This chapter explains the role and configurations of pumped hydro storage (PHS) as long duration storage providing energy shifting, inertia and ancillary services, to help balance the electricity system. The chapter quantifies EU potential and notes historical deployment trends and site characteristics. It identifies the main regulatory barriers. A self-diagnostic questionnaire helps policymakers assess the legal framework on PHS through themes including spatial planning, permitting and remuneration.
Diagnostic Toolkit for Reducing Regulatory Barriers to Solar, Wind and Pumped Hydro Storage in the European Union
Empowering Policymakers at National, Regional, and Local Levels
Abstract
An electricity system with a high rate of solar and wind power requires energy storage solutions, alongside demand response mechanisms, to ensure reliability of supply. Solar and wind are intermittent power sources, as neither can consistently produce energy (generally in the form of electricity) at all hours of the day. Such intermittency can negatively affect the resilience of the electricity market, especially in cases of supply and demand mismatches. Flexibility mechanisms (such as demand response and long-distance transmission linkages)1 and energy storage systems can help to ensure supply security and balance generation and consumption. They help avoid risks of curtailment (requiring renewable electricity producers to halt their production at peak times) and/or supply shortages. In doing so, they can also improve the efficiency of the system, and therefore enable net savings, while also facilitating the transition towards lower greenhouse gas emissions from electricity generation.
The IEA estimates that energy storage capacity needs to increase by a factor six to enable the tripling of global renewable energy capacity by 2030 (IEA, 2024, p. 12[1]). While the exact magnitude of required additional storage capacity depends on the exact assumptions2, energy storage capacity will need to grow significantly to enable the rapid uptake of new PV solar and wind, even in the most conservative of scenarios.
Many different energy storage technologies exist, each with its own characteristics, including its response time, cycle lifetime, efficiency, power and energy features, and durability. The main categories of energy storage technologies include (European Commission, 2023[2]; IRENA, 2020[3]):
Mechanical storage (including Pumped Hydro Storage (PHS), Compressed Air Energy Storage (CAES) and flywheels);
Electrochemical storage (different types of batteries, such as lithium-ion, flow, lead‑acid and sodium‑ion batteries);
Thermal storage (e.g. Latent Heat Thermal Energy Storage (LHTES));
Electrical storage (supercapacitors, superconducting magnetic energy storage (SMES)); and
Chemical storage (hydrogen storage).
The aforementioned technologies can play a complementary or competing role, depending on their characteristics and their storage needs. Particularly in the context of increasing integration of renewable energy sources, it is important to consider different timeframes, including intraday, weekly, and seasonal, as well as the cost profile (e.g. CAPEX, OPEX), and environmental and economic impacts of technology alternatives. Different energy storage technologies do not only have a range of characteristics, but also different levels of maturity (technology readiness level, or TRL) (ENTEC, 2023[4]). Annex B provides an overview of several technology options, included in the different categories outlined above, including details on their TRL.
To date, PHS is by far the most widely deployed type of storage, accounting for more than 90% of grid-scale electricity storage across the EU (European Commission, 2024, p. 8[5]). While other technologies – such as battery storage (particularly for short-duration and high-frequency discharge3) and compressed air or hydrogen (for long-duration and low-frequency discharge) – are becoming more competitive in terms of levelised cost of electricity, PHS is likely to remain cost-effective. This is especially true for intra-day and week-long applications, and potentially even for longer durations if technology costs continue to decline (Schmidt et al., 2019[6]). A quantitative estimation of the potential of pumped hydro storage technologies is given by IRENA, as it calculated that a global PHS capacity of 420 GW is needed by 2050 to meet the climate goals in the Paris Climate Agreement. This implies a more than doubling of the current capacity (IRENA, 2023[7]).
This Chapter addresses the increasing potential of PHS and the challenges it facesto develop. It first defines the role and concept of PHS (Section 10.2) and sets out the potential of PHS (Section 10.3). It then analyses the regulatory barriers to PHS deployment, namely the variety of relevant legal instruments (Section 10.4.1), Spatial planning (Section 10.4.2), Permitting (Section 10.4.3) and Revenue uncertainty (Section 10.4.4).
10.2.1. The concept of PHS
PHS is a form of hydroelectric energy infrastructure that allows for energy storage. PHS connects two water reservoirs at different heights and allows to move water between them, enabling energy storage. Firstly, electricity is used to pump water from a lower reservoir to an upper reservoir. This energy is then again released as needed by allowing (some of) the water in the upper reservoir to flow back down to the lower reservoir, where it spins a turbine connected to an electricity generator. The process can be repeated multiple times and takes place with low parasitic losses4, with a round-trip efficiency of about 80% (Blakers et al., 2021[8]), see Figure 1.1.
