Pumped storage hydropower and the Inflation Reduction Act are a renewable powerhouse
November 28, 2023
The energy transition requires more renewable energy sources—and pumped storage is a proven ‘water battery’
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The transition away from fossil fuels and towards sources of renewable energy is a massive effort taking place across many industries around the world. This is especially true for the energy sector, and it has the industry working on ways to reduce greenhouse gas (GHG) emissions. In the United States, the fight against climate change has prompted legislation at the highest levels. The most prominent bill was the Inflation Reduction Act—a $739-billion investment aimed to reduce inflation in the nation.
When the IRA was signed a little over one year ago, it also unlocked over $350 billion of clean energy and climate justice funding. This bill is the most significant climate legislation in US history and signifies the huge investment that must be made in securing our energy future. So, where will this money go?
The bill allocated $100 billion in tax incentives for clean electricity. A primary goal in establishing this funding pathway is to electrify more of the US energy infrastructure and move toward a renewable-based power supply. But in doing this, we need to make sure our electric grid can manage the increased variability that comes with renewable energy resources like wind and solar. Right now, under our current energy infrastructure, it can’t. After all, we cannot generate solar power when the sun is not shining, nor can we generate wind power without enough wind.
That’s why energy storage is a critical part of maintaining a reliable and stable grid. Renewable generation like wind and solar can be more effective when paired with energy storage to continue capturing excess production and meeting peak demands.
Pumped-storage hydropower is a perfect match for renewable energy sources like wind and solar.
Pumped storage hydropower (PSH) is a globally recognized form of energy storage that has been available for over a century. In fact, pumped storage makes up more than 90 percent of all energy storage capacity in the US and across the globe. Essentially, it acts like a giant “water battery” that cycles water between two reservoirs of different elevations. It can generate electricity when needed or store excess energy when renewable resources can meet energy demands.
Below, I’ll dive into what pumped storage is, how it can help drive the energy transition, and how the IRA can help spark more pumped storage projects in the US.
Prioritizing hydropower and pumped storage in the IRA
In addition to providing substantial funding, the IRA marks a shift in US policy. It now recognizes hydropower-based technologies as forms of renewable energy. This allows pumped storage projects—a large investment for owners—to access funds previously not available to them. It’s a huge development for the industry, and it will help decarbonization efforts around the nation.
The guidelines for accessing these funds continue to come into focus. Institutions are working quickly to secure financial, manufactured, and labor resources to take advantage of the new opportunities. It has public and private asset owners, and new project developers wondering:
- What type of funding opportunities are best for my project?
- How can we plan and get ahead of competitors applying for the same funds?
- How can we tell a compelling story to help secure funding for our projects?
These are questions we hear from clients frequently, and with the amount of funding available, we expect to hear more.
So, let’s consider three crucial points for navigating the new provisions in the IRA. And how the energy industry can leverage opportunities for pumped storage hydropower projects.
1. Understanding the hydropower and pumped storage provisions
The first thing everyone needs to do is to fully understand the new IRA provisions. The IRA builds upon the existing tax code to provide investment tax credits (ITCs) and production tax credits (PTCs) to the hydropower industry members that can take advantage of these benefits. The key provisions for new hydropower and new pumped storage include:
- Provide investment certainty: This allows owners to make costly capacity upgrades at existing hydropower and pumped storage facilities. It also allows for retrofitting non-powered dams with hydropower generation, as well as new marine energy and hydrokinetic generation. The IRA created a 10-year ITC and PTC framework for these types of projects.
- Incentivize new development: The bill creates a 10-year, technology-neutral energy storage investment tax credit for new pumped storage facilities. This is the first tax incentive for energy storage in recent history. It can help drive new developments heading forward.
- Maximize tax benefits: Maximizing the benefits of the tax provisions through direct pay for non-taxed entities—like co-ops and public power—and transferability for taxed entities, such as investor-owned utilities. These benefits are especially important for those unable to take advantage of the ITC or PTC.
Renewable energy is vital to meet our nation’s decarbonization goals. But so are the energy storage systems needed to integrate renewables and establish a reliable electrical grid.
