Pumped hydro promises an energy solution to replace coal-fired power stations, but long-thinking and broad collaboration is needed to encourage and de-risk private investment.
GHD National Sector Lead for Hydropower Helen Barbour-Bourne said as the world shifted from fossil fuels to variable renewable energy, such as solar and wind, pumped hydro energy storage was uniquely positioned to ensure Australia’s energy system remained stable and reliable.
Ms Barbour-Bourne represented the global professional services company on an International Hydropower Association (IHA) global working group focussed on addressing the key challenges surrounding the development of pumped hydro projects.
“The problem these projects face is that at the point of time when they are seeking funding, they come with risk profiles which have prevented funding solely with private equity.”
She said pumped storage hydropower was a proven cost-effective, low-impact renewable energy storage technology that could provide flexibility and resilience at scale.
“It is the largest form of renewable energy storage, providing more than 90 percent of all stored energy worldwide.
“(However), not enough projects are making it to financial close, and when they do, there is a long tail of cost and schedule overruns that stalls development and discourages investors.”
Ms Barbour-Bourne said the IHA global working group had created a guidance note for key decision makers to de-risk pumped storage investments.
“The guidance note delivers recommendations to reduce risks and enhance certainty in project development and delivery. It also equips key decision-makers with the tools to guide the development of pumped storage hydropower projects and unlock crucial finance mechanisms.”
She said mitigation strategies included ensuring local government was on board, quoting Denton’s Senior Associate Roddy Cormack that developers needed “to have local government coming in with all the bits that are unrelated to digging holes in the ground to pump water through, things like roads, bridges, even housing and education for people’s families.”
Ms Barbour-Bourne said projects also had complex geotechnical risks to manage, with interconnected networks of dams, tunnels, reservoirs and other major mechanical and electrical components.
She said the complexity meant the skilled workforce needed to deliver projects was in many cases specialised and because of the number of developments worldwide, in high demand.
“There is a way to address the labour resource gap in conjunction with the social impact. Providing the opportunities for reskilling and retraining is really important for local community buy-in and building out a workforce for the future.”
Governments have to play their part by putting in place appropriate market mechanisms to incentivise investments in long duration energy storage and enable revenue certainty.
Ms Barbour-Bourne said governmental support, such as removing regulatory barriers, streamlining licensing, and providing physical infrastructure like access roads, also encouraged capital investment.
She said the scale and complexity of pumped storage hydropower projects made it difficult to start addressing risks and pivot to more appropriate strategies deep into development.
“Project developers need to practice comprehensive upfront planning as early as possible, when they have the best opportunity to influence cost and risk factors.
“The IHA recommends considering the procurement strategy and appointing a complete single delivery team as early as possible, including the owner, designer, contractor, original equipment manufacturer, and others, so they can focus on de-risking the project.”
Ms Barbour-Bourne said the risk profile of hydropower projects could make them incompatible with traditional fixed-price construction contracts where one party takes all the risk.
“Owners, suppliers and investors need to collaborate to achieve clarity on how risk will be fairly allocated throughout all the parties.
“It’s essential to understand the overall complexity and select appropriate contract frameworks that will ensure that boards, insurers, and financiers are comfortable with the approach from the outset.”
Ms Barbour-Bourne said in the Australian context none of the challenges were insurmountable.
“We’re a dynamic, flexible and innovative country. To tackle these challenges, we need closer government and private collaboration (and) it’s crucial that everyone is part of the journey, especially our Indigenous communities and regional host communities.”
