CEEPR Working Paper 2020-007, May 2020

Anthony Fratto Oyler and John E. Parsons


This paper addresses the role of pumped hydro storage (PHS) to decarbonization of the electricity sector. Strategies for decarbonization generally look to expanded penetration of renewable generation, especially wind and solar PV. The variability in the renewable resource is a major challenge that must be managed. Electricity storage of some form or another is one important management tool. Pumped hydro is a mature storage technology, and—aside from reservoir hydro—accounts for the vast majority of storage installed on power systems across the world.

To conduct our analysis, we use Spain’s power system as a case study. Spain has an ambitious decarbonization target: a 100% renewable electricity grid by 2050. Spain also has a large installed base of pumped hydro storage—the highest capacity in Europe, and the fourth highest in the world, following the U.S., China and Japan. Our analysis will show how this existing capacity improves the utilization of all low-carbon generation sources, including solar PV, wind, and also nuclear, while decreasing the dispatch of natural gas-fired generation and therefore reducing greenhouse gas (GHG) emissions. We then evaluate the impact of additional investment in pumped hydro and how this impact varies as low-carbon sources become an even larger share of the system.

Our results demonstrate that even in the Spanish case, with a high installed base of pumped hydro storage, additional investments become warranted as low-carbon generation expands. We conduct our analysis looking out to 2030 projections for load and alternative portfolios to serve that load. As a reference point, we take the Distributed Generation scenario detailed in the Ten-Year Network Development Plans 2018 developed by the European Network of Transmission System Operators for Electricity (ENTSO-E) in collaboration with their sister organization responsible for natural gas transmission systems. This scenario was used as one base case scenario in the report by Spain’s Commission of Experts tasked in 2017 with informing Spain’s Inter-ministerial Working Group’s development of a future Law on Climate Change and the Energy Transition. This is our Base Case scenario. We then analyze three deeper decarbonization scenarios—each one utilizing expanded investments in one low-carbon technology, including nuclear (preserving Spain’s existing nuclear plants), wind, and solar PV. In each of these deeper decarbonization portfolios, incremental investment in pumped hydro capacity is a cheaper source of carbon abatement than further investments in either wind or solar PV capacity.

The focus in this paper is on pumped hydro storage’s use as a balancing resource to complement the hourly dispatch of other generation, whether as a peaking resource to complement baseload and load-following generation or as a flexible resource to firm up wind or solar generation. Pumped hydro can provide a variety of other services as well, including frequency regulation and operating reserves, but they are not included in our valuation. If they were, they would strengthen the case for further investments.



Anthony Fratto Oyler. “The Value of Pumped Hydro Storage in a Decarbonized World”. Thesis accepted for S.M. in Technology and Policy, Massachusetts Institute of Technology, School of Engineering, Institute for Data, Systems, and Society.

Gimeno-Gutiérrez and R. Lacal-Arántegui. “The Role of Pumped Storage Hydro Resources in Electricity Markets and System Operation. A GIS-based assessment of pumped hydropower storage potential”. Joint Research Center Scientific and Policy Reports (2013).

Jesse D. Jenkins and Nestor A. Sepulveda. “Enhanced Decision Support for a Changing Electricity Landscape: The GenX Configurable Electricity Resource Capacity Expansion Model”. MIT Energy Initiative Working Paper 1 (2017).

Chi-Jen Yang. “Pumped Hydroelectric Storage”. Chapter 2 in: Storing Energy (2016).


Further Reading: CEEPR WP 2020-007

About The Authors

Anthony Fratto Oyler received his M.S. degree from the Technology and Policy program at the MIT Institute for Data, Systems, and Society. He is now a consultant at Energy and Environmental Economics (E3) Inc. in San Francisco, CA. Anthony received his B.S. in Chemical Engineering and Political Science from the University of Utah.

John Parsons is the Deputy Director for Research of MIT CEEPR. His research focuses on the valuation and financing of investments in energy markets, as well as the problems of risk in energy and environment markets. Recent publications have touched on the value of changing the utilization of transmission to maximize the value of hydro assets and expanded penetration of renewables, the value of investments in life extensions of nuclear power plants, the economics of new microreactors, and the impact of decarbonization on generation assets in the U.S. midcontinent. Dr. Parsons serves as an Associate Member of the U.S. Commodity Futures Trading Commission’s Energy and Environmental Markets Advisory Committee. He has been a Visiting Scholar at the Federal Energy Regulatory Commission. He holds a Ph.D. in Economics from Northwestern University and an A.B. from Princeton University.