BMWi Study: Pumped Storage in D, A and CH Increasingly Important but Profitability has Deteriorated

Pumped-storage hydroelectricity (PSH) in Germany, Austria and Switzerland is becoming increasingly important to balance the growing input of intermittent green electricity, especially in the medium and long term, a new study commissioned by the German Federal Ministry for Economic Affairs and Energy (BMWi) and its Austrian and Swiss counterparts  finds. Yet the study concludes that investment conditions have deteriorated so that investments in new plants were difficult to justify.

Profit margins for PSH were presently so low that they could not pay for the investment in new plants, the authors say. Profitability would strongly depend on the market situation and the volatility of electricity prices they add, pointing out that the currently low spot market prices for electricity were due to over capacities and the PV peak at lunchtime.

The above statements were made despite the fact that in Germany PSH plants may benefit from an exemption of grid fees pursuant to Section 118 para. 6 (Germany Energy Act) if they fulfill certain requirements. Besides electricity transmitted to storage facilities is exempted from the renewables surcharge (EEG surcharge; for further information, please see Section 60 para. 3 EEG (Renewable Energy Sources Act)). Electricity generated from renewable energy sources is also not subject to the electricity tax if the electricity comes from a grid or a power line that only transmits renewable energy (cf. Section   9 para. 1 no. 1 StromStG).

The study recommends to do further research in the following areas:

1. The Role of the Market

It was the question whether the present day market design with energy-only markets and separate markets for ancillary services (Systemdienstleistungen) was still suited given the expansion of volatile input, in particular PV and wind power, the authors say. They recommend to examine changes allowing energy storage systems including PSH, which can provide flexible energy, to operate profitably.

2. Security of Supply

The study points out the importance of the security of supply and recommends to discuss options to obtain a demand-oriented, affordable security of supply for the energy infrastructure of the future. It was important to ensure that all systems including PSH could contribute in a fully effective way, the study says.

3. Grid Expansion

The results clearly showed that operating existing and future PSH power plants depended strongly on transmitting capacities in the transmission grids, the study says. Hence grid expansion and PSH growth should be coordinated.

4. Ancillary Services

PSH plays an important role in providing ancillary services, the study says. This should be taken into consideration in view of the above mentioned aspects in order to develop a consistent system, the authors recommend. In this regard it should be discussed which role PSH could play, e.g. for increasing the n-1 criterion for power transmission, they say.

Source: Federal Ministry for Economic Affairs and Energy

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