PHS is well positioned to play an important role in large-scale energy storage due to its high capacity and ability to stabilise the grid. One key service it can provide is frequency response, which helps maintain grid frequency when sudden changes occur in electricity supply or demand. Frequency response is mainly divided into primary (response time of sub-second to seconds), secondary (within 30 seconds to a few minutes), and tertiary (from several minutes onward) responses.5 These types of response also differ in how long they sustain that support (seconds to minutes or hours). While PHS’ response time is slower compared to many other (more recently developed) energy storage technologies, making it less suitable for primary frequency response, PHS plays a key role in energy time-shifting and providing secondary and tertiary grid balancing services (Schmidt et al., 2019[6]). While some PHS facilities provide storage for up to 10-12 hours, other installations are capable of multi-day or even monthly and seasonal storage6, offering crucial flexibility to the power system. Its versatility allows it to address a broad range of discharge frequencies and durations, from long-duration, infrequent energy storage to supporting grid stability through peak load management and reserve power provision. Additionally, it provides critical “black start”7 capability in case of system blackouts. This combination of characteristics makes PHS particularly valuable for managing increasing shares of variable renewable energy in the power system and maintain grid-stability.
Many PHS projects use natural lakes, large rivers or reservoirs of existing conventional hydro facilities as their reservoirs, while others are purpose-built with dedicated reservoirs. PHS reservoirs that are continuously connected to natural flowing water are called “open-loop” projects. “Closed-loop” projects are circuits of water storage and flows that are constructed isolated from any natural water source, such as a river or lake (US Department of Energy, 2015, p. 3[9]). Such closed-loop systems are often considered most promising for future capacity development since they: (i) are not affected by the declining water in lakes worldwide because of climate change and human activities and (ii) have lower environmental impact vis-à-vis open-loop systems as they do not disrupt natural water flows and minimise water usage (Papadakis, Fafalakis and Katsaprakakis, 2023[10]; US National Renewable Energy Laboratory, 2022[11]).8
10.2.2. Pros and cons of PHS
The accelerated deployment of PV solar and wind (discussed in previous chapters) has led to a resurgence of interest in pumped hydropower storage (PHS). As growing shares of intermittent renewables in electricity generation lead to mismatches at the inter-day, weekly, monthly, and seasonal timescales, PHS can provide long-term energy storage at relatively low costs and with co-benefits in terms of freshwater storage (Hunt et al., 2020[12]).
PHS is a mature, efficient and highly reliable technology for grid-scale energy storage. Its origins date back to the early 1900s.9 PHS installations also come with relatively limited maintenance needs (Papadakis, Fafalakis and Katsaprakakis, 2023, p. 15[10]). The long lifespan of PHS installations – sometimes exceeding 70 years, far exceeding other existing storage facilities – makes the performance of PHS installations very predictable, adding to other reliability features. These characteristics make PHS a very cost-effective technology and contribute to its status as one of the lowest-cost storage options currently available (Papadakis, Fafalakis and Katsaprakakis, 2023[10]).
PHS also provides numerous crucial grid services. PHS helps maintaining grid stability and supporting renewable integration by providing inertia10 for frequency stability, enabling rapid frequency response (as discussed in section 10.2.1), and serving as emergency backup during major grid disturbances. It also manages oversupply by shifting low-value off-peak energy to peak demand periods, offers long-term storage to enhance energy security, and facilitates blackstart capabilities to restore power during blackouts (International Hydropower Association, 2024[13]).
Key drawbacks related to PHS include geographical limitations (related with the need for enabling hydrology, geology and topography) and scarcity of available sites, mostly driven by the need for both reservoirs to be close enough to each other and with a significant level of difference in elevation.11 Furthermore, the development of PHS installations is characterised by long lead times (typically eight to ten years) and high (initial) capital expenditures (typically hundreds of millions euro) (Government of Ireland, 2022[14]).
Another challenge is the potential impact of PHS installations on local ecosystems, as they can have a significant impact on wildlife habitats or water systems in the area. However, modern PHS projects, particularly closed-loop systems, can be strategically located to minimise environmental disruption. These installations can often be sited away from sensitive water bodies or areas of cultural significance, thereby reducing potential ecological and social impacts. Closed-loop PHS systems generally have smaller areal and carbon footprints and have minimal impacts on natural water bodies and ecosystems (Simon et al., 2023[15]). Nevertheless, comprehensive environmental impact assessments remain a crucial part of the development process. These assessments ensure that any potential negative effects are identified, mitigated, and balanced against the broader benefits of energy storage and grid stability that PHS provides.
The EU already hosts significant PHS capacity, making it a leader in leveraging this mature technology for energy security and decarbonisation (European Commission, 2024[5]). However, despite the significant amount of GW already installed capacity in the EU, there continues to be a significant untapped potential for PHS. Expanding capacity and generation can arise via the discovery of new locations (reservoirs) that may be suitable for PHS (“greenfield” projects)12 or utilise former and existing mining sites (“brownfield”), or combine existing reservoirs with new ones (“bluefield”).13 The Australia National University (ANU) 100% Renewable Energy group categorises different types of PHS projects based on the combination of reservoirs. In the EU, several research programmes have also been established to, amongst others, improve existing technologies, explore novel technologies and innovations and expand capacity and generation (European Commission, 2024, p. 5[5]).
