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Conquering Time

Understanding the value of pumped storage.

Fortnightly Magazine - October 2008

other generation assets in a larger portfolio.

But all these benefits come at some cost. Now, instead of just looking at the capital cost for a wind project, the developer of the combined wind-pumped storage complex faces a much higher initial investment. And, as much as a developer might try, one never can avoid the round-trip efficiency issues.

Valuing Storage

Several major value drivers (positive and negative) affect the prospects for building new pumped-storage assets in U.S. markets. The on-peak, off-peak spread is the single biggest value driver. Regional resource scarcity and energy-price volatility typically will improve value. Likewise, market conditions that reduce the price spread by suppressing on-peak prices, such as reduced natural gas prices or high planning-reserve margins, will damage the value of pumped-storage assets.

Operational flexibility is another major value driver. Rapid starting and high ramp rates make it possible to sell various ancillary services. And the ability to move power from off-peak to on-peak periods will allow the asset to generate capacity payments.

Additionally, the potential to integrate with, and increase the value of, wind generation could be a win-win marriage—with the caveat of associated capital costs.

Finally, while pumped storage is ideally suited to provide ancillary services, AS markets easily can become oversupplied. The demand for AS is only a small fraction of the demand for energy, making this revenue stream risky as a primary driver for pumped-storage plants.

Finally, pumped-storage projects continue to face the same operational challenges that have constrained their development in the past. Depending on the site, a pumped-storage project that makes perfect sense for economic reasons might be a non-starter because of environmental opposition, fisheries management regulation or the irrigation needs of the region. Nevertheless, with power capacity and ancillary services becoming more valuable in organized markets—and with a growing fleet of wind turbines—pumped storage does merit new consideration in the U.S. power supply mix.