The U.S. Department of Energy’s Guidebook for Hydropower Projects
September 7, 2021
The U.S. Department of Energy (DOE) has funded a team of five national laboratories to develop a valuation guidance for pumped storage hydropower. The team has developed and recently published a guidebook to assist developers of prospective pumped storage hydropower projects and other stakeholders in evaluating the services these facilities can provide. Two of the five labs that contributed to this effort are Argonne National Laboratory and the National Renewable Energy Laboratory (NREL). In this interview, Vladimir Koritarov of Argonne and Dominique Bain and Greg Stark of NREL discuss the creation of the guidebook, the case studies they carried out to test the valuation methodologies, and the importance of promoting pumped storage as a core component of a future carbon-free grid.
Hydro Leader: Please tell us about your backgrounds and how you came to be in your current positions.
Dominique Bain: I started working with production cost models in graduate school at Northern Arizona University in 2014. I continued working with them during my time at Arizona Public Service in Phoenix. When I started at NREL about 2½ years ago, I started focusing more on hydropower representation in hydro production cost models.
Greg Stark: I’m the technical lead for hydropower at NREL. My background is in power systems engineering and cross-sector optimization, and I like looking at the confluence of water and power. I have a mixed background in electrical engineering, finance, and economics.
Vladimir Koritarov: I’ve been with Argonne for 30 years. I’m currently the program manager for the waterpower program and the director of Argonne’s Center for Energy, Environmental, and Economic Systems Analysis. Before Argonne, I spent about 8 years working as a power system planner at the electric utility of the former Yugoslavia. I am a power systems engineer; my background is in energy systems analysis. Over the years, I’ve done a lot of capacityexpansion analyses, production cost analyses, hydrothermal coordination analyses, and pumped storage analyses.
Hydro Leader: Please tell us about NREL.
Greg Stark: NREL’s focus is on renewable technologies like wind, solar, and hydropower, as well as up-and-coming resources such as geothermal and hydrogen. The lab started out as the Solar Energy Research Institute and has grown over the years as other forms of renewables have become more common. NREL is the DOE’s only laboratory that falls under the Office of Energy Efficiency and Renewable Energy, which differentiates us from the multidisciplinary labs.
Hydro Leader: Please tell us about Argonne National Laboratory.
Vladimir Koritarov: Argonne is one of the 17 national laboratories that are owned by the DOE. It has been around for 75 years. It has about 4,000 employees. We’re a multidisciplinary lab under the DOE’s Office of Science. We do a lot of basic science as well as applied science. We deal with all energy sources, including hydropower, thermal and nuclear technologies, renewables, and storage.
Hydro Leader: Please tell us about the DOE pumped storage evaluation guidebook.
Vladimir Koritarov: There was a need for a guidebook to help the evaluation of pumped storage projects. While pumped storage projects provide a lot of different services and have an important role in the system, it can be difficult to estimate the value of all these services and their contributions to the grid. Some of those services are not currently compensated in the market. Typically, there is compensation for energy arbitrage; energy generation; and in some markets, capacity value; as well as for some ancillary services like regulation reserve and spinning reserve, but there are no market mechanisms to compensate for other services, such as inertial response and stability.
In principle, there are two market environments that characterize the operation of the power system: regulated utilities and competitive market environments. In competitive market environments, there are revenue streams for those services that you can bid for. In traditionally regulated utilities, you can’t really bid. Those services are provided as part of the normal utility operation. The guidebook addresses both market environments. We provide guidance on how to assess the value of pumped storage facilities in either regulated utilities or the competitive market environment.
Dominique Bain: Pumped storage hydro projects are capital intensive. There’s some hesitancy on the part of integrated utilities to do capital-intensive projects. That is even more true in market systems: there’s no good incentive for capital-intensive projects. However, as we add more wind and solar generation, the benefits of pumped storage hydro become more apparent. It’s useful to start looking at this now, as opposed to 10 years down the road, because capital-intensive projects usually have a long construction timeline and pumped storage hydro often takes about 8–10 years from start to finish.
