Valuation guide10 August 2021
A new US Department of Energy-sponsored guidebook, spearheaded by Argonne National Laboratory, helps illustrate the value of investing in pumped storage technology.
Pumped storage hydropower currently provides about 94% of all energy storage in the US, providing flexibility and support to the nation’s traditional power grid. However, its value has been historically difficult to capture.
“Grid operators love pumped storage hydropower, but energy storage technologies are not adequately represented in current electricity markets,” explained Vladimir Koritarov, acting director and program manager of the Center for Energy, Environmental, and Economic Systems Analysis at the U.S. Department of Energy’s (DOE) Argonne National Laboratory. “The market design doesn’t represent well their unique characteristics, which include both generation and demand.”
To address this gap, the DOE’s Water Power Technologies Office tasked Koritarov and his colleagues at Argonne, as well as four other national laboratories (Idaho National Laboratory, National Renewable Energy Laboratory, Oak Ridge National Laboratory and Pacific Northwest National Laboratory), with developing definitive guidance on how to value pumped storage hydropower projects. The effort was successful, and this spring the DOE published the Pumped Storage Hydropower Valuation Guidebook: A Cost-Benefit and Decision Analysis Valuation Framework.
The specific goal is to develop detailed, step-by-step valuation guidance that pumed storage hydropower (PSH) developers, plant owners or operators, and other stakeholders can use to assess the value of existing or potential new PSH plants and their services.
The specific goals of this project are:
- To develop comprehensive and transparent valuation guidance that will support consistent valuation assessments and comparisons of PSH projects or project design alternatives,
- To test the PSH valuation guidance and its underlying methodology by applying it to two selected PSH projects
- To transfer and disseminate the PSH valuation guidance to the hydropower industry, PSH developers, and other stakeholders.
The authors believe that the application of a consistent, transparent, and repeatable valuation process will advance valuation assessments and allow stakeholders to compare valuation analyses performed for different PSH projects or design alternatives. It will also increase the acceptance of valuation results and enable better understanding of the true value that PSH technology brings to the grid.
The project team first developed a draft PSH valuation guidance that accounts for a full range of PSH services and contributions to the grid. The team then applied the valuation guidance to two proposed PSH projects that were competitively selected by DOE WPTO – Banner Mountain PSH (Absaroka Energy, LLC) and Goldendale Energy Storage Project (Copenhagen Infrastructure Partners and Rye Development, LLC). The project team performed various techno-economic studies to assess different aspects of the value of these two projects. These analyses also served as the real-world test cases for the proposed PSH valuation framework.
The US has set the goal of having a 100% carbon-free electricity sector by 2035 and a net zero energy economy by 2050. This means traditional coal and gas power plants will need to retire as more variable wind and solar power rise. This grid transformation, in combination with changing climate conditions, will create new power reliability and storage capacity demands. The 2021 polar vortex in Texas and the 2020 heat wave in California are examples of the grid’s growing pains during this period of necessary change.
Existing pumped storage hydropower plants, constructed long before wind and solar entered the market, can help with de-carbonization and grid resiliency goals. However, they won’t provide nearly enough storage or flexibility as solar and wind energy grow. More plants need to be built and key decision-makers need a common language to analyze and justify investment in what is typically lengthy, expensive hydropower plant development.
“If a banker approves a house loan, they send an appraiser,” said Koritarov. ?“Similarly, in power system investments, decision-makers want to know how much [the investment] is worth. Should they approve the loan or not? With the guidebook, they can trust the results of an objective, transparent valuation methodology.”
The guidebook helps measure both monetized and non-monetized value streams. For example planning a new project can examine effects of market rules and mechanisms, and the likelihood of recouping investment. Regulators can judge if a project is economical and predict when a new plant will have a positive impact on consumers’ electricity rates. A financial institution can find assurances before it approves loans or loan guarantees. Others can use the guidebook to assess a plant’s impact on de-carbonization goals, grid resiliency or the environment.
In addition to providing techno-economic analysis, the guidebook offers multi-criteria decision analysis that weighs monetized and non-monetized benefits. Readers can come up with an overall ranking of different plant capabilities, or find a best alternative by taking into account various aggregates.
Developers of the projects analysed in the guide are already betting the guidebook will help stakeholders understand the true potential of this clean energy storage technology.
“We are happy to see it released,” said Erik Steimle, Vice President of Project Development for Rye Development. “It will help companies like ours explain the benefits and importance of projects like the Goldendale Energy Storage Project.”
Eli Bailey, Vice President of Business Development of Absaroka Energy, added: “[The guidebook] will be an important touchstone for [many] throughout the energy industry to educate themselves and understand the true value of pumped storage hydropower. It will help create the case for deploying this important technology in the United States.”
The Guidebook’s authors do caution that analysts should be aware of the limitations of the proposed valuation methodology – including the complexity of the analysis and various uncertainties. It notes that the a price-taker approach, which assumes that the operation of a PSH plant will not have a significant impact on system operations and prices, is valid only for smaller PSH projects (less than 10MW) – it highlights that most PSH projects are larger and inevitably have an impact on power system operations and production costs. In these cases a system analysis that simulates the operation of the entire system and captures the influence of the PSH project on system operations and prices is needed to properly evaluate the costs and benefits of the project.
The guidebook says that to properly perform system analysis and capture the interactions between the PSH project and the power system in which it operates, detailed modeling and simulations of system operations need to be performed using multiple computer models and tools.
Another limitation it noted was the uncertainty related to the value of PSH services and contributions over time. PSH generally have a lifetime of around 50 years which means it is difficult to estimate any kind of value for such a long timeframe.
PSH Valuation Tool
Given the complexities of the PSH valuation analysis, the project team is currently developing an online PSH Valuation Tool to help users navigate through the valuation process presented in this Guidebook. The development of the PSH Valuation Tool is also funded by DOE WPTO, and the tool is intended to be publicly available. The tool will employ a decision tree structure to guide users through the steps of the PSH valuation process and the activities and types of analyses to be performed at each step. The PSH Valuation Tool will have the analytical capabilities to be able to perform the price-taker valuation analysis. For system analysis (i.e., price-influencer analysis), the tool will indicate at certain points in the decision tree that the user needs to apply external models to perform system simulations and then return with the results in order to continue the valuation process. The tool will also refer the users to appropriate types of external models that could be applied for system analysis.
Goldendale Energy Storage Project was one of the projects analysed as part of the guidebook
Funded by the US Department of Energy’s Water Power Technologies Office (WPTO), this project was carried out in the framework of WPTO’s HydroWIRES initiative. It was undertaken by a collaborative project team that was led by Argonne National Laboratory and included Idaho National Laboratory, National Renewable Energy Laboratory, Oak Ridge
National Laboratory, and Pacific Northwest National Laboratory. The project team also collaborated with Absaroka Energy and Rye Development, the developers of the two proposed pumped storage hydropower projects that were analyzed during the study. A Technical Advisory Group also collaborated with the team, which included prominent experts from the hydropower industry, grid operators, regulatory agencies, and other stakeholders.
Based on an article published by Kristen Mally Dean from Argonne National Laboratory