Note: The category
Source: Australia National University (ANU) 100% Renewable Energy Group. The ANU 100% Renewable Energy Group has developed a comprehensive Global Pumped Hydro Atlas that is being used by governments and private companies worldwide to locate prospective sites for PHS. See also https://re100.eng.anu.edu.au/pumped_hydro_atlas/.
10.3.1. Current installed capacity
The total worldwide PHS installed capacity, or the maximum power output the PHS plants can achieve under ideal conditions, is estimated at 179 GW (European Commission, 2024, p. 18[5]). Europe accounts for roughly a quarter of global PHS turbine capacity (European Commission, 2023, p. 10[16]), representing about 3% of the world's total installed electricity generation capacity (Papadakis, Fafalakis and Katsaprakakis, 2023, p. 2[10]).
The EU's installed PHS capacity is approximately 42 GW in 2024, generating about 29 TWh annually.14 Facilities are concentrated in mountainous regions like the Alps and Pyrenees. Given the geographic requirements (most importantly the presence of a difference in elevation between two reservoirs), five countries in the EU account for 70% of the EU's installed PHS capacity and generation, while ten countries account for 90%, reflecting the geographic requirements of PHS.
Top 10 countries and the sum of the remaining 17 EU countries
Note: See Annex C for details on the methodology.
Source: OECD calculations based on Global Pumped Hydro Atlas
10.3.2. Future potential
There is still significant potential for further development and expansion of PHS across the globe, including in the EU. Different estimates and approaches exist to assess such potential. Firstly, (Papadakis, Fafalakis and Katsaprakakis, 2023[10]) provides an estimate of global cumulative installed capacity and shows a significant amount of PHS capacity under construction through 2030 (see Figure 10.3), showing a significant anticipated growth after 2022. Although this increase is predominantly driven by Chinese projects, Europe also has significant potential.
Cumulative installed power (MW) over time and by status (l), as well as by continent (r), for large PHS systems that either operation or under construction
Other studies provide potentials for the EU that are much larger than currently installed or under construction, most notably the Pumped Hydro Energy Storage Atlas (PHES Atlas) by the Australia National University (ANU) 100% Renewable Energy Group.15 The OECD has developed two scenarios that estimate the potential future installed capacity and generation (“conservative” and “moderate” – see Annex C for a detailed explanation of the sources and the calculations) based on a selection of most attractive projects available in the PHES Atlas dataset. 16. While both OECD scenarios are conservative compared to the full technical potential identified in the PHES Atlas dataset, even the most conservative scenario demonstrates substantial future potential of PHS.
The conservative and moderate scenario lead to a potential additional installed capacity in the EU of 91 GW and 743 GW, respectively (closed-loop). These capacities, once capacity factors17 are applied, lead to potential annual generation between 66 TWh (conservative) and 541 TWh (moderate) (see Table 1.2). Moreover, this does not yet include additional flexibility that can be provided by EU-neighbouring countries that could export additional generated electricity from PHS to the EU (including Norway, Türkiye and in the Western Balkans).18
Note: For estimating future potential generation, historical capacity factors have been used. However, it needs to be noted that capacity factor are currently not limited by technical constraints and could increase substantially if required by market or grid demands.
Source: OECD calculations based on Global Pumped Hydro Atlas
Potentials differ significantly between EU countries, based on geography and the extent to which suitable PHS sites have already been exploited (see 10.4). Countries with the most significant potential include Austria, Croatia, France, Greece, Italy, Portugal, Romania, Spain and Sweden, with the highest values in the conservative scenario in Greece and Italy, and with potential also available in Austria, France, Spain and Sweden. The moderate scenario includes significant additions in all the main countries listed above. The combined generated potential of the top-6 countries in Figure represents most of the total PHS potential in the EU (100% and 82%, respectively, for the conservative and moderate scenario).
Note: All other EU countries (not mentioned in this graph) have zero potential when following the (conservative) OECD-assumptions (see Annex A). Countries are sorted in descending order using the conservative scenario.
Source: OECD-calculations (see Annex C)
Regardless of this significant potential, a relatively limited number of projects has been developed in the last 30 years. Most of the more than 400 projects in operation were built between the 1960s and 1980s (International Hydropower Association, 2024, p. 5[13]). There are significant barriers that hinder the development of PHS projects, which are most often large-scale, complex and high-risk. The next section discusses the legal barriers for PHS deployment.
