Tag: pumped storage hydro

Expanding pumped storage hydro to support the UK’s transition to Net Zero

9 April 2024

Opinion

By Steve Marshall, Drax’s Development Manager 

In July 2023, Drax received development consent from the Scottish Government to build a new 600MW underground pumped storage hydro plant at its existing Cruachan facility in Argyll, which will more than double its electricity generating capacity.

Whilst a major milestone for the Cruachan expansion project, the right support is still needed from the UK Government to facilitate its development and we’re pleased to see some positive progress has recently been made.

During a visit to Cruachan Power Station following last year’s announcement of development consent, Scotland’s First Minister, Humza Yousaf, called on the UK Government to “provide an appropriate market mechanism” for projects including Cruachan’s expansion. Mr Yousaf also wrote to the Prime Minister urging him to take action so developers can have the certainty required to build a new generation of pumped storage hydro plants.

In order to incentivise investment for new-build pumped storage hydro plants, new financial mechanisms are needed to enable investors to back capital-intensive, long-length construction projects that will save consumers and the grid millions. The current lack of these frameworks is a key reason why no new pumped storage hydro plants have been built in the UK since 1984.

Growing the UK’s pumped storage hydro capacity is crucial to integrating more wind and solar power onto the energy grid, enhancing the nation’s energy security while tackling climate change. Pumped storage plants act like giant water batteries by using reversible turbines to pump water from a lower reservoir to an upper reservoir which stores excess power from sources such as wind farms when supply outstrips demand. These same turbines are then reversed to bring the stored water back through the plant to generate power when the country needs it.

At the start of this year, the UK Government announced that it has selected a cap and floor regime as its preferred investment framework for new large-scale, long-duration electricity storage projects, which is a huge step towards making a new generation of pumped storage hydro plants a reality.

What is a ‘cap and floor’ mechanism?

A cap and floor mechanism works by setting an upper and lower revenue limit an operator participating in the mechanism can earn from a particular asset. The lower revenue limit, or ‘floor’, is the guaranteed minimum amount of revenue that a generation asset can earn. If a generation asset does not generate enough revenue from its operations, this gets topped up to reach that floor level from the system operator using an allocated budget. At the other end of the limit, the ‘cap’ is the maximum amount of revenue the operator can earn from the asset. In cases where an asset’s revenue exceeds the cap, a proportion of the funds earned above the cap threshold are paid back to the system operator and used to reduce the cost of using the system for customers.

The cap and floor mechanism enables private investors in long-duration electricity storage projects, such as Drax’s planned expansion of Cruachan, to have a better degree of confidence by alleviating a significant amount of risk and uncertainty around whether they can recover their costs. Having a predictable revenue stream makes it more likely investors and lenders will support projects with high upfront capital costs. As well as de-risking investment and providing better value for money to customers, a cap and floor mechanism also rewards availability and efficiency, as operators are still exposed to opportunities between the cap and the floor. This includes participating in a number of different markets like the ancillary services markets, where Cruachan is able to earn revenue by providing critical inertia and stability to the grid, ensuring the safe and stable operation of the electricity system. Similarly, wholesale market arbitrage allows Cruachan to respond to price signals both in times of low/high generation and peak demand. These market opportunities incentivise operators to optimise their operations to generate revenue towards the highest end of the cap thresholds, driving innovation and efficiency in the sector. This efficiency is not only beneficial for the operators but also for the overall National Grid, bolstering the stability and reliability of the UK’s electricity supply. This enables projects to benefit from competitive market opportunities and provide services in response to price changes and benefit the consumer by providing critical services that the system needs at a competitive price.

What does this mean for Drax’s Cruachan expansion project and what are the next steps?

The UK Government’s consultation on designing a policy framework to enable investment in long-duration electricity storage ran from 9 January to 5 March 2024, and is now closed.

The consultation proposal of a cap and floor is very positive news for Drax’s planned Cruachan expansion, as it will provide the project with a route to market once the mechanism is in place. Without it, the significant upfront capital expenditure and revenue uncertainty would remain a barrier to investing in the project.

One of the most immediate benefits of pumped storage hydro is that it provides extremely quick back-up during periods of peak demand. For example, when deployed alongside intermittent renewables like wind or solar power, Cruachan can step in to store excess energy and provide it back to the grid when the wind doesn’t blow and the sun doesn’t shine. This reduces the waste and cost to customers associated with renewable curtailment.

