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Realizing New Pumped-Storage Potential Through Effective Policies

A streamlined Federal Energy Regulatory Commission licensing process, investment tax credits, and a strategic campaign to educate policy makers could aid in advancing the development of thousands of megawatts of pumped storage.

By Daniel M. Adamson

After decades of little or no development, hydropower pumped storage in the U.S. is poised for extraordinary growth. One key sign is the issuance by the Federal Energy Regulatory Commission (FERC) over the past three years of 25 preliminary permits for pumped-storage projects with a total installed capacity of 29,444 MW. In addition, FERC is considering license applications for two proposed developments: the 500-MW Lake Elsinore Project in southern California and the 400-MW Iowa Hill Project in northern California.

These nascent pumped-storage projects are emerging not a moment too soon. The recent explosive growth in wind power generation, a variable power resource, creates a need for backup power and storage. Pumped-storage hydropower can provide electricity storage when the wind is not blowing, as well as the balancing and regulation services needed to firm the wind power resource. Even though it appears that the electricity stars are aligned in support of pumped storage, the future of this important resource is not assured. There are hurdles to new pumped storage that must be leaped if it is to meet its potential.

Based on my experience as a former regulator and as counsel to hydropower clients, what follows are three suggestions that, if implemented, could go a long way in making the very promising development potential of pumped storage a reality.

Expediting the licensing process

The first barrier to pumped storage development is FERC’s current licensing process. Some developers will take one look at the five-year timeline for FERC’s integrated licensing process, the ILP, and decide to spend their time and money on an energy project that is not FERC-licensed such as a natural gas-fired combustion turbine. The length of the licensing process is even more daunting when combined with the fact that many pumped-storage projects could take as long as four or five years to construct.

To address this problem, I recommend that FERC consider developing a streamlined two-year licensing process for “closed system” pumped-storage facilities that do not rely on a natural water body such as a river or lake for either reservoir and thus have minimal adverse environmental effects. While there still will be significant issues for FERC and other agencies to review with such facilities, they likely will be far fewer in number and more easily resolved than projects utilizing an existing natural water body as a reservoir.

To give just one example, there are unlikely to be any fish passage or river flow issues associated with closed system pumped-storage projects. As a result, there should be no need for the preparation of a detailed pre-application document known as the PAD, or the complex study process that is part of the ILP.

Instead, under an expedited process, a closed loop pumped storage applicant could initiate the licensing process by filing a license application supported by an applicant-prepared preliminary draft environmental assessment. If the application and environmental assessment were determined to be sufficient by FERC staff, then the environmental review process under the National Environmental Policy Act, including multiple opportunities for agency and public review, would begin with the goal of being completed in not more than two years.

Bridging the financing gap

Overcoming the second barrier, the capital-intensive nature of most pumped-storage projects, will be more challenging. Pumped-storage projects require very substantial capital investments in order to be built, with some of the larger proposed projects with estimated price tags in the range of $1 billion to $2 billion. Many of the largest existing pumped-storage projects were completed in the 1960s and 1970s. This was a time when the regulatory and financial climate for utilities favored long-term investments and capital intensive projects, such as nuclear reactors and pumped storage. The regulatory climate today is much different, in part due to a desire not to repeat some of the excesses of that era.

The result is that most new electric generation facilities in the U.S. are either natural gas-fired combustion turbines or large wind plants – technologies that are relatively easy to site, quick to construct, and lower in upfront capital investments. In particular on the renewable side, the vast majority of new investment is in wind power, in large part because of its short lead times and upfront capital costs that often are substantially lower than other renewable resources such solar, geothermal, biomass, and hydropower.

There are two key steps policymakers can take to help pumped-storage project developers cross the perilous financial chasm between coming up with a great idea for a proposed project and making it real by obtaining financing. The first is an investment tax credit that takes a substantial bite out of the upfront capital costs of pumped-storage projects. Similar assistance should be offered to municipal and cooperative utilities through the Clean Renewable Energy Bond (CREB) program.While the renewable energy production tax credit (PTC) has been very effective at promoting wind development, and should be continued, it is substantially less valuable to capital-intensive energy resources with long construction lead times such as pumped storage.

Another policy tool available to assist pumped storage is held by state regulatory commissions and the governing boards of municipal and cooperative utilities. That is the authority to approve long-term power purchase agreements with pumped storage developers that will guarantee a future revenue stream and thus make it possible to obtain financing for a project. Of course, great care must be taken to assure that such contracts are in the interests of consumers. However, given that pumped storage is a proven technology with an extraordinary capability to meet peak demand and provide electricity storage, it should be possible to achieve an appropriate balance.

These types of major policy initiatives at both the federal and state levels will not happen on their own. Instead, it’s going to take a sustained industry effort. At the state level, regulatory commissions and others will need to be convinced of the benefits of long-term pumped storage power purchase contracts. At the federal level, industry can work through the National Hydropower Association (NHA) to obtain Congressional support for a pumped storage investment tax credit and to call for FERC action to expedite the pumped storage licensing process.

Educating policymakers about pumped storage

Relatively little progress will be made in expediting the pumped storage licensing process or obtaining necessary financial support until industry surmounts the third and final barrier – lack of awareness of the technology. We are living in an era where energy policy, including our electric generation mix, is subject to great debate by federal and state policymakers and advocates of all stripes. But pumped storage is a phrase rarely uttered in electricity policy circles. Instead, the conversation is dominated by wind, solar, natural gas, clean coal, and nuclear with occasional references to geothermal, biomass, and hydropower. One of the unfortunate consequences of this approach has been insufficient discussion and regional planning regarding the development of transmission and energy storage resources necessary for renewables development. This needs to change, and fast.

Supporters of pumped storage technology should immediately mount a concerted education campaign so that when policymakers recite their litany of electric generation options, pumped storage is on the list. While pumped storage supporters are unlikely to match the extraordinary expenditures made to publicize some other energy resources, there is a compelling story to tell about the benefits of pumped storage technology. In particular, our industry can highlight the role pumped storage can play in enabling variable renewables, such as wind and solar, and the reliability benefits it provides.

Conclusion

The likely transformation of the U.S. electricity system in the coming decades due to requirements to reduce greenhouse gas emissions and to increase the use of emission-free renewable generation will create a host of opportunities for hydropower, including pumped storage. Our industry needs to work to assure that appropriate steps are taken by policymakers so that the full potential of hydropower pumped storage is realized.


Dan Adamson is a hydroelectric licensing attorney and partner with Davis Wright Tremaine LLP. From 1999 to 2001, he was director of the Office of Energy Projects for the Federal Energy Regulatory Commission. He is chair of the National Hydropower Association’s Legislative Committee.


Telling the Pumped Storage Story: Main Messages


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