An approach that fully integrates PHS into the energy strategy is required to address the risks and uncertainties that come with the large and long lifespan PHS projects. The landscape of PHS development has evolved significantly since its initial wave in the 1960s-1980s. During that period, PHS projects were primarily undertaken by governments, state-owned enterprises, or vertically integrated utilities. Their willingness to take commercial risks was largely linked to their ability to optimise system-wide costs and benefits, as they recognised how using storage to deal with peak demand could avoid investments in peaking plants (International Hydropower Association, 2024[13]). Today, these projects largely operate within liberalised market structures, resulting in a much more crucial role for private investment in PHS development. Without it, many projects do not materialise.19 In this regard, a PHS project, and electricity storage in general, is most effective, and hence most attractive for investors, when it is integrated holistically within the whole energy system.
10.4.1. Variety of relevant legal instruments
(To undertake a self-assessment on legal framework, see questionnaire in section 10.5)
There is no dedicated legal framework for PHS in place in the EU. Instead, PHS installations are subject to rules and regulations that have a broader coverage, including those that pertain to the hydropower sector and those that apply to energy storage more generally.
The heterogeneity of regulatory frameworks across jurisdictions can create or exacerbate significant challenges for the PHS sector, potentially leading to regulatory uncertainty and inconsistencies in project evaluation and approval processes. This stems from three key factors:
1. Ambiguity in the applicability of legal instruments to PHS, as many regulations do not explicitly include or exclude this technology;
2. The interaction of multiple, potentially overlapping, regulations that may apply to PHS projects, creating uncertainty regarding which rules take precedence in specific situations;
3. Variations in national transposition of relevant directives, which may amplify the aforementioned uncertainties and potentially result in divergent interpretations and implementation across Member States.
10.4.2. Spatial Planning
(To undertake a self-assessment on spatial planning, see questionnaire section 10.5,as well as Spatial Planning and Permitting Chapter 3).
The identification of suitable areas via spatial planning is crucial for determining where PHS projects can be located. Spatial planning sets regulations and frameworks for where and how infrastructure can be developed. In the context of renewable energy, spatial planning helps designate suitable areas for projects while considering environmental impact, land availability, and local interests (See Chapter on Spatial Planning and Permitting).
Effective zoning policies that designate areas for PHS development are important for deployment. Both the quantity and spatial characteristics of these zones – such as their size and shape – impact project feasibility. These are particularly relevant for PHS development as PHS projects may conflict with other land-use priorities, so having updated and carefully designed zoning policies can mitigate a range of environmental risks while facilitating the deployment of PHS (OECD, 2024[17]).20 Mapping tools and scientific assessments enable policymakers, developers, and regulators to identify “unsuitable” or low-risk zones early in the process, providing greater certainty for stakeholders. This holistic approach not only safeguards natural habitats and water resources but also streamlines permitting and reduces costs, ensuring more efficient and sustainable PHS deployment (OECD, 2024[17]).
Building environmental and biodiversity impacts into spatial planning may slightly increase system costs, but these may be at least partially offset by long term benefits from increased biodiversity and a reduction in disruptions from stakeholder opposition. A recent report puts increased systems net costs at 3% in 2050 for the Western United States (Wu et al., 2023[18]), but this will be at least partially offset by minimising siting conflicts from local opposition related costs that might otherwise delay renewable energy deployment with all the uncertainty and costs they would entail for developers (OECD, 2024[17]).
Better integration of PHS considerations in renewable energy planning would help to improve such co-ordination. For instance by ensuring that PHS potential is considered in national energy and climate plans (NECPs) or infrastructure development plans, however most NECPs do not cover energy storage (See Figure 10.5). Moreover, governments, regulators, energy system operators (DSOs and TSOs) should consider the option of energy storage, and PHS, to avoid or defer certain grid extensions. The European Commission stated recently that “incentives for system operators to opt for innovative solutions and less costly network investments could increase the deployment of energy storage as network-deferral assets and improve the efficient use of transmission and distribution assets” (European Commission, 2023[19]). However, it is unclear if PHS is one of the implied solutions, as with “innovative” solutions other (newer) technologies may be implied, such as stationary batteries.
10.4.3. Permitting
(To undertake a self-assessment on permitting, see questionnaire in section 10.5, as well as Spatial Planning and Permitting chapter 3).
Permitting rules insert an important layer of complexity for PHS projects. Such projects must navigate complex permitting procedures that involve multiple authorities - at national, regional, provincial, and local levels – and often result in lengthy authorisation processes (European Commission, 2023[20]). Moreover, environmental impact assessments for such often large-scale infrastructure projects require extensive studies and consultation and can result in significant delays if not done effectively. Permitting processes often overlook the specific dual role of pumped hydro as both consumer and generator, underscoring the need for procedures tailored to its unique characteristics. Clear and consistent guidance may be needed on how to assess the actual impact of such renewable energy projects, whilst considering their benefits to the system.
Moreover, environmental impact assessments for such often large-scale infrastructure projects require extensive studies and consultation and can result in significant delays if not done effectively. Permitting processes often overlook the specific dual role of pumped hydro as both consumer and generator, underscoring the need for procedures tailored to its unique characteristics. Clear and consistent guidance may be needed on how to assess the actual impact of such renewable energy projects, whilst considering their benefits to the system.