With the Government’s ambition to deliver 50GW of offshore wind by 2030 as part of its Net Zero targets, it is in the interest of both Government and the grid to ensure enough storage is available by this point to manage the inherent intermittency of this technology. Pumped storage hydro projects have long construction times, over 5 years in the case of the planned Cruachan expansion. This means that delivery of the mechanism in the near-term is critical to ensuring that it’s available to support the electricity system in the early 2030s and beyond.

What are the benefits of pumped storage hydro for the UK?

A report by Scottish Renewables and BiGGAR Economics recently found that six projects currently under development in Scotland, including the Cruachan expansion project, will:

  • More than double the UK’s pumped storage hydro capacity to 7.7GW.
  • Create almost 15,000 jobs.
  • Generate up to £5.8 billion for the UK economy by 2035.

During its construction phase, the Cruachan expansion is projected to provide up to £73m GVA and over 150 jobs in Argyll and Bute. Across Scotland this increases up to £260m GVA and over 500 jobs, which is a total possible UK benefit of over £470m GVA added to the economy and over 1,100 jobs supported amongst the wider supply chain and indirect local area support.

Pumped storage hydro can also provide a number of extra balancing and ancillary services outside of energy storage and generation, across multiple different markets. These markets play a critical role in ensuring the safe and stable operation of the electricity system by providing grid inertia, voltage control frequency response and restoration services, alongside quick flexible response to price signals both in times of low and peak demand. Being able to support wider services in this manner means pumped storage hydro offers better value for money to both investors and consumers, with an Imperial College study finding that it could help to reduce total system costs like these by between £44m and £316m per annum by 2050.

We look forward to working constructively with the UK Government and other stakeholders to help deliver a policy environment which secures investment, strengthens our energy security, and delivers for consumers. We’re ready to move mountains to tackle climate change.

Find out more about Cruachan’s plans for expansion here: drax.com/cruachan2

Harnessing Scotland’s landscape to power a renewable future

20 March 2023

Pumped storage hydro

Key takeaways:

  • Scotland’s ambitious plan to expand its wind capacity­ and reach net zero by 2045 will require greater levels of energy storage
  • Plans to expand the storage and generation capacity of Cruachan pumped storage hydro station from 440 MW to over 1 GW can help support a re­­newable future
  • Greater levels of energy storage can also reduce the costs of operating the grid and enable the greater utilisation of renewable electricity sources such as wind.
  • Expansion plans for Cruachan would bring as many as 900 jobs during the construction phase across the supply chain and continue Drax’s commitment to local communities and environments
  • The project is a large-scale and long-term infrastructure solution to some of the critical issues faced by Scotland’s electricity network.

The hit Star Wars TV series Andor might be set a long time ago in a galaxy far, far away, but audiences in Argyll and Brute may recognise a local landmark on the titular distant planet.

Cruachan Power Station’s 316-metre-long buttress-style dam served as a setting for the space thriller. However, here on planet Earth, it has another big role to play in supporting Scotland and the UK’s efforts to reach net zero emissions.

The pumped storage hydro station, known as the ‘Hollow Mountain’, complements Scotland’s wider strategy to expand its onshore wind capacity to 20 gigawatts (GW) by 2030. The plant’s ability to absorb excess electricity at times of low demand, and discharge it again when needed, allows it to play a key role in balancing and supporting the national transmission system.

As Scotland and the rest of the UK move to a future increasingly powered by intermittent renewables, ambitious plans to increase Cruachan’s capacity to more than 1GW, will also help create jobs in Argyll and Bute and support communities through the net zero transition.

Scotland’s wind power potential

Scotland’s famously blustery, wet weather and dramatic landscapes of mountains and lochs has long enabled it to pioneer hydro schemes along its rivers, pumped storage hydro on its mountainsides, and wind turbines on and offshore.

Wind power contributed heavily to Scotland achieving 97% renewable electricity generation in 2020. And with more than 17 GW of additional capacity in the pipeline, Scotland has the potential to be the wind powerhouse of the UK – in 2021, Scotland exported 33% of its generation in net transfers to England and Northern Ireland, having previously set a record 37.3% in 2020.

