What happened to the pumped hydro boom?

Four years ago in the days before green hydrogen was the buzz word, pumped hydro was the buzz word. Or words. In March 2017 then Prime Minister Malcolm Turnbull announced the 2000MW Snowy 2.0 pumped hydro scheme, promising a price tag of $2 billion.

Later that year a report from The Australian National University in 2017 “discovered” 22,000 pumped hydro sites around Australia. The ARENA backed report said these sites were capable of storing 67,000 gigawatt hours, about a third of the entire annual electricity consumption in the National Electricity Market.

We were told there was such a cornucopia of pumped hydro available that we could “afford to be choosy”. We could build the best of them and be ready for the closure of the Liddell power station in 2022. The report’s authors, experts in solar PV technology, won a national environmental prize.

Since then, the biggest thing in pumped hydro, Snowy 2.0, was re-announced in 2019 with a new $5.1 billion price tag, requiring taxpayer funding of $1.38 billion to get across the line. The cornucopia has not materialised. Two projects in South Australia, the state that probably needs pumped hydro the most (Highbury Quarry and Kanmantoo), have been abandoned. Another seven projects are languishing around the feasibility stage, while the other big pumped hydro project, the 2500MW Battery of the Nation project in Tasmania, can’t find anyone to help pay for the extra transmission lines needed to make it viable.

The only other new pumped hydro project to succeed to date is Genex’s $777 million Kidston project in north Queensland, which reached financial close in May this year. It was a triumph of project planning by Genex, who to be honest probably should get an award for pulling the deal off.

That’s because the 250MW/eight hour project needed an awful lot of help to get across the line. It got a loan of up to $610 million from the Northern Australia Infrastructure Facility, $47 million grant funding from ARENA, an off-take deal with EnergyAustralia and critical investment from Japanese electricity utility J-Power. Queensland government transmission business Powerlink will also invest $147 million to connect it.

It’s a formidable combination of forces driven by National Party/North Queensland conservative politics, state politics, Japanese utilities scouting the world for low emissions investments, and generous federal funding looking to support its political narrative of carbon action not carbon taxes.

North Queensland is not exactly crying out for new pumped hydro investment. It will be useful, but pretty much anywhere else in the NEM mainland states would have been more effective to help balance big rooftop solar and big wind in the southern states.

The slow development list and the enormous financial assistance thrown at the two successful pumped hydro projects suggests there are bigger commercial barriers to delivering this form of large-scale storage than was first realised. That doesn’t mean pumped hydro is a bad idea, but these assets have operating lives that run beyond a century, while making modest annual returns. It’s a lot of concrete for not much electricity.

Pumped hydro isn’t quite as nimble as batteries, and despite the ANU’s optimism may not be as easy to commercialise as first thought. The current type around green hydrogen just adds an additional risk if/when it arrives at a competitive price.

That technology uncertainty makes it hard for private investors looking at getting commercial returns from low yield, long life assets. Most hydro and pumped hydro around the world has been built or underwritten by governments. This seems likely to continue into the future.