To streamline these processes and facilitate the development of PHS projects, it may be worthwhile to introduce a system of proportionate review for permitting, based on the expected environmental impacts of the project. For instance, implementing fast-track permitting procedures for low-impact or closed-loop PHS projects could significantly reduce administrative burdens and accelerate project timelines without compromising environmental safeguards. These could be used in abandoned mining sites, for example.21 Similarly, repowering existing PHS facilities with new, more efficient equipment could be subject to simplified permitting processes, as these upgrades often have minimal additional environmental impact while substantially improving system performance and grid services. Such a tiered approach to permitting would allow regulatory authorities to focus their resources on projects with potentially greater environmental implications, while expediting the deployment of PHS projects that are likely to have limited ecological footprints. This strategy could strike a balance between environmental protection and the urgent need for increased energy storage capacity.
10.4.4. Revenue uncertainty due to regulatory approaches
(To undertake a self-assessment on revenue uncertainty, see questionnaire section 10.5)
Regulatory uncertainty is particularly impactful in the case of PHS given the long lead times and high upfront investments. Several factors contribute to the impact of regulatory uncertainty on deployment of PHS, the generally lengthy development and construction times, significant risks and processing times associated with environmental impact assessments and of public consultations, as well as high upfront investments and the long lifetime of a PHS installation (Pumped Storage Hydropower International Forum, 2021[21]). This makes the predictability of revenue streams particularly important for PHS development.
At the same time there are unpredictable revenue streams for PHS. This has been recognised as the primary obstacle to obtaining secure financing for long duration electricity storage (UK Department for Energy Security & Net Zero, 2024[22]). There are different factors that create or exacerbate the revenue uncertainty for PHS. Some factors are market driven, such as the uncertainty of market conditions in, say, ten years’ time or more, while financing conditions are based on today’s markets and historic prices (International Hydropower Association, 2024[13]). However, some factors have a regulatory nature or link, including PHS facilities (i) not always being remunerated (fully) for certain services, (ii) being subject to double taxation and (iii) being charged double grid fees.
Lack of (full) remuneration of certain services
PHS plants are remunerated through their participation in different markets, namely (i) the energy market (providing electricity on day‑ahead and intraday markets), (ii) the balancing market (keeping the power grid stable by quickly increasing or decreasing its output), and (iii) the capacity market (being available to produce electricity when needed, even if unused).
Many electricity markets are not structured to specifically remunerate a PHS plant for all ancillary services (beyond providing electricity). For instance, PHS facilities are not always adequately remunerated for the full range of services they provide to the electricity system. This includes their role in balancing excess electricity supply during pumping operations, for which PHS operators are expected to benefit indirectly through price arbitrage – purchasing electricity at low prices during excess supply and selling at higher prices during peak demand. This approach stems from the historical focus of grid services on providing electricity during peak demand rather than absorbing excess supply.
Pumped hydro can provide a range of vital, but often uncompensated, grid services essential for supporting renewable integration and system stability. These can include critical system services – such as inertia, frequency control, rapid ramping, and black start capabilities – that are essential for integrating variable renewables. Moreover, PHS facilities provide valuable reserve capacity, standing ready to feed into the grid when needed. On average, PHS units spend more than 40% of hours each year in Reserve Shutdown – a state where they are available for service but not electrically connected to the grid for economic reasons (Uría-Martínez, Johnson and O’Connor, 2018, p. 6[23]). This reserve capacity is a key contribution to grid reliability, allowing PHS to meet demand peaks as they arise. Furthermore, when electrically connected to the grid, PHS provides additional ancillary services such as frequency regulation. The remuneration for these grid services, including reserve capacity, could constitute a significant fraction of PHS revenues. However, current market rules often fail to fully compensate for these services, or make it difficult for PHS to participate in capacity mechanisms (European Commission, 2023[20]). Further, long-term contracts (Power Purchase Agreements, or PPAs) can help secure these services and ensure system reliability.
In 2022, Greece introduced a series of legal reforms aimed at accelerating energy storage deployment and enabling its integration into electricity markets. Law 4951/2022, followed by a Ministerial Decision in May 2023, established clear legal definitions for energy storage – covering both standalone systems and those co-located with renewables. Critically, the reforms expanded market access for storage assets, allowing participation not only in the day-ahead market but also in intraday and balancing markets, thus enhancing revenue opportunities.
The new regime also authorises the Transmission System Operator (TSO) to operate storage under defined conditions: either with ministerial approval for grid support purposes (excluding market participation), or where the Regulatory Authority for Energy (RAE) identifies a market gap not served by third parties. These measures aim to reduce regulatory uncertainty and incentivise private investment in storage infrastructure, including pumped hydro, by clarifying roles and unlocking new value streams (KPMG Enterprise Greece, 2023; IEA, 2023).
