With so much talk about the hydrogen economy, it is no surprise that the largest “rechargeable batteries” in the world are made of water — and are capable of storing the equivalent of a few months of a nation’s electricity consumption. I am referring to pumped-storage hydropower plants (PSHPs), a relatively old type of technology which has been reinvented for today’s needs.

PSHP stores energy in the form of water, pumped from a lower elevation reservoir to a higher elevation reservoir. Low-cost, off-peak electric power is used to pump water, typically during the night. During periods of high electrical demand, the stored water is then released from the higher elevation reservoir and flushed through the turbines to generate electricity.

Two types of PSHP plants exist: one with separate pump and turbine units, and one with a single reversible unit which can pump or turbine water by changing its direction of rotation. The first type offers higher generation efficiencies, faster reaction times, and lower maintenance costs at higher capital costs.


Matching variable demand with constant supply

While the first use of pumped-storage dates back more than a century (the first plants were developed in the 1890s in Italy and Switzerland), the first big wave of development is commonly associated with the emergence of nuclear power generation in the 1970s and 1980s. Nuclear power plants can only produce energy at a constant rate and cannot follow the variable electricity demand pattern during the different hours of the day. This is also a problem for coal-fired plants.

Stable electricity transmission grids require that production must be equal to consumption at all times. Therefore, electricity generation plants must be capable of providing a fast response to load changes. With their very fast ramp-up rates, conventional hydropower plants have typically been able to provide this type of response. However, even in relatively mountainous and wet countries, hydropower plants suffer from seasonal hydrological variability, and there is a limited potential for development of new plants. The conversion of existing conventional plants to PSHPs offers the possibility to increase the installed capacity of hydropower plants and to mitigate the impact of highly seasonal hydrological availability. The conversion of the existing plants also prompts limited environmental and social problems, because it makes use of existing large dams and reservoirs, and requires the building of small compensation reservoirs.

Integrating variable renewable energy supply

The second large development is associated with the relatively new use of pumped-storage plants to level the fluctuating output of intermittent power sources, such as solar and wind plants. It is expected that by 2020, one-fifth of all energy production in Europe will come from renewable energy sources, with an installed capacity of 150,000MW for wind power based on the development of large offshore wind farms.

Problems arise because it is difficult to predict production from wind. In addition, production from solar panels can fall to next to zero in a matter of seconds with a passing cloud. New technologies are allowing PSHPs to switch from turbine to pump mode in a matter of minutes, providing the flexibility required to balance the grid. PSHPs are the catalyst that make possible the relative increase of solar and wind sources in the total generation mix. This happens by providing a response to sudden load changes, and the ability to generate over long periods of lack of wind or sun.

However, the efficiency of PSHPs is only 70 to 85 percent because energy is lost in the pumping process, through water evaporation and infiltration in the upper reservoir, through hydraulic losses, and through the turbine and generator. PSHPs are thus net consumers of off-peak energy.


Additionally, because of the increased reliance on nuclear, wind and solar sources, and in the absence of sufficient capacity for flexibly storing and generating energy at a short notice, in certain markets electricity prices have occasionally been close to zero and even negative (Denmark, Ontario). This indicates that there is more generation than load available to absorb it, and that for some period of time, generators had to pay consumers of energy to use energy.

The business case for PSHPs

The technical value of PSHPs is undisputed: they offer the largest capacity energy storage system currently available, they match electricity demand and production from nuclear and thermal sources, they shift the excess production of renewable energy sources to provide the peaks, and they firm renewable energy generation to compensate for non-predicted power variation.

They also suppress peaks from intermittent renewable energy production sources and smooth demand peaks, providing frequency control (primary regulation), capacity reserve (secondary regulation and minute reserve), reactive power production, and Black start capability. They provide ancillary system services that are essential for the stability and functioning of an electricity transmission grid.

The value of PSHPs can be monetized by arbitraging among large price differences. Since the plants consume at low prices and produce (sell) at high prices, they profit from the electricity price differential between peak and non-peak times, which should be sufficiently high to compensate for the above-mentioned energy losses and for the operating and capital costs. Such price differentials, however, can only be observed in certain circumstances:

  • Unbundled electricity markets in which energy generation is open to competition, and a large number of energy users can buy from different suppliers of electricity at non-regulated power prices, and
  • Where there are well-functioning institutional and organizational arrangements for the efficient and transparent pricing of electricity.

An unbundled market is also required to monetize the ancillary services provided by the PSHPs. In a competitive power market, the responsibility of upholding the balance and frequency in the power system rests with the transmission system operator, which should create a market for balancing power and pay a competitive price for these services.

Across the world, electricity markets vary in terms of their degree of market opening and how advanced the markets are. Traditionally they have in most cases been vertically integrated monopolies. In Europe, public ownership of a national utility has been common, although this has not been the only solution. This type of structure still dominates in many parts of the world, although a rapid change is taking place. For example, day-head markets have been introduced in parts of India and in Southern Africa.

Any long-term strategy to meet the growing global electricity demand with renewable energy sources will require an increased reliance on PSHPs. Wind and solar’s attractiveness and competitiveness can be expanded if developed jointly with a PHSP. Private sector investment can be leveraged to finance, develop, and operate these plants under the condition that national and regional electricity markets are sufficiently developed to allow private sector investors to monetize the full value provided by these plants.