However, simply generating a lot of power isn’t the whole story. Generating too much power can even be a problem for grids if there is nowhere for that power to go. Currently, constraints in the transmission system limit how much power can be exported from Scotland to meet demand in other parts of the UK.

When generators start producing these surpluses, the grid operator has to pay wind farms to turn them off. It’s estimated that wind curtailment costs added £806m to energy bills in Britain in 2020 and 2021. This is where energy storage comes in, offering somewhere for power to be redirected and reducing curtailment costs.

Enter Cruachan. At maximum load Cruachan Power Station can generate 440 MW, enough to power 1 million homes, when water from the upper reservoir is released, flowing through the plant’s four turbines, and entering Loch Awe below. But when there is more electricity on the system than demand, excess electricity can be used to power turbines that pump water up from Loch Awe to the upper reservoir where it’s stored until needed.

Pumped storage hydro, as this system is called, offers long-term, large-scale energy storage to the UK’s electricity system, helping to reduce costs and prepare for a renewable-led future.

The large-scale, long-term storage solution

Since opening in the 1960s Cruachan has only become more important in helping to stabilise an increasingly renewable UK, while supplying ancillary services like inertia to the grid. The Cruachan expansion plan to expand the facility and bring its ability to absorb and discharge electricity to more than 1 GW can offer a host of benefits to the grid and power to consumers across the country.

Cruachan’s ability to reach full generating capacity in less than 30 seconds means that it can respond quickly to fluctuations in supply and demand. When Cruachan provides power back to the system in times of high demand, it can in turn lead to lower peak power prices. This becomes even more important at a time of high gas prices, when ordinary consumers are feeling the impact of rising energy costs more than ever.

Increasing Cruachan’s capacity to generate and absorb power can help reduce transmission system costs and wind curtailment. It also offers a zero-carbon source of stabilising ancillary services to the grid, which have historically been provided by gas generators. As the proportion of gas generation decreases and the proportion of intermittent renewables generation increases, low-carbon generators that are able to provide these services will become increasingly more important.

Importantly, the Cruachan expansion is a long-term solution. The expanded facility would have an operational life span of more than half a century, significantly longer than the 10-15 years offered by lithium-ion battery storage solutions.

However, there is a need for a financial mechanism to de-risk the project for investors and offer value for money for consumers. The cap and floor mechanism, which ensures generating revenues remain within a specific range, is currently used for interconnectors to stabilise revenues by offering sufficient certainty to investors that income will cover the cost of debt, which unlocks finance for new projects. A similar mechanism could be introduced to support energy storage technologies that will be needed to support a renewable future, such as the Cruachan expansion. The UK government must act quickly to implement the mechanism and realise the opportunity that storage can provide to the UK and Scotland.

Making the Cruachan expansion a reality  

Expanding Cruachan is a long-term, large-scale project that will create a range of jobs and economic benefits and help support the local economy through the transition to net zero.

“I am absolutely delighted that Drax is progressing plans to expand the Ben Cruachan site,” says Jenni Minto, Member of Scottish Parliament. “This will not only support 900 jobs and create a pumped storage facility that will be able to provide enough renewable energy to power a million homes, it will provide £165 million benefit to the local economy during construction.”

In addition to 150 on-site local construction jobs, the project’s supply chain will create opportunities across a range of industries, from quarrying and engineering, to transport and hospitality.

 “The Cruachan extension is a really exciting project and one that’s really important for Scotland.” says Claire Mack, CEO Scottish Renewables. “It brings together a number of our really important skills, including civil engineering and electrical engineering. What we really want to see is a renewables industry that’s thriving but also driving economic gain in Scotland.”

Cruachan has operated in the region for more than half a century and has supported local communities through more than just job creation. This includes a donation to The Rockfield Centre in Oban to help fund a new community hub, offering education as well as a social space. Following Cruachan’s appearance in Andor, Drax also made a five-figure donation to several charities and good causes across Argyll, including Oban Mountain Rescue’s efforts to create a rural defibrillator network.

As well as lending a helping hand to local communities, Cruachan’s teams have always taken precautions to minimise any impact on the natural environment and preserve the area’s biodiversity and natural beauty.

The Cruachan expansion is an engineering project on an epic scale. It will involve carving huge new underground caverns, tunnels, and waterways out of the rock below Ben Cruachan. But in doing so it will create long-term opportunities for the local community and a key piece of infrastructure to take Scotland into a net zero future.