2. Navigating the application process
Understanding the parameters of the bill and fund allocations is critical to navigating the application process. The National Hydropower Association has provided a helpful breakdown of the funds appropriated in the IRA.
Entities must get up to speed and prepare to act quickly to have the best potential of accessing the new funds. This is especially true for small- and medium-sized asset owners and developers who may not have access to legal and regulatory staff employed to navigate policy changes. Our teams have worked closely with clients around the US to assist with the various grant and tax application components since the IRA was passed.
3. Prepare for future supply chain pressure
The IRA marks not only a recognition of pumped storage’s role in our energy future but provides avenues to secure the funding necessary to make it a reality. As an industry, we also must prepare for the realities of what this means for our supply chain. Pumped storage projects can take several years of permitting, environmental studies, and engineering design before the start of construction. They require significant planning and coordination. Some of the key equipment components to these projects—like turbines—have a long lead time. So, it’s important to understand not only what you’ll need but when you’ll need it.
SSE Renewable’s Coire Glas 1,296 MW project is the first major pumped storage scheme to be built in the UK in over 40 years.
Even if a project navigates supply chain restraints when it comes to components, it can face supply chain issues in labor. Simply put, right now there are not enough people to do this work should it all come to fruition. It is becoming apparent that the industry must act quickly to address the bottleneck in equipment suppliers, engineers, scientists, and the entire consultant industry. To meet project development and financial goals, it will be critical to determine when the right time is to secure your team of partners to execute your project.
Pumped storage investment is essential for realizing renewable energy goals
The IRA has potential to transform the US power grid and hydropower industry. By investing billions of dollars in new projects—and maintaining and enhancing existing infrastructure—we can help drive the energy transition forward. As federal and state energy and climate policies look to grow our nation’s use of clean energy generation technologies, clean energy storage is more important than ever. That’s why pumped storage and other hydropower technologies are essential to our future.
We have worked on pumped storage projects around the world, including the Coire Glas project in Scotland. We have learned that getting the permitting process right is critical to moving a project forward. In the last 60 years, we have worked on every major pumped storage project in the US, many for several decades.
As more and more renewable projects come online, we hope to see more pumped storage projects developed to support the grid. Let’s look at some of the most recent projects below.
Pumped storage projects in the US and around the world
As we look ahead toward potential pumped storage projects in the future, we should also look back on some of the recent pumped storage projects in the US. We have worked with clients around the country to develop these initiatives, all with the goal of providing large-scale energy storage to balance the grid at times of peak demand.
Our Stantec team served as the Engineer-of-Record (EOR) for the Rocky Mountain Pumped Storage Project in Georgia. It is the most recent large-scale pumped storage project in the country and can generate 1,095 megawatts (MW) of clean power. On that project, we helped the client by establishing all constraints and benefits of the upgrade and integrated them into a comprehensive implementation plan.
The Rocky Mountain Pumped Storage facility in Rome, Georgia, can generate nearly 1,095 MW of clean power, truly serving as a “water battery.”
Our teams are also serving as the EOR on the most recent pumped storage project of any size commissioned in the US. This is the Lake Hodges Project in California, and it can generate 40 MW of power as well as provide water security to nearby residents in times of need. We’ve also supported our clients on the largest pumped storage project in the world—the Bath County Project in Virginia. This project can generate over 3,000 MW of energy and power about 750,000 homes.
But beyond the US, our teams have experience on pumped storage projects in many countries around the world. We have worked in the United Kingdom, Australia, China, Israel, and more. We’re helping our clients secure their energy supply while reducing emissions with pumped storage.
Pumped storage a key component of our future energy infrastructure
The energy transition is underway. But it won’t happen overnight. It will demand significant planning and investment to reduce emissions as well as our reliance on fossil fuels. Fortunately, the IRA will help provide the needed funding to develop renewable energy projects in the US. So, that gives you more time to focus on the planning. Remember, these are incredibly complex projects. Robust planning and an integrated team are necessary for successful project completion.
Renewable energy is vital to meet our nation’s decarbonization goals. But so are the energy storage systems needed to integrate renewables and establish a reliable electrical grid. Pumped storage hydropower can help solve these issues. By understanding the IRA and the opportunities that it can bring for pumped storage projects, we can help drive the energy transition forward.