(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON May 1 Hydropower offers an effective way
to balance grids that increasingly have to cope with variable
renewable energy supply, and this may end the long lull in
hydroelectric projects caused by economic and planning hurdles
in developed countries.
The vast majority of electricity is presently consumed at
the instant of generation, putting a premium on electricity
As supply of intermittent renewable power grows, from
sources such as wind and solar, storage technologies have
additional value to balance variable supply, as well as varying
That grid balancing value includes benefits that are hard to
monetise, such as reducing the wear and tear on gas-fired power
plants, as these are used increasingly to balance wind and solar
power by ramping up and down - a cost that policymakers may have
to value explicitly to make pumped storage economic.
Governments are funding the development of chemical battery
storage technologies for automated balancing of electricity
distribution at the low voltage, household level.
But hydropower remains by far the most mature, economic,
grid-scale energy storage option.
Pumped storage has an exceptionally sharp ramp-up time,
adding to its grid balancing potential. The operator of
Britain's Dinorwig plant for example reports a 0 to 1,320
megawatt "pick-up rate" of 12 seconds.
Pumped storage works like a dam in reverse, where the
operator purchases power at cheaper off-peak prices to pump
water from a lower to higher altitude reservoir, releasing it to
generate electricity at times of peak demand.
Paying for some benefits of grid balancing - such as
reducing wear on thermal plants or for an exceptional response
time - is difficult through market mechanisms. It may require
policymakers to intervene in energy markets, as they are doing
increasingly after the roll-out of subsidised renewable power.
Globally, there are approximately 270 pumped storage plants
operating or under construction, with a combined generating
capacity of over 127 gigawatts (GW), according to the U.S.
National Hydropower Association in its overview, "Challenges and
Opportunities For New Pumped Storage Development".
Europe is ahead of North America and China. (See Chart 1)
The United States has 40 existing pumped storage projects
with more than 22 GW of storage capacity, according to the NHA.
Most of these were authorised more than 30 years ago.
The U.S. Federal Energy Regulatory Commission (FERC) shows
an upsurge in permit applications for projects since 2007,
presumably with an eye on the new potential for grid balancing
as U.S. wind capacity expands. (See Chart 2)
FERC had issued preliminary permits for total pumped storage
capacity of 49.7 GW, as of March. (Chart 3)
A preliminary permit does not authorise construction but
maintains a place in a queue should the developer apply for a
licence, implying a big gap to realised projects.
Limits on more hydropower include high capital cost and long
planning and construction lead times, while the expected impact
on water availability of climate change, including more extreme
heatwaves and droughts, is a concern.
"Very few financial institutions are willing to finance
these types of long-lead projects through the licensing time
frame," the NHA said.
Chart 1: (page 26) goo.gl/0qLHv
Chart 2: goo.gl/jk68I
Chart 3: goo.gl/P70Xw
At present wind, solar and gas-fired power represent the
bulk of added capacity in industrialised economies.
That reflects subsidies including tax credits and a power
price premium for intermittent renewables, as well as a short
process to obtain permits and relatively low fuel cost for
natural gas, which has under-cut pumped storage.
"Pumped storage is the most likely form of large new hydro
asset expansions in the U.S., however justifying investments in
new pumped storage plants remains very challenging with current
electricity market economics," according to the research
organisation, Electric Power Research Institute (EPRI).
"Even over a wide range of possible energy futures, up to
2020, no energy future was found to bring quantifiable revenues
sufficient to cover estimated costs of plant construction," it
said in its report, "Quantifying the Value of Hydropower in the
Electric Grid", published in February.
The EPRI study found numerous ways in which existing pumped
storage operators could increase revenues, including installing
adjustable speed storage pumps to balance better surplus wind
power generation, potentially increasing revenues by 85 percent.
It suggested that explicitly valuing grid balancing services
could pose an "economic tipping point" for new projects.
Arguments for reforming pumped storage markets include two
approaches: first, defining it as a new asset class, where at
present it can be treated as electricity generation,
transmission or consumption; and second, introducing payments
for grid balancing services.
Regarding asset definition, the European electricity
industry body Eurelectric, in its report "Europe Needs Hydro
Pumped Storage: Five Recommendations", noted last year that
operators can be taxed twice, for both power consumption and
The U.S. NHA argues that pumped storage could be treated as
a transmission asset, given its grid balancing role.
That would allow it to benefit from predictable, long-term
revenues based on transmission charges instead of wholesale
power market arbitrage, whose profits may be too unclear for
U.S. regulation (Section 219 of the Federal Power Act)
allows investors in transmission facilities an attractive return
through charges on grid users.
Regarding payments for grid balancing services, wholesale
power markets are already evolving to award
government-guaranteed revenues for reserve capacity, demand
response and energy storage, where pumped storage could be
To reform power markets in this way, a philosophical debate
must first be resolved about the role of energy storage compared
with other ways to deal with the intermittency of renewables,
such as building out transmission capacity.
(Editing by Anthony Barker)