Pumped-storage hydro is an ideal option for firming the variability of other renewable power sources, such as wind and solar. However, tax incentives and new transmission-related policies are needed to encourage investment in development of these facilities.
By Richard R. Miller and Maureen Winters
Since the 1920s, pumped-storage hydroelectric plants have provided valuable storage capacity, transmission grid ancillary benefits, and renewable energy in the U.S. and Europe. Today, the 40 pumped-storage projects operating in the U.S. (see Figure 1) provide more than 20,000 MW, or nearly 2 percent, of our nation’s energy capacity.1 Pumped-storage plants account for about 16 percent of renewable capacity in the U.S.2
The contributions of pumped storage hydro to our nation’s transmission grid are considerable. These plants provide stability services and storage capacity needs and expand the green job market. But what additional role can pumped storage play in the future of a nation that is both facing rapidly growing needs for storage capacity and green power and relying on an economic recovery spurred by investment in renewable energy technology? With the American Recovery and Reinvestment Act of 2009 and evolving state and federal renewable portfolio standards as catalysts, and given the accompanying legislative and regulatory policy support for investment in this technology, the opportunities are significant for pumped storage to play a key role.
What is pumped storage?
Pumped-storage plants are unlike conventional hydro facilities in that they are a net consumer of electricity. In reality, pumped-storage plants function as transmission facilities because their primary purposes are storage, grid balancing, and providing ancillary services – not generating electricity. These plants can be very economical, from an overall system operation perspective, due to peak/off-peak price differentials and the provision of ancillary services.
Pumped-storage plants have been used to balance system load and to allow large thermal generating sources to operate at optimum conditions. Pumped storage is the largest-capacity and most cost-effective form of grid energy storage available. Pumped-storage plants also provide ancillary grid services, such as network frequency control and reserve generation. This is due to the ability of pumped-storage plants, like other hydro plants, to respond to load changes within seconds.
Pumped storage now is being applied to firm the variability of renewable power sources, such as wind and solar. Pumped storage can absorb excess generation (or negative load) at times of high output and low demand and release that stored energy during peak demand periods. Thus, pumped storage is proving to be an enabling technology for the growing wind power penetration into the U.S. energy supply system.
The critical need for energy storage
As mentioned previously, pumped storage hydro has provided significant benefits, including storage, load balancing, frequency control, and reserve generation. Compressed air energy storage also provides bulk storage, but there is only one facility currently operating in the U.S. In contrast to bulk storage technologies, batteries, flywheels, and super capacitors function best when applied closest to the end-user at load centers, substations, and even behind the meter at the consumer’s location.
Increasing bulk energy storage capacity has not been a priority for utility planners or energy legislation in recent decades. Since many utilities deregulated in the 1990s, the industry has had no mechanism or incentive for the coordinated integration of new generation, storage, and transmission. Yet these are three components of a reliable energy generation and transmission system that require coordinated long-term planning. This disconnect has resulted in new renewable energy projects being unable to move forward due to lack of transmission capacity. On a related note, the addition of large amounts of variable generation in market regions that are not equipped to provide the load balancing required is creating havoc with the transmission system and for grid operators. Experienced grid operators have significant history managing the variability of changing load and, until recently, have had the capacity and flexible energy options available to meet that changing demand.
Despite these technical hurdles, the need and demand for renewable generation continues to grow. Over the past decade, 29 states have enacted renewable portfolio standards requiring that renewable sources represent a certain percentage of new generation being brought on line. Climate policy initiatives also are driving investment in renewable sources. These two factors have created a framework for rapid growth in variable generation such as wind and solar, but there has been no corresponding capacity or transmission planning. The result is that in areas such as Texas, California, and the Pacific Northwest, there is excess energy from wind without enough demand at the times when the electricity is available (which typically occurs at night). Alternatively, there is not enough peaking power supply to provide on-demand capacity when the wind and solar plants cannot generate.
Many advocates of increased renewable generation point to Denmark as an example of how to integrate large amounts of variable generation. The key point that is overlooked is that the transmission system in this country does not provide its own system balancing services. The two systems (East and West) in Denmark depend on the interconnections with Germany and Norway for grid stabilizing services. And these two countries are rich in pumped storage and conventional hydro, respectively.3,4,5,6
Several studies have documented how bulk-storage capacity can support the increasing development of wind integration. These analyses show that not only does bulk storage add capacity and offer load balancing, it reduces the cost of wind integration. For example, a wind integration study conducted in 2006 for the Public Service Company of Colorado reported that doubling pumped storage capacity within the company’s system could reduce the cost of integration by as much as $1.30 per megawatt-hour (MWh) in a scenario with 20 percent wind penetration.7
Similarly, the Northwest Wind Integration Action Plan acknowledges that the increased development of wind energy in the Northwest requires a corresponding increase in flexible generation, including pumped storage.8 The plan notes that the cost of wind integration depends on several factors, including the availability of flexible sources within the region’s system. The plan also calls for The Northwest Wind Integration Forum to “characterize options for augmenting system flexibility,” including options for storage technologies.8
With the emergence of new renewable technologies and the ever-increasing investment in variable generation sources, the need for storage has never been greater.