Incentives for deployment also depend on providing remuneration frameworks for all services provided by PHS. Clear and robust legal frameworks that clearly and adequately remunerate all services provided by PHS, not only their active role in energy arbitrage and grid balancing but also their function as reserve capacity, can increase incentives for deployment. By defining technical and financial standards – such as market rules for ancillary services, tariff designs for capacity markets, and long-term contracts that guarantee stable revenue streams – policy makers can reduce the investment risks associated with high upfront capital costs. This approach not only incentivises the construction of new PHS facilities but also encourages operational flexibility and innovation in existing plants.
Double taxation and grid fees
A second issue related to the remuneration is that of double taxes and grid charges. In many Member States, PHS plants are charged taxes and/or network fees twice, namely first when drawing electricity from the grid to pump water to the upper reservoir (charging the electricity storage), and again when releasing stored energy back into the grid for end-user consumption. Some Member States exempt or reduce grid charges for pumped hydro storage or exempt from network tariffs for electricity used in storage, reductions in transmission charges, and partial tariffs for charging and production (See Box 10.2).
Double charging can significantly impact the economic viability of PHS projects (ENTEC, 2023[4]; European Commission, 2023[19]). The argument against double charging is that it fails to recognise the unique function of PHS facilities and the positive externalities they generate for the overall energy system. Unlike end consumers, PHS facilities are part of the grid infrastructure, helping to balance supply and demand. As mentioned earlier, energy storage technologies, including PHS, play an increasingly important intermediary role in modern electricity systems by providing grid stability and facilitating the integration of variable renewable energy sources. To create a level playing field and incentivise investment in energy storage infrastructure, policymakers should consider those externality benefits, a possible solution being to avoid double taxation while ensuring fair contribution to grid costs.22See Box 10.2
Several countries have taken action to provide more certainty for PHS plants by improving the remuneration. For instance, Italy fully exempted storage facilities from grid tariffs, charges covering transmission and distribution, and system costs for electricity withdrawn and subsequently reinjected into the grid. Spain and Portugal exempt PHS plants from paying grid tariffs and system charges for withdrawals from the network. At the distribution level, Finland stands out as the only member state not charging injection or withdrawal fees for energy storage facilities Some Member States have special tariff structures or tariff exemptions for energy-storage facilities, such as Germany and Austria. Finally, some have significantly reduced transmission network charges, such as France where transmission network charges are reduced by up to 50% for energy-intensive industries using storage.
10.5.1. Instructions for Use
The self-diagnostic questionnaire is designed as a practical tool for policymakers to assess the regulatory and administrative conditions affecting renewable energy deployment. Each question or set of questions targets a specific barrier identified – such as permitting delays, grid connection, and asks whether a legal or regulatory obligation exists to address it. Responses are scored on a simple 0–1 scale, with 0 representing best practice (clear legal obligation enabling efficient deployment) and 1 representing the most burdensome conditions (no enabling framework). This structure allows policymakers to systematically identify gaps, benchmark performance, and prioritise reforms based on areas where national, regional or local rules fall short of good practice.
The questionnaire is divided between questions relevant to national and sub-national authorities. In jurisdictions where energy, environmental, or planning powers are decentralised, certain national-level questions should be completed by the relevant regional or devolved authority. Sub-national questions are further distinguished between regional and local levels, depending on how permitting and infrastructure responsibilities are distributed within the Member State. Policymakers at all levels should consult internal legal frameworks to determine which authority is competent to answer each question and ensure coordination where competencies overlap.
To ensure a comprehensive evaluation of barriers to deployment in your jurisdiction for this market segment or technology, to the results from the current questionnaire, users should also use the Spatial Planning and Permitting chapter and complete the relevant questionnaires, taking into account the analysis contained in the current chapter. Cross-referencing these sections will provide a complete picture of the regulatory environment and help identify priority areas for reform.
The scoring
The questions in this section are meant to enable two types of scores:
A. A score specific to a barrier within a market segment (technology): a market segment/barrier-specific score. An example is a score for permitting for PHS; and
B. A score specific to a market segment, hence including all barriers for that specific market segment: a market segment‑specific score. An example is utility-scale solar PV. A market segment/barrier-specific score forms part of the technology-specific score.
A. Market segment/barrier-specific score
This score determines the importance of a barrier for this technology. The score can be determined through the following steps:
i. Select a barrier within a market segment for analysis
ii. Score each relevant question for that aspect of the analysis (at the relevant level of government). For this scoring, one designates a score between 0 and 1.
Please note, for a scoring of the barrier Spatial planning and permitting, one needs to score the questions in this section (excluding for this market segment the questions for “permitting for small installations”), and for grid connection and flexibility, one needs to score the questions in this section.
iii. Add up the scores for each question to obtain the Market segment/barrier total score: Market segment/barrier total score = Sum(all individual questions for that barrier)
iv. Scale the Market segment/barrier total score to arrive at a (weighted) Market segment/barrier score, namely a score between 0 and 6 (see Annex C):
Market segment/barrier score =
(Market segment/barrier total score) x
B. Market segment-specific score
The next step is to combine the (Weighted) Market segment/barrier scores to arrive at a Market segment-specific score. The score can be determined by adding up the Market segment/barrier scores and divide them by the number of barriers:
Market segment-specific score =
Questions
References
[8] Blakers, A. et al. (2021), A review of pumped hydro energy storage, https://doi.org/10.1088/2516-1083/abeb5b.
