November 13, 2020
An international infrastructure investment firm has acquired development rights to the 400 MW Swan Lake and 1,200 MW Goldendale projects, likely giving those proposed Northwest closed-loop hydro pumped storage projects the financing needed to see them through completion.
Copenhagen Infrastructure Partners, on behalf of Copenhagen Infrastructure IV K/S, announced Nov. 11 it has acquired ownership of the $800 million Swan Lake project, located in Klamath County, Ore., and the $2.1 billion Goldendale project in Kittitas County, Wash., from National Grid and Rye Development, which will remain as project manager.
CIP acquired the proposed $1 billion Gordon Butte pumped storage project in Montana in July 2019. The firm’s Northwest pumped storage portfolio is now valued at just shy of $4 billion.
“CIP acquiring Swan Lake and Goldendale is a great fit for completion of the projects,” said Erik Steimle, VP at Rye Development, in a statement. “CIP recognizes the long-term importance of new storage infrastructure projects to help harness and store wind and solar energy for meeting peak demand as both Washington and Oregon move toward a 100 percent clean electricity grid, cost-effectively and reliably.”
But financing permitting and development of these mega projects has, so far, proven to be the easy part.
There’s very little dispute in utility circles that adding pumped storage would be hugely beneficial in helping the region deal with a looming capacity crisis, but no utility has yet stepped forward to shoulder the risk of seeing a project through to completion.
By 2025, according to consultants Energy and Environmental Economics, the Northwest is expected to be about 2 GW short of meeting peak demand needs, and that capacity deficit is expected to grow to 10 GW by 2030. Climate and energy policies in California, Oregon and Washington have effectively eliminated any new natural gas-fired plants from being developed. This has sent capacity-short IOUs in the Northwest on the hunt for surplus, emissions-free hydroelectricity.
Puget Sound Energy and Portland General Electric have signed a series of contracts with Mid-C utilities and BPA for hydro. But there isn’t enough surplus hydro in the region to meet their deficits, and some contracts that have been signed will expire post-2025, when the region’s deficit is projected to start ballooning.
Utilities are interested in pumped storage. Portland General Electric has revised its integrated resource planning and request for proposals process to accommodate the long-lead times needed to build a project. Avista’s 2019 IRP shows a pumped storage project in the portfolio around 2027.
But it seems unlikely that any one utility, with the exception of PacifiCorp, could finance development of a pumped storage project.
The hundreds of millions of dollars in upfront capital costs and the five to seven years needed to build a project don’t fit squarely into the five-year action plan window of integrated resource planning, or into request-for-proposals protocols.
“You’ll have to have a multiparty ownership agreement between some IOUs and some large public utilities,” Randy Hardy, principal at Hardy Consulting and former BPA administrator, told Clearing Up. “That will likely have to be done outside of the normal RFP process, which means that you’ll have to get dispensation from various state regulatory commissions.”
Hardy added that even the Gordon Butte and Swan Lake projects are probably “too big for a single utility to digest.”
So how could a pumped storage project be developed in the Northwest?
One potential scenario is formation of a consortium of IOUs and public-power utilities—along with a big-tech company or two just for a good measure—that could share the risk.
The two most logical IOUs to join a pumped storage consortium would be Puget Sound Energy and Portland General Electric. PGE is looking at a projected capacity deficit of 697 MW in 2025, growing to over 1,000 MW in the reference case scenario in the 2019 IRP. PSE has projected a capacity deficit of 545 MW starting in 2026 and growing to 661 MW by 2030.
A smattering of large publicly owned utilities might be interested in beefing up their hydro portfolios by acquiring shares in a new pumped storage project.
Any of the 11 members of the Public Generating Pool could fit the bill. PGP includes some of Bonneville’s biggest customers, and any BPA Slice customer concerned that Bonneville may not have enough water to meet their peak needs would be candidates.
Another likely batch of investors could be found in green-minded technology companies that have invested heavily in wind and solar projects. Apple, Facebook, Amazon or Google certainly have the balance sheets to pony up $100 million or so for shares in a pumped storage project to balance their wind fleets.
But even that may not be enough. The incoming Biden administration, anxious to develop green energy projects and put people to work, could offer pumped storage developers tax credits, similar to the production tax credit or tax equity credits used by wind and solar developers.
All that is, of course, hypothetical. But what’s not hypothetical is that the region is facing a capacity deficit, and as of November 2020, it’s still hard to see where all that much-needed capacity will be coming from.
“We’re playing a game of capacity chicken; nobody wants to build anything,” Nathan Sandvig, VP at Rye Development, told Clearing Up.
So far, the region seems content to build out solar and wind projects and hope the market is there during peak events, or to develop a sea of lithium-ion batteries that likely won’t provide much help if peak events last longer than a few hours, Sandvig said.
FERC has signed off on the 400 MW Swan Lake and the 400 MW Gordon Butte project, and both could be built and on line by 2026. The federal agency is currently reviewing the 1,200 MW Goldendale project.
This raises another, perhaps deeper question; Can the region come together to build large, expensive infrastructure projects? The age of dam building may be over, and it’s highly unlikely the federal government would shoulder the financial burden of building a pumped storage project. But hydroelectricity remains the best emissions-free capacity resource on the menu. Two Northwest pumped storage projects are permitted, with easy access to transmission, and capable of coming on line just as the region slips into a big capacity deficit.
“It would be wise for the region to develop a pumped storage project,” Hardy said. “It will get you from 2025 to 2030, when the region is short, and then it’ll be useful for another 50 to 100 years.”
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