Opportunities for pumped storage today
Existing pumped-storage projects are critical transmission system tools providing crucial storage, generation, and ancillary services throughout the U.S. In response to the growing need for storage and the exceptional synergy between pumped storage and variable renewable energy sources, the hydro industry proposes to more than double the pumped storage capacity in the near future. The Federal Energy Regulatory Commission (FERC) recently issued 23 preliminary permits for new pumped-storage projects, representing about 15,000 MW of new pumped storage capacity. Another 15 applications for preliminary permits pending before FERC could provide an additional 16,000 MW of capacity.9,10
As Figure 2 shows, these new developments are in key areas of the western U.S., where new development of variable generation sources is occurring at a rate that challenges the capabilities of the transmission system.
How significant is the 15,000 to 31,000 MW of proposed pumped storage capacity? The U.S. Department of Energy (DOE) recently projected that to meet a national goal of obtaining 20 percent of electricity from wind generation by 2030, utilities must integrate some 300,000 MW of wind generation into the grid. To accommodate the variability of this new wind, an estimated 50,000 MW of new peaking generation, probably from natural gas, would be needed.11 However, new generation is not the only way to address this need. In its December 2008 report to the DOE, the Electricity Advisory Committee advocates using storage to provide some of this capacity, rather than new generation sources.12
With its current proposals, pumped storage hydro is poised to fulfill an estimated 30 to 60 percent of the storage capacity needed to meet the national 20 percent wind initiative. This would reduce the need for additional fossil fuel-derived peaking generation and avoid the associated greenhouse-gas emissions. Importantly, by directing our investments in new energy infrastructure to storage facilities that would be used at or near capacity – while also providing many ancillary benefits – we would avoid investing in large fossil fuel generation sources that operate only a fraction of the time.
Ways to ensure a favorable investment climate
Federal policies that encourage investment and stabilize the development process are needed. Energy Secretary Steven Chu recently stated that pumped storage technology must play an integral role in our national plan to expand clean-energy resources and integrate variable renewable-energy resources into the transmission grid.13 However, the federal government has no program to spur development of pumped-storage resources. Incentives are needed that attract investors and encourage rapid development of new pumped-storage projects.
Providing investment tax credits and other mechanisms that reward investment in pumped storage and create a more stable investment environment will be critical. Policies that promote intergovernmental cooperation and streamline the permitting and licensing process also will add more certainty to pumped storage development and encourage growth.
The American Recovery and Reinvestment Act of 2009 set the stage for new investment in renewable energy through investment tax credits, production tax credits, clean renewable energy bonds, grants, and DOE research funding for renewable energy. Although these incentives do not work well for pumped storage, they will encourage rapid investment in other sources (including wind and solar) that require the capacity and load balancing pumped storage offers.
The U.S. hydropower industry can show a direct link between tax incentives and the jobs and investment it continues to create. Since incremental hydropower projects first qualified for production tax credits under the Energy Policy Act of 2005, members of the National Hydropower Association report that their development work has increased 25 to 50 percent. That increase has translated to high-quality, long-term green jobs in all regions of the U.S. If the incentives that spurred this growth in conventional incremental hydro were applied to pumped storage, the economics would justify the investments needed to move these projects ahead. And the growth in green jobs would be equally significant.
Enhancing and updating America’s energy transmission infrastructure offers many benefits that address some of the country’s most pressing priorities. Transmission development can provide jobs, create new businesses, and improve the security of this critical national resource. An enhanced transmission system also will accommodate new technologies, ensure electric reliability, and offer efficiencies that maximize energy use and minimize environmental effects. With pumped storage hydro’s ability to serve and support the transmission system – and its role as an enabler of greater penetration of variable renewable generation – the U.S. hydropower industry, and our nation, needs sound policies that provide for growth in energy storage. The electric power system is a real-time system that must continuously balance supply and demand. Pumped-storage projects are a proven technology to store excess energy at night and utilize that excess energy during peak hours. This ability to time-shift variable generation sources and also relieve transmission congestion by providing load balancing services is an essential component of an enhanced transmission grid.
