
Policymakers can accelerate development of pumped storage in their countries by filtering the many potential sites and highlighting those with the best economic, social and environmental outcomes. The efficiency of the energy system can be greatly enhanced by integrating the development of pumped storage with the extension of grid infrastructure, and with wind or solar energy. Holistic site planning will therefore bring significant system benefits.
Implement fit-for-purpose permitting procedures
A predictable and time-bound permitting process will speed up approval and reduce costs, ultimately benefitting consumers. Streamlining processes so that developers are dealing with only one agency and ensuring all branches of government are adequately resourced to respond quickly will result in timely decisions. Aligning environmental and social permitting with international standards, such as the Hydropower Sustainability Standard, ensures that the regulations, financial approvals, and company systems all align with recognised international good practice.
How to apply
Apply mechanisms that deliver the necessary revenue visibility over a long period
The bulk of investment in PS projects is in the construction phase, which must be paid back over a long period. Combined with high capital costs and long build schedules, this makes these projects especially vulnerable to long-term revenue risk. If the project’s income is uncertain (e.g. due to unknowns such as electricity markets or policies), then the return demanded by lenders and investors will be higher. Consequently, it is difficult for the market alone to deliver these projects. Projects need a mechanism that provides revenue certainty, which will attract greater investment.
Design electricity markets so energy storage assets are rewarded
It is important that energy storage providers receive appropriate remuneration for all the services that they provide to the system. In liberalised economies, this includes the arbitrage income that is available from being able to buy power cheaply when there is a surplus of variable renewables and sell it for a higher price when there is a deficit.
Procure and pay for ancillary services separately
PS can naturally provide lots of essential services for a reliable energy system – instantaneous physical inertia services (including frequency control services), fast start-up and shutdown and black start capabilities. Many of these services are not paid for in their respective electricity markets but grids will need them to support deployment of variable renewable energy technologies. Without clear payments for these services, projects may be built that are less capable of delivering them, or projects that are capable might not be as well maintained. The system operator should contract with them on a long-term basis.
How to applyRecommendations in action
Many markets lack long-term modelling or targets for long duration storage needs
Where models are used, they often have outdated assumptions about technical capabilities and may miss key discriminating factors
Large infrastructure projects such as new PS development must overcome long processes. This includes site selection, feasibility studies, environmental and social assessments, and permitting/licensing applications
Due to the long processes, PS plants might take more than 10 years from conception to operation, with delays due to obtaining all required licenses and permitting, causing long payback time for investors
In many markets not all services provided by PS are remunerated
The legal frameworks that define what energy storage is and how it operates within the electricity system can also impact the economic viability of projects.
In several countries, PS plants are classified both as a generation asset and as a final consumer, requiring them to pay grid access fees twice.
Limited support for domestic manufacturing and / or research and development
Upfront premiums for developers before applying for PS projects