[4] ENTEC (2023), Study on energy storage.
[26] European Association for Storage of Energy (2022), The Way Forward for Energy Storage Grid Fees; General Overview and Best Practices Across Member States.
[5] European Commission (2024), Hydropower and Pumped-Storage Hydropower in the European Union; Status report on technology development, trends, value chains & markets, https://doi.org/10.2760/8354439.
[19] European Commission (2023), Commission Staff Working Document: Energy Storage - Underpinning a decarbonised and secure EU energy system.
[20] European Commission (2023), Energy Storage – Underpinning a Decarbonised and Secure EU Energy System, SWD(2023) 298 final.
[16] European Commission (2023), “Hydropower and Pumped-Storage Hydropower in the European Union; Status report on technology development, trends, value chains & markets”.
[2] European Commission (2023), JRC technical report on “Assessment of the potential for energy efficiency in electricity” - Commission Staff Working Document.
[14] Government of Ireland (2022), Consultation on Developing an Electricity Storage Policy Framework for Ireland.
[12] Hunt, J. et al. (2020), “Global resource potential of seasonal pumped hydropower storage for energy and water storage”, Nat Commun 11, p. 947.
[1] IEA (2024), Batteries and Secure Energy Transitions.
[27] IEA (2024), Renewables 2024, https://www.iea.org/energy-system/renewables/wind (accessed on 2024).
[25] IEA (2023), “Greece 2023 Energy Policy Review”.
[13] International Hydropower Association (2024), Enabling new pumped storage hydropower; A guidance note for key decision makers to de-risk pumped storage investments.
[7] IRENA (2023), The changing role of hydropower: Challenges and opportunities.
[3] IRENA (2020), Innovation Outlook: Thermal Energy Storage.
[24] KPMG Enterprise Greece (2023), Energy sector & licensing procedures.
[17] OECD (2024), Mainstreaming Biodiversity into Renewable Power Infrastructure, OECD Publishing, Paris, https://doi.org/10.1787/357ac474-en.
[10] Papadakis, N., M. Fafalakis and D. Katsaprakakis (2023), A Review of Pumped Hydro Storage Systems, https://doi.org/10.3390/en16114516.
[21] Pumped Storage Hydropower International Forum (2021), Working paper Europe.
[6] Schmidt, O. et al. (2019), “Projecting the Future Levelized Cost of Electricity Storage Technologies”, Joule, pp. Pages 81-100.
[15] Simon, T. et al. (2023), “Life Cycle Assessment of Closed-Loop Pumped Storage Hydropower in the United States”, Environ. Sci. Technol. 2023, 57, 12251−12258.
[29] Stocks, M. et al. (2021), Global Atlas of Closed-Loop Pumped Hydro Energy Storage, https://doi.org/10.1016/j.joule.2020.11.015.
[22] UK Department for Energy Security & Net Zero (2024), Long duration electricity storage consultation; Designing a policy framework to enable investment in long duration electricity storage.
[23] Uría-Martínez, R., M. Johnson and P. O’Connor (2018), “2017 Hydropower Market Report”.
[9] US Department of Energy (2015), Pumped storage and potential hydropower from conduits.
[11] US National Renewable Energy Laboratory (2022), Closed-Loop Pumped Storage Hydropower Resource Assessment for the United States; Final Report on HydroWIRES Project D1: Improving Hydropower and PSH Representations in Capacity Expansion Models.
[28] Weber, T. et al. (2024), A global atlas of pumped hydro systems that repurpose existing mining sites, https://doi.org/10.1016/j.renene.2024.120113.
[18] Wu, G. et al. (2023), “Minimizing habitat conflicts in meeting net-zero energy targets in the western United States”, Proceedings of the National Academy of Sciences, Vol. 120/4, https://doi.org/10.1073/pnas.2204098120.
← 1. Solar and wind resources vary significantly across regions and timeframes. For instance, wind tends to peak at night and during winter, while solar peaks during the day and summer. By connecting geographically distant areas through long-distance transmission, regions with surplus renewable generation can supply electricity to those experiencing deficits, effectively smoothing variability and reducing the need for localised flexibility resources.
← 2. The estimated factor six is derived from a scenario in which certain normative developments outlined in the IEA net‑zero scenario are met, which consider a decline in flexible electricity supplied from thermal plants reliant on fossil energy. Moreover, there is complementarity with other instruments for managing energy supply variability (such as demand response and interregional linkage through long-distance transmission networks).
