Reversible hydroelectric plants: A sleeping giant in Latin America

Reversible hydroelectric plants: A sleeping giant in Latin America

The electrical systems in the world are changing. The so-called “alternative” energies have become the most installed source of electricity in the world, above thermal sources, and surpassing the rate of installation of hydroelectric plants, among renewable energies. Solar energy installation levels are defying even the most optimistic projections, and each new tender brings prices that compete, without subsidies, with the prices of traditional sources. We are living an energy revolution.

In Latin America and the Caribbean (LAC), 61% of energy came from renewable sources in 2020, and, through the RELAC Initiative, the region has set the joint goal of reaching 70% renewable energy by 2030 To do this, the region will need to accelerate the rate of investment, particularly in solar and wind energy, which by 2020 represented only 9% of regional generation. In addition, these investments must necessarily be complemented with the modernization and rehabilitation of the existing hydroelectric park, which guarantees a renewable generation base of 50%, as well as with the expansion and strengthening of the transmission networks.

The massive installation of wind and solar generation requires increasing the flexibility of electrical systems, in order to manage the natural variability of these sources and guarantee security and reliability in supply. This flexibility can be obtained through firm backup generation (fossil and/or hydroelectric), demand management, regional interconnections, or storage systems. Projections show that electrical energy storage, both small-scale and large-scale, should be part of the region’s electrical systems in the short to medium term.

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Reversible hydroelectric plants are the most widespread form of electricity storage today. They allow energy storage by pumping water from a lower reservoir to a higher reservoir in hours of low demand (or excess generation), to be later used to generate electricity in hours of high electricity demand (or low generation). This technology was developed in the last century, and its commercial use began in the 1920s. It is mature, highly reliable, and provides a low-cost, high-efficiency alternative to energy storage. It currently represents more than 94% of the global electrical energy storage capacity, and given the need to incorporate flexibility in electrical systems, there is a growing interest in its use. In LAC, pumped storage has been applied for more than 80 years; however, despite the fact that the region has great potential, its deployment and development are extremely low compared to Europe, Asia and North America. In the world there are about 160 GW of pumped storage, and in LAC we do not exceed 1 GW.

Our region did not have the need to implement reversible hydroelectric plants for various reasons. First, the region has a large untapped hydroelectric potential, which in past decades allowed the construction of hydroelectric plants with large reservoirs. These reservoirs served as energy “storage” in electrical systems. Second, there is a lack of adequate regulatory frameworks that have a sufficient difference in prices between periods of high and low demand, to make energy storage financially interesting. Third, our electrical systems used mainly hydroelectric and thermoelectric generation that could be dispatched and controlled from a centralized dispatch, which made storage unnecessary.

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But this is changing. The construction of hydroelectric plants with large reservoirs is increasingly complex due to their potential environmental and social impacts. At the same time, the entry of variable energy sources, particularly solar and wind, have generated the need to modernize regulatory frameworks. Today, a high temporal granularity of energy prices and tariffs is a necessity to give adequate signals to users and generators. Many of the electricity markets in LAC have already implemented or are in the process of implementing hourly or intra-hour tariffs that give energy storage an opportunity to enter the markets. Advances in digitalization also provide an opportunity to use energy storage as an essential element in future electrical systems to provide flexibility, capacity and other ancillary services.

In this context of modernization, pumped storage technology is an opportunity to take advantage of the extensive experience and technical capacity that exists in the hydroelectric sector and use it to advance towards its decarbonization. The Inter-American Development Bank (IDB), through its Energy Division, commissioned the development of a study on reversible hydroelectric plants, with the aim of evaluating and identifying areas of opportunity to promote investment in this technology throughout the region, and analyze the regulatory framework in six countries with the potential to implement this technology.

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For the preparation of the study, technical, regulatory and normative information was collected from the LAC countries regarding the potential development of reversible hydroelectric plants, with particular emphasis on Panama, Colombia, Peru, Brazil, Chile and Argentina, selected according to the level participation of hydroelectric plants in its matrix, its potentialities and future energy storage needs. As part of the development of the study, technical interviews were conducted with different actors in each country.

Mitigation and adaptation to climate change are fundamental pillars of the IDB Group’s Vision 2025. This work aims to support the region in advancing in the development of technologies that allow a greater insertion of renewable energies, supporting the decarbonization of the electricity sector. This report makes available to the electricity sector up-to-date and relevant information on the state of the art of energy storage technologies and in particular HPS. Likewise, it proposes an analysis of the regulatory environment and the electricity market in LAC, in order to identify the main barriers, opportunities and next steps for the development of reversible hydroelectric plants.

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