Estimating the value of energy storage: The role of pumped hydropower in the electricity supply network

This study explores the role of storage systems in reducing the variability of renewable power, focusing on pumped hydropower storage (PHS) systems. We regress the hourly storage by PHS on the hourly solar power generation to estimate the average amount of solar power generation stored by PHS systems. We adopt an instrumental variable approach to mitigate any endogeneity concerns, in which a weighted sunshine duration serves as the instrument for solar power generation. Our estimation results show that PHS systems alleviate the intermittency of solar power generation: an additional 1 MWh of solar power generation corresponds to an additional 0.249 MWh of storage by PHS systems. The relationship between PHS and solar power is more pronounced when the demand is relatively low and solar power generation is large. Inter-regional transmission grids also respond to an increase in solar power generation but to a lesser extent than PHS systems. Based on the estimated coefficients in the empirical analysis, we quantified the value of the existing PHS systems as storage systems that mitigated intermittent solar power generation. The estimated social benefit of avoiding curtailment is 180–280 million yen for a 10 MW scale plant, accounting for 7.7–11.7% of the cost of constructing a new PHS system. The result highlights the importance of effectively utilizing the current PHS capacity.