Renewables growth to bolster need for pumped hydropower storage, developments mainly in Asia

By Fitch Solutions

Key View

Pumped hydropower will see sustained capacity growth over our forecast period as intermittent renewable generation rises, though the nature of pumped hydropower projects poses challenges for global adoption.
As of end-2021, the North America and Western Europe (NAWE) region has the largest pumped hydropower capacity globally, though the scope for more pumped hydropower projects will be limited.
We expect Asia to outperform other regions for pumped hydropower capacity growth, overtaking NAWE’s installed pumped hydropower capacity in 2023, with developments chiefly concentrated in Mainland China.

Pumped hydropower storage utilises pumps to drive water to a reservoir at a higher altitude for large-scale long-duration energy storage, and turbines to generate electricity when the stored water is released. Typically, when on-grid electricity demand and prices are low, operators draw electricity from the grid to power pumping systems. Conversely, when demand is high, operators release water to generate electricity either to sell back to the grid or to power their own needs. With the rapid expansion of renewables, pumped hydropower storage will continue to be utilised as an energy storage solution as means to solve the intermittency issue with renewables. Additionally, with the increasing number of floating solar power projects, some of which have been located on reservoirs of pumped hydropower stations, we expect the increasing attractiveness of projects that couple floating solar with pumped hydropower. Globally, we expect pumped hydropower capacity to grow from 165GW in end-2021 to 233GW in 2031, at an annual average rate of 3.5%.

Global Pumped Hydropower Capacity Growth Follows Renewables Expansion

Global – Pumped Hydropower Capacity, GW, & Growth Rate, %, & Non-Hydropower Capacity Growth Rate, % (2021-2031)

Currently, pumped hydropower storage is the most scalable kind of energy storage solution for markets, though the large-scale nature and need for vast water resources remain a limitation. When compared to other storage solutions such as lithium battery storage, hydrogen fuel cells, and gravity battery storage, pumped hydropower storage is the most scalable. This is evident by the average capacity of projects for pumped hydropower storage projects, at about 860MW across 70 projects in our Key Projects Database (KPD). Other energy storage projects average about 170MW across 298 projects in our KPD. Additionally, pumped hydropower storage accounts for 90% of the world’s energy storage capacity, according to the International Hydropower Association, displaying the sector’s maturity and scale of projects.

However, due to the large-scale nature and dependency on water resources of pumped hydropower storage, markets are required to have access to water reservoirs at high altitudes before considering the development of pumped hydropower storage. This is a geographical limitation of the energy storage type, which makes it challenging for global adoption, especially for markets with flat terrains and a lack of major rivers or reservoirs. This has resulted in pumped hydropower projects being installed in 40 out of the 117 markets that we cover (displayed in the immediate heat map below). We highlight also that a strong hydropower capacity does not necessarily translate to an increased potential for pumped hydropower, especially for markets with run-of-the-river hydropower dams, which have a lack of water storage capacity.

For markets that are unable to adopt pumped hydropower, renewables uptake will have to go in hand with other forms of energy storage solutions. Regardless, pumped hydropower storage will remain the key energy storage solution over the coming 10 years.

As of end-2021, the North America and Western Europe (NAWE) region has the largest pumped hydropower capacity globally, though the scope for more pumped hydropower projects will be limited. We estimate that NAWE ended 2021 with an installed pumped hydropower capacity of 78GW, corresponding to 47% of the global share. We highlight that the US will drive pumped hydropower growth for NAWE, albeit limited when compared to the project pipeline for the region. The US outperforms its regional peers, housing 30% of NAWE’s pumped hydropower capacity in 2021. Additionally, 13 of the 24 projects in NAWE’s project pipeline are located in the US, and the Department of Energy (DOE) estimates that the US has the potential to double its current pumped hydropower capacity. However, the projects in the pipeline are all in the planning stages and clarity on how the government will realise its potential remains limited, informing our conservative outlook for the market’s pumped hydropower sector. We expect the US to grow its pumped hydropower capacity by about 1GW over the next 10 years. There are upside risks to pumped hydropower storage from federal policies enabling research and development (R&D) initiatives and tax credit incentives. In October 2022, the DOE announced USD28mn in funding from the Biden administration’s Bipartisan Infrastructure Law for R&D projects to expand existing pumped hydropower storage facilities and develop new capacity. Further, modified clean electricity production and investment tax credits created by the Inflation Reduction Act become technology-neutral in 2025, making pumped hydropower facilities eligible for these new incentives.

As for Western Europe, while the pumped hydropower sector is well developed, we expect limited growth for the sector over the coming ten years. The largest growth in pumped hydropower capacity will be from Greece and Switzerland, growing their capacities by about 750MW and 360MW respectively from 2022 to 2031. We highlight that large hydropower capacities do not necessarily translate to large pumped hydropower capacities. For example, Norway and Italy have the largest hydropower capacities in the sub-region at 31.7GW and 22.6GW respectively in 2022, but we expect limited growth in pumped hydropower capacity for the coming years. In Norway and Italy, hydropower potential is largely realised, therefore finding additional reservoirs for pumped hydropower developments will be challenging for the markets.

We expect Asia to outperform other regions for pumped hydropower capacity growth, overtaking NAWE’s installed pumped hydropower capacity in 2023, with developments chiefly concentrated in Mainland China. With the pumped hydropower project pipeline strengthening in Asia, we expect Asia to overtake NAWE in 2023 to be the region with the largest pumped hydropower capacity for the subsequent years to 2031. We forecast that Asia’s pumped hydropower capacity will grow from 70GW in end-2021 to 82GW in 2023, and then to 134GW in 2031. Mainland China will be chiefly responsible for this surge in growth, commissioning pumped hydropower stations in efforts to meet the National Energy Administration’s target to reach 62GW by 2025. This 2025 target is an interim goal for its 2030 aim of 120GW installed pumped hydropower capacity, which the government plans to meet by commencing the construction of 200 pumped hydropower projects in 2025, totalling 270GW. Other markets in Asia with existing pumped hydropower capacity, such as Australia, Japan, Thailand and Indonesia, also have projects in the pipeline set for commissioning within the next ten years, as they explore capitalising on the availability of water reservoirs available for pumped hydropower developments.