The Energy Storage Council identified a number of steps that are needed to encourage the development of new energy storage technologies and construction of energy storage.14 This council was founded to promote the research, development, and deployment of storage technologies and raise awareness of the importance of storage for the future of electricity supply and energy security in the U.S. These steps include treating energy storage facilities and services on a comparable basis to expansion of traditional transmission facilities for the purposes of qualifying for transmission pricing incentives and participating in transmission planning processes. The Energy Storage Council also advocated for establishing a “safe harbor” for:
– Transmission owner pass-through of costs associated with contracting for energy storage services that enhance transmission system capacity, reliability, and security; and
– Investing in energy storage services that enhance constrained transmission systems or substitute for investment in upgrading them.
Although the Energy Policy Act of 2005 recognized pumped storage as a transmission enhancement, FERC also should consider allowing pumped storage to qualify as a transmission facility for purposes of determining eligibility for future incentives.
Expanding the current investment and production tax credits, coupled with policies that recognize pumped storage as part of the transmission system, would create the investment environment needed to encourage growth in pumped storage. This growth would displace the need for additional fossil fuel-based peaking generation and provide the load management capacity necessary to meet our national renewable energy goals.
In summary, pumped storage is the only viable, large-scale resource that is being broadly used for storing energy, and it offers the best option for harnessing off-peak generation from renewable sources. With the ever-increasing investment in variable generation sources, energy storage will be a critical tool for using our clean energy resources effectively. While the 31,000 MW of new pumped-storage project proposals now before FERC demonstrates the hydropower industry’s commitment to building new pumped-storage capacity to support other renewable sources, developers still face significant obstacles. These obstacles include an uncertain investment climate and long development timelines. These issues must be addressed to ensure an investment climate that facilitates the permitting and construction of these new pumped-storage plants.
- “Inventory of Electric Utility Power Plants in the United States,” Energy Information Administration, Washington, D.C., 2007, www.eia.doe.gov/cneaf/electricity/epa/epat2p2.html.
- “Existing Capacity by Energy Source,” Energy Information Administration, Washington, D.C., 2007, www.eia.doe.gov/cneaf/electricity/epa/epat2p1.html.
- Mason, V.C., “Wind Power in West Denmark, Lessons for the UK,” Industrial Wind Action Group, Washington, D.C., October 2005, www.windaction.org/documents/262.
- Sharman, H., “Why Wind Power Works for Denmark,” Proceedings of ICE, Civil Engineering, May 2005, pages 66-72.
- “Design and Operation of Power Systems with Large Amounts of Wind Power, State of the Art Report,” VTT Technical Research Centre of Finland, Espoo, Finland, 2007.
- White, D.J., “Danish Wind: Too Good to be True?” The Utilities Journal, July 2004, pages 37-39.
- “Wind Integration Study,” EnerNex Corporation, Knoxville, Tenn., 2006.
- “Northwest Wind Integration Action Plan,” Northwest Power and Conservation Council, Portland Ore., 2007.
- Daily docket search, Federal Energy Regulatory Commission, Washington, D.C., 2009, http://elibrary.ferc.gov/idmws/FDR_search.asp.
- “20% Wind Energy by 2030,” U.S. Department of Energy, Washington, D.C., 2008.
- Bottling Electricity: Storage as a Strategic Tool for Managing Variability and Capacity in the Modern Grid, Electricity Advisory Committee, Washington, D.C., 2008.
- “Energy secretary urges pumped storage investment to support grid,” HydroWorld.com, PennWell Corporation, Tulsa, Okla., February 25, 2009.
- “Comments of the Energy Storage Council on Notice of Proposed Policy Statement Concerning Establishment of Incentives to Promote Efficient Operation and Expansion of the Electric Transmission Grid,” Energy Storage Council, St. Louis, Mo., 2003.
Adamson, Daniel M., “Realizing New Pumped-Storage Potential Through Effective Policies,” Hydro Review, April 2009, pages 28-30.
Waterpower Pumped Storage Symposium
On July 28 and 29, in Spokane, Wash., the Waterpower conference is hosting a symposium on Pumped Storage. This symposium features sessions on: who’s building what, why; and the best ideas for new pumped storage.
Rick Miller, P.E., is senior vice president and Maureen Winters is corporate consultant in the hydropower division of HDR|DTA. Miller is responsible for the company’s hydropower services practice and has expertise in civil engineering, large scale project management, conventional hydro and pumped storage operations, and resource planning. Winters has more than 24 years of experience in environmental consulting and regulatory affairs.