Development of an investment model for pumped storage hydropower

Abstract: The energy market is evolving, with a prediction of heavily increased consumption and, consequently, increased production. In parallel, EU directives with targets prioritising fossil-free electricity production, reduction of greenhouse gas emissions and becoming climate neutral by 2050, poses a challenge for the current state of electricity production in the Nordics. In managing these predictions, the electricity production from renewable energy sources is required to be increased threefold by 2045. Consequently, the share of intermittent energy sources is deemed to heavily increase, resulting in need of more capacity of energy storage, ancillary services and balancing of the grid. Energy storage systems, such as pumped storage hydropower, can play a crucial role in this energy market transition. However, pumped storage hydropower has yet to be fully explored or proven viable for large-scale investments in the Nordics. In this thesis, the viability and profitability of pumped storage hydropower plants in the Nordics are investigated. The viability assessment was conducted through a SWOT analysis based on a summary of literature and interviews within a PESTLE framework. The interviewees consisted of experts active in different fields of work at Fortum, with knowledge relevant for the purpose of this thesis. To assess the profitability, an investment analysis tool for pumped storage hydropower plants was created in MathWork’s MATLAB, focusing on one of Fortum’s already existing pumped storage hydropower plants. The investment analysis tool was built for several cases with fixed operating schedules using a weekly timeframe.  Through the SWOT analysis, potential challenges for pumped storage hydropower were found in investment costs, topology dependence, development of nuclear power production and increased difficulty in obtaining greenfield permits. Regarding opportunities, Fortum’s pumped storage hydropower plants were found to be favourably and strategically located in SE3, beneficial in generating income from different revenue streams as well as highly beneficial in assisting the development of Sweden’s future energy market. The results obtained from the investment analysis tool indicated that market volatility plays a crucial role in determining the profitability of pumped storage hydropower projects. In a highly volatile market, there is a great possibility to yield large amounts of profit. However, to fully maximise profit, especially in a low volatility market, constant optimisation of pumped storage hydropower operations through advanced forecasting and modelling is crucial.