North America, Pumped Storage Hydro, Research and Development

How can pumped storage hydropower be valued properly?

By Vladimir Koritarov (Argonne National Laboratory) and Rebecca O’Neil (U.S. Department of Energy)

While most grid operators and utility experts agree that pumped storage hydropower (PSH) plays a key role in supporting safe, reliable and economical grid operations, it is difficult to assess the full value of all PSH services and contributions to the grid.

Because of their versatility, energy storage technologies present unique challenges for economic assessment among grid assets. In addition, pumped storage valuation must account for value over the long lifetime of the asset and for the scale of the asset, which can influence markets and service availability. Moreover, the inability to estimate the full value of certain PSH services — especially those known as system-wide (or portfolio) contributions — makes it difficult to assess the total benefits of PSH for the system.

To address these challenges, the U.S. Department of Energy (DOE) Water Power Technologies Office has initiated the Valuation Guidance and Techno-Economic Studies for Pumped Storage Hydropower project, the goal of which is to develop a comprehensive, repeatable and transparent valuation process that will allow for consistent valuation assessments and comparisons of PSH projects or project design alternatives. This project is one of two foundational investments from the Water Power Technologies Office in a new research initiative to expand the value of hydropower resources to the resiliency and reliability of the future electric power system.

Project team

In support of this project, the DOE Water Power Technologies Office has funded five national laboratories to develop valuation guidance that will allow for an accounting of all services and contributions that PSH plants provide to the system. The objective of the project is to develop detailed step-by-step valuation guidance that electric utilities, PSH developers, regulatory bodies and other stakeholders can use to assess the value of existing or potential new PSH projects. The project team includes researchers from project lead Argonne National Laboratory, Idaho National Laboratory, the National Renewable Energy Laboratory, Oak Ridge National Laboratory, and Pacific Northwest National Laboratory. The project team will also closely collaborate with a Technical Advisory Group, which will include prominent experts in the field.

Developing the valuation guidance

The figure above illustrates the key activities in this project. They include the development of draft PSH Valuation Guidance, which will then be tested by performing valuation analyses for two proposed PSH projects located at sites with a high penetration of variable renewable generation. DOE will select the two sites for the valuation analysis through the Notice of Opportunity for Technical Assistance (NOTA) process. DOE issued the NOTA on April 27, 2018, and full applications are due by July 12, 2018.

The national laboratory team will conduct two techno-economic studies during the valuation of two proposed PSH projects. The studies will be composed of various analyses to support the valuation process and to provide input into the valuation framework, specifically to estimate the values of different PSH services and contributions. The key analyses to be carried out for the two selected PSH sites will include:

  • Value of bulk power capacity and energy arbitrage,
  • Value of PSH ancillary services,
  • Power system stability benefits,
  • PSH impacts on reducing system cycling and ramping costs,
  • Reduction of system production costs and other portfolio effects,
  • PSH transmission benefits, and
  • PSH non-energy benefits.

The valuation guidance will allow for the accounting of PSH costs and benefits over time. It will use a cost-benefit approach to compare the annualized project investment costs versus the annual values of expected benefits and revenue streams. In accounting for potential benefits and revenue streams of PSH projects, the analyses will take into account which services and revenue streams can be provided in parallel and which are mutually exclusive and cannot be performed at the same time. The methodological approach will allow for the stacking of non-conflicting value streams, but co-optimization may be needed to avoid double-counting of benefits. The guidance for valuation analysis will also include the estimation of system-wide or portfolio benefits PSH plants provide to the power system as a whole.

Expected outcome

As a result of the experience and lessons learned during the test cases, the team will modify and refine the valuation methodology. Accordingly, the PSH Valuation Guidance will also be revised and then published and disseminated to the hydropower industry, PSH developers and other stakeholders. Developing a valuation guidance that is specifically designed to capture all services and contributions that PSH plants provide to the power system will represent a big step forward in understanding the true value this technology brings to the grid.