Greg Stark: We’re seeing more renewables on the grid, and fossil-fuel-fired generation is dropping off. For all the challenges associated with fossil-fuel-fired generation, it is dispatchable, flexible, and makes it easy to integrate wind and solar. When we go to a 100 percent renewable grid, we expect to see hydro and pumped storage hydro filling that role—it’s one of the few renewables that is both dispatchable and flexible, which makes it well matched to renewables integration. The guidebook helps ensure that these capabilities are valued correctly.
Vladimir Koritarov: Pumped storage is important because the Biden administration wants to achieve a carbon-free power sector by 2035. That is an ambitious goal, and to meet it, we have to get to a system that is predominantly based on renewable energy sources, like hydropower, wind, and solar. However, if you want high renewable penetration in the system, you need a lot of storage. Pumped storage hydro is currently the only mature technology that can provide large quantities of long-duration storage. Different types of batteries typically provide 2–4 hours of energy storage, while pumped storage can provide 8 hours or more. About 94–95 percent of all storage capacity in the United States is pumped storage hydro. The rest is batteries, compressed air, and flywheels. Pumped storage currently stores 99 percent of all energy stored in the United States.
Greg Stark: One of the things we do at NREL is to model the future with a 100 percent renewable grid. In our efforts, we have seen that there can be lulls in renewable energy generation that may require us to draw on energy storage for longer than 8–10 hours. For example, in late summer when there isn’t much wind, you might have to cover for a couple of days. It is in situations like that that the scale of what pumped storage can deliver becomes important, and that’s part of the incentive for developing the guidebook.
Vladimir Koritarov: The winter storm that hit Texas in February 2021 would have been easier to overcome if Texas had had more energy storage. Texas may not be the best place for pumped storage because of the terrain and geography, but it does have some locations for potential new pumped storage projects. During extreme weather events that disrupt the power system for several days, storage is going to be the key to quick recovery without blackouts or extensive damage to the system and the economy.
Hydro Leader: Would you tell us about the contents of the guidebook and how you foresee it being used?
Vladimir Koritarov: To develop the guidebook, we first looked at the different types of valuation studies and methodologies that have been applied in the past not only to pumped storage but also to other energy storage technologies and to wind and solar. We wanted to use the best methods from those valuation studies to develop a comprehensive, transparent, and objective methodology for the valuation of pumped storage projects. We developed a 15‑step valuation process for pumped storage, which is outlined in the guidebook. The guidebook also has a chapter on different methods that can be used to estimate the value of the different services that pumped storage plants can provide to the grid. The general framework for the valuation process is what we call the cost-benefit and decision-analysis methodology. We rely on a traditional cost-benefit analysis method to estimate the value of the project, but include a multicriteria decision-analysis step in case you have to decide among multiple alternatives based on both monetized factors and nonmonetized ones, like reliability and environmental impacts.
The guidebook also has an appendix with a list of metrics for different services, an appendix with a catalog of different models and computer software tools that can be used for different types of power system analysis, and appendixes on cost-benefit analysis and on multicriteria decision analysis.
We predict that the manual will be used primarily by the hydropower industry, especially by developers and utilities that are thinking of developing a pumped storage project. Also, it will be used by consulting and engineering companies that may want to assess new pumped storage hydro projects for their clients. The guidebook also indirectly benefits regulatory agencies and lending organizations, such as the World Bank. If a pumped storage hydro developer performs an analysis using the valuation method proposed in the guidebook, a regulatory agency or lending organization will be able to review the analysis and see if the applicant followed the process and took all the required steps. The valuation analysis proposed in the guidebook is something that decisionmakers can trust, and it provides confidence that the pumped storage hydro developer has done due diligence in assessing the project.
Hydro Leader: One of the steps in this process was updating existing grid models that were potentially out of date. Would you tell us about that?
