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What opportunities does this pumped hydroelectric storage flexibility present for operators, and how can they take advantage?
Flexibility opportunities with pumped storage hydropower
Hydropower has been in use since ancient times and was a key technology enabling the early industrial revolution. The world’s first pumped storage facility went into operation in Switzerland in the early 20th century. Since then, pumped hydroelectric storage has become a critical part of our energy supply, providing crucial flexibility that our modern power system demands. Although at 158 GW it only accounts for a small fraction of total global installed power capacity, it represents the vast majority of power storage capacity and will continue to do so for some time to come. What opportunities does this flexibility present for operators, and how can they take advantage?
First of all, how does a pumped hydropower plant work? The basic principles are simple: at times of low demand, cheap power (sometimes even with a negative price) is used to pump water up to a reservoir at a higher elevation. Energy is stored in the form of the gravitational potential. When demand - and prices - rise, the water is released to flow down through turbines in order to generate electricity. The flexibility provided by storage capacity thus enables plant operators to profit from the difference in price. Although there are some losses from this process, it is a cost-effective means of energy storage as well as the cleanest option available to balance out variable renewables. Energy recovery is around 70-80%; of course, these losses must be covered by the price spreads between pumping and generation.
The flexibility offered by pumped hydropower storage has become increasingly important with the energy transition: it’s an efficient way to balance out variable renewables when the wind doesn’t blow or the sun doesn’t shine, or to store excess power when wind or solar generation is high. In regions where thermal power plants still provide the majority of the base-load power, pumped storage helps to flatten out load variations on the power grid, delivering power to fill the peaks or in case a plant unexpectedly goes offline and consumes energy when demand falls short. Extremely short lead times allow quick reaction for both positive and negative flexibility.
Types of pumped hydropower storage
The flexibility provided by a pumped storage plant depends on the amount of water and the relative height between top and bottom reservoirs. However, not all systems are made the same. A variety of pump and generator setups - combined bi-directional pump-generators, discrete pumps, and generators with flexible or fixed capacity - provide varying degrees of positive and negative flexibility.
Pumped storage systems also vary in terms of their physical configuration. In open-loop systems, which represent about 70% of the roughly 180 pumped hydro stations in Europe today, one or both reservoirs are fed with free-flowing water.
Closed-loop systems on the other hand are not continuously connected to flowing water (only for the initial filling and occasional refilling due to evaporation). As a result, they have fewer environmental impacts. Because the geographic constraints are reduced, this concept widens the field of available sites; they can more easily be located near areas of high demand, or even close to the wind and solar farms to store their excess generation, reducing grid-related curtailment.
The concept of underground systems located in abandoned mines or caverns has also been proposed, and several projects are in the early stages of development. These have the advantage of lower impact on vegetation and wildlife and less need for relocations, and further extend the number of potential locations, especially in flat regions.
Finally, pumped storage plants vary in terms of their storage cycles. Many today run on daily cycles, taking advantage of spreads in day and night power prices. However, other schedules are also possible. Plants capable of more frequent cycles, such as hourly, can contribute greatly to balancing short-term grid fluctuations and are especially well set for trading on the intraday market. A concept that has developed more recently is seasonal pumped storage, which balances seasonal variations in rainfall, wind, and solar generation. This is most suitable for larger plants with greater storage capacity.
Marketing your pumped storage flexibility
Today there are several different types of markets where you can market flexibility from your pumped storage. The most well-known are balancing markets, which were created in order to provide grid stability through flexibility. They have traditionally been the main avenue for marketing pumped storage, and using them can make sense depending on your goals. However, these markets, run directly by TSOs, are characterized by rigid and complex rules, and the barriers to entry are quite high. Pricing is largely influenced by a few large market participants. Finally, it requires giving the TSO a great degree of control over your plant: you commit to having a certain capacity available, and the TSO decides at very short notice whether or not it’s needed.
Day-ahead auctions (and more recently in some locations intraday auctions) are also a possibility. However, their longer lead times compared to other short-term markets mean that they don’t really address the very short-term flexibility issues that are prevalent in today’s power systems.
The most recent - and highly attractive - option is the continuous intraday market. You can take advantage of price fluctuations, buying and selling up until just minutes before the physical delivery of the power. Trades are executed on an organized exchange with friendlier rules and much lower barriers to entry. And you have much more freedom compared to balancing markets - at any time if conditions change you can change your mind and trade back a position you previously entered. This market provides ample opportunities to profit from your flexibility.
However, entering the intraday market today is still no easy task if you do it yourself. Increased volume and volatility, an ever-growing number of products, and the move to trading in near real-time make it extremely challenging for manual traders to succeed. To keep up with the competition, you really need to implement algorithmic trading and automation of the full trading value chain. As we’ve described before in greater detail, running your own intraday trading operations requires a complex setup including software, sophisticated data analysis, and a specialized team.
Are you interested in marketing your pumped hydro asset but not sure how to get started? Or just wanting to avoid the hassles of running your own modern intraday trading desk? Our team of experts in AI-based energy trading can take care of it for you, getting you started in no time with full transparency and no risk. Book a non-binding call today.