← 3. Indeed, global deployment of battery storage is projected to increase rapidly in the years ahead (IEA, 2024, p. 86[27]). Total global installed battery storage capacity is expected to increase ninefold by 2030, from 86 GW in 2023 to over 760 GW, in the IEA scenario that follows current policies, and by a factor 14, to 1200 GW, in the net-zero IEA scenario.
← 4. Parasitic losses are small amounts of energy that are consumed or lost internally within the system and are not available for useful energy output (examples include frictional losses in the water pipes and turbines or electrical losses in transformers and power electronics).
← 5. Primary frequency response is meant to correct continuous and sudden frequency and voltage changes across the network, while secondary frequency response aims to correct anticipated and unexpected imbalances between load and generation, and tertiary frequency response replaces primary and secondary response during prolonged system stress.
← 6. See (Hunt et al., 2020[12]) for an assessment of the global resource potential of seasonal pumped hydropower storage (SPHS) for energy and water storage. This paper shows that the global technical and economic potential for water and energy storage with SPHS is vast, but with an unequal spatial distribution across the world.
← 7. Black start is the procedure to recover from a total or partial shutdown of an electrical grid. In such scenario, many power plants would be incapable of turning back on because they need electricity to start and run. PHS provides the resources to restart when the rest of the grid has shut down.
← 8. While closed-loop PHS systems offer a more environmentally sustainable and climate-resilient pathway for expanding long-duration energy storage, they are not entirely insulated from the effects of water stress. Their long-term viability under climate change hinges on careful site selection, improved water efficiency measures, and integration with broader water resource management strategies.
← 9. One of the earliest known applications of PHS technology was applied in Switzerland in 1882 (US Department of Energy, 2015, p. 3[9]).
← 10. Inertia in power systems refers to the resistance of the grid to sudden changes in frequency, thanks to the rotating mass of large synchronous machines like those in traditional power plants (e.g. coal, gas, hydro). Traditional pumped hydro (with synchronous turbines) provides real inertia, helping stabilise the grid naturally.
← 11. Other challenges relate to for instance reservoirs needing to allow for significant water level variations to store substantial amounts of water and energy and specific land requirements in plain regions due to higher evaporation rates and higher capital costs for storing relatively small amounts of water and energy (Papadakis, Fafalakis and Katsaprakakis, 2023, p. 2[10]).
← 12. (Stocks et al., 2021[29]) identified 616,000 potential storage sites with a combined storage potential of 23 000 TWh using Geographic Information System (GIS) analysis of high resolution global digital elevation models to determine economically feasible closed-loop scheme locations outside protected and urban areas.
← 13. (Weber et al., 2024[28]) identified 904 sites across the globe in mining areas with combined potential storage of 30 TWh.
← 14. Estimations on the installed capacity of PHS differ depending on the used source. Annex D describes the methodology used to derive to the current installed capacity in the EU.
← 15. The PHES Atlas is being used by governments and private companies worldwide to locate prospective sites for PHS. See also https://re100.eng.anu.edu.au/pumped_hydro_atlas/.
← 16. The selection focuses on closed-loop projects and gives priority to brownfield and bluefield reservoir pairs and, across all project types, to those that are classified as having the best cost-effectiveness profile. In the conservative scenario, only the most economically attractive are selected. The moderate scenario also considers projects with relative higher costs (while still only including those projects that are highly competitive). Projects located in restricted areas (e.g. urban areas) and protected areas (based on the PHES Atlas classification) are excluded. As such, the selection of projects is based on economic considerations, while also prioritising projects with lower environmental footprints, thus ensuring greater social acceptability. This is consistent with indicators that attribute lower land footprints on an aggregated basis to the selection made.
← 17. Capacity factors describe the ratio between the actual electricity generated over a period of time and the maximum possible electricity generated if the plant were to operate continuously at full capacity. For estimating future potential generation, historical capacity factors have been used. However, it needs to be noted that capacity factor are currently not limited by technical constraints and could increase substantially if required by market or grid demands.
← 18. The calculations include storage options within the EU with durations of 50 to 60 hours, and 200 hours only in the case of the high scenario. Projects with long storage duration (i.e. those in the 200-hour category for PHES Atlas) grow significantly if additional potential from EU neighbouring countries (Norway, Türkiye and in the Western Balkans) is included.
← 19. (International Hydropower Association, 2024[13]) calls this a scenario of PHS that is “private sector developed but public sector enabled”.
← 20. By integrating comprehensive environmental considerations – encompassing ecosystems, hydrological characteristics, water resources, and biodiversity – spatial planning helps steer PHS projects away from particularly sensitive or vulnerable areas.
← 22. The EU Commission has tried to tackle this issue by revising the Energy Taxation Directive (ETD) that included amendments for energy storage. In 2021, the Commission adopted a proposal for a revision of the ETD, which aims to align energy taxation with EU climate policies and promote clean technologies. The revision to the ETD aims to prevent double taxation by considering energy storage facilities, including PHS, as redistributors when they supply electricity. However, to date the proposal has not yet been adopted.