Dominique Bain: Part of the purpose of this exercise was to try to see the future. Hydropower assets take 10 years to develop, but they last 50–100 years. They will be around longer than batteries, which tend to run for a maximum of 20 years. In order to accurately develop pumped storage hydro models, we need to think about how pumped storage hydro interacts with other factors, such as how much solar or wind generation there is and how much coal has been retired. As part of that, we updated the production cost model that we use. We created a 2028 base model that was based on work done at Argonne. The base model had about 20 percent wind and about 10 percent solar, and we increased that to 25 percent wind and 15 percent solar to create a high-renewable model so that we could see how the value of pumped storage hydro changed as we increased the amount of renewables in the system. We also retired most of the coal from that high-renewable case. No one is going to get something like this 100 percent correct, but there’s a lot of value in understanding that when we retire coal and replace it with wind and solar, the value of production of a pumped storage hydro unit changes. We saw an increase in the revenue that the unit brought in, an increase in cost savings and fuel savings, and curtailment benefits to the whole system.
Hydro Leader: Would you tell us about the case studies you took part in as part of this planning effort?
Dominique Bain: The evaluation guidebook was developed before we did specific case studies. The studies were a sort of check to test whether the evaluation guidebook was giving us trustworthy information. We were applying the guidebook itself to the test cases. We did two test cases based on proposed projects. One was a project of about 400 megawatts (MW) located in Wyoming, and the other was a 1,200 MW project located in the Washington/Oregon area. When we did the production cost modeling, we would run our future case without the pumped storage hydro unit and then we would run it with the pumped storage hydro unit to compare the benefits.
Vladimir Koritarov: We applied the methodology from the guidebook to these projects to test the principles of the valuation process and to see whether we needed to make any improvements in the methodological approach. The analysis will be published in two technical reports that will serve as companion reports to the guidebook. They will serve as examples of how the guidebook methodology was applied by the lab project team to these two proposed projects.
Hydro Leader: What kind of outreach are you currently doing around the new guidelines?
Vladimir Koritarov: The guidebook was officially released on World Water Day, March 22, 2021. The DOE had a special press release about the guidebook. There are several web pages that were developed by the DOE’s HydroWIRES initiative. HydroWIRES was initiated by the Water Power Technologies Office and deals with research into how hydropower can best support the power grid. The HydroWIRES website has several pages that illustrate different aspects of the guidebook and describe the project team and the industry partners. Argonne and other labs participating in the project had separate press releases published in different media. In addition to Argonne and NREL, the three other labs that are participating in this project are Pacific Northwest National Lab, Oak Ridge National Lab, and Idaho National Lab. We also have a 19-member technical advisory group that includes experts from the hydropower industry, electric utilities, pumped storage hydro developers, electricity market operators, hydropower equipment manufacturers, regulatory agencies, and industry and academic research institutions.
Hydro Leader: Is there anything you would like to add?
Greg Stark: A next step for NREL is to refine our capacity expansion work, in which we look at how a system is likely to be built out for various scenarios over the coming years. Right now, it involves a lot of simplifications, in which we look at single days to represent each season. However, as I have mentioned, one of the valuable things about hydropower is its ability to deliver stored energy over longer, multiday time frames. A great next step would be to enhance our models so that we can investigate the value of pumped storage and hydropower over these extended periods.
Vladimir Koritarov: Another important thing is that we are
developing a pumped storage valuation tool based on the guidebook. The tool will help users apply the valuation process presented in the guidebook. We’re developing an online, publicly available tool that will guide users through the valuation process. It’s a decision-tree tool that will present different paths depending on the type of project the user is evaluating. There are lots of complex analyses involved in this valuation process, but at least users will have this tool to guide them through the process and to let them know what types of analysis need to be done at each step. We already drafted the beta version, which is being tested. An enhanced version is going to be available to a wider audience in several months.
Dominique Bain is an electrical engineer and researcher at the National Renewable Energy Laboratory. She can be contacted at email@example.com.
Vladimir Koritarov is the director of the Center for Energy, Environmental, and Economic Systems Analysis at Argonne National Laboratory. He can be contacted at firstname.lastname@example.org.
Greg Stark is the hydropower technical lead at the National Renewable Energy Laboratory. He can be contacted at email@example.com.