Industry-first guide charts path to unlock investment in pumped storage hydropower

New guide launched today provides key decision-makers with recommendations for de-risking investments in pumped storage, responding to a rapid global shift toward renewable energy

Today marked the release of ‘Enabling New Pumped Storage Hydropower: A guidance note for decision makers to de-risk investments in pumped storage hydropower.’

Pumped Storage Hydropower (PSH) 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 over 400 projects in operation.

The guidance note delivers recommendations to reduce risks and enhance certainty in project development and delivery. It also equips key decision-makers with the tools to effectively guide the development of pumped storage hydropower projects and unlock crucial finance mechanisms. By utilising the recommendations provided, a new market entrant will be better able to understand the risks and create a mitigation strategy to address them.

Developed by a working group with members from across the pumped storage hydropower industry chaired by Bechtel Corporation and supported by the secretariat of the International Hydropower Association. The working group was created to respond to the urgent need for long-duration energy storage to support the rapid global shift towards renewable energy.

President of IHA, Malcolm Turnbull commented:

“The failure to adequately focus on this need for long duration electricity storage is the ignored crisis within the energy crisis. PSH has the unique capacity to resolve this challenge at huge scale, well beyond the reach of even the largest batteries. Pumped hydro systems can also provide inertia and grid stability without reliance on fossil fuels. The recommendations within this guidance note set a course for delivering the energy storage solution the world needs. Policymakers and the industry need to act on these recommendations now to be in with a chance of meeting net zero goals by 2050.”

Global Business Development Manager, Bechtel and Working Group Chairman, Chris McMonagle commented:

“It is impossible to achieve an efficient, reliable, net zero power grid without combining renewables with large-scale, long duration energy storage. PSH, sometimes known as ‘Rechargeable Water Batteries’, is the most abundant, proven, and efficient form of long-duration energy storage. This new guidance note seeks to explore how the PSH market can make improvements to the development process and ensure reliability and confidence in delivering projects. It is the result of excellent analysis, healthy debate, and open sharing of industry best practice.”

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

Some overarching principles outlined in the guidance note include:

  • Private Sector Delivery, Public Sector Enablement: The private sector is prepared to deliver PSH at the required scale, but for success in a liberalised electricity markets depends on governments recognising the need for storage, government support mechanisms where necessary, and long-term revenue visibility.
  • Investment in Project Development: Owners must invest in early project development. The more investment in preparation and the sooner an experienced delivery team (Owner and Supply Chain) focuses on setting the foundations, the greater the chances of success.
  • Good Project Management Equals Good Risk Management: Ensuring well-coordinated teams to support interface risk mitigation is essential.
  • Optimal Delivery and Commercial Models: Effective allocation of risk is vital. Risk should be minimized by those best placed to manage it, and residual risk should be shared by those best able to bear it.

Read the guidance note here

Quotes from working group members

Donald Erpenbeck, Vice President & Global Sector Leader- Dams & Hydropower, Stantec, commented:

“I have been working on PSH projects for over 35 years both for new construction and refurbishments and have seen many more projects fail in the process than I have seen 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 difficult projects in the heavy civil works world due to two-way water and power flow combined with tunnelling and dams on the top of mountain and if you magnify those by the scale of high head and long/large tunnels you have a challenge not to be minimized. The only thing more complicated than the technical is the financial/commercial aspects as PSH are long duration energy storage and have little relationship to conventional hydro for modelling the economics and usage. PSH is more a transmission/grids level asset than a generating asset and the companies that own and operate them struggle to model them, they just know they need them, and they make money. It is my hope that the guides produced 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, Acciona, commented:

“As a contractor, I personally think that the construction phase of pumped storage projects is particularly critical, involving significant costs and uncertainties. Technical risks due to a poor design, an inadequate site investigation, unclear scope of works, geotechnical surprises and inadequate planning can increase costs and project delays. In addition, lack of coordination, lack of experience, the interfaces across different project areas and unforeseen events can lead to construction complications and jeopardize the project. Conducting rigorous risk assessments, developing realistic cost estimates, and implementing a robust project management plan ensures smooth execution, preventing cost overruns and delays. As a paramount recommendation, prioritizing early planning, proactive measures and involving specialized resources from the outset is crucial for effective construction risk management. This guidance note will serve as a comprehensive reference for informed decision-making, fostering collaboration amongst stakeholders across the pumped hydro sector.”

Judith Plummer Braeckman, CISL Fellow, University of Cambridge Institute for Sustainability Leadership commented:

“The guidance note raises, amongst others, the key risk to pumped storage hydropower is the difficulty in establishing a firm (bankable) revenue forecast in the absence of government support and regulation or a clear market mechanism. Overcoming this risk is key to unlocking the power of pump storage to support the grid in absorbing large amounts of variable renewable energy.”

Kate Gilmartin, CEO, British Hydropower Association commented:

“Fossil fuels have historically been easy to store and have given us the ability to provide rapid ramp up and ramp down.  As we look to decarbonise the world’s power system with renewable energy, we have a long way to go to fill this fundamental requirement of storage and flexibility. Pumped Storage Hydropower will be essential, and the guidance note is a key document to help policy makers translate this necessary technology from concept to deliverable projects.”

Michael Morgenroth, Senior Principal, Hydropower & Dams – Canada, Stantec commented:

“I’ve been working in the hydropower industry and am always interested in sharing insights about challenges and solutions with a global host of experts. Besides several project planning studies, I led a national report on the potential of pumped storage in Canada. There has been no recent project implemented here, so I’m excited to take all the knowledge about international project planning and execution that I’ve gained from the working group home with me.”

Roddy Cormack, Senior Associate, Dentons commented:

“Long duration energy storage and pumped storage hydropower in particular is pivotal in terms of giving our electricity grids the stability and flexibility they need to transition to forms of renewable generation and the achievement of net zero goals. Playing a role in the guidance of industry and policy decision makers to assist such projects get through FID and beyond at such a crucial time for our planet has been an enormous honour. The guidance note doesn't provide all answers for all projects because each PSH project is unique. It does, however, set out what the key questions are making decision makers aware of the issues they need to consider and find solutions for drawing on the examples of best practice we have provided.  Stimulating consideration of the key issues early will give decision makers more confidence in progressing projects beyond the drawing boards. It is crucial that business and financial models used in decision making recognise the importance of PSH schemes in the stabilising of grids increasingly reliant upon variable renewable energy generation.  The overall value of PSH involves both generation and storage elements and the policy and regulatory frameworks such schemes sit in may need to flex to recognise both aspects to make such schemes economically viable – otherwise such vital projects may never get passed FID stage.”

Jérôme Bridon, Senior Product Marketing Manager, GE commented:

"As a long-standing OEM committed to electrifying the world while simultaneously working to decarbonise it, GE Vernova wanted to share its experience within the working group to help streamline the development of critical projects for a more reliable and sustainable energy future. To help reduce risks, ensure availability of skills and resources, and accelerate the development of pumped storage projects, collaboration between stakeholders along the value chain and supporting policies offering greater visibility are essential."

Read the guidance note here

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