Hydropower plants to provide Highland energy jobs boosts

The potential of windfarms and the like is undermined by the fact the UK doesn’t have anywhere near enough capacity to store output generated in times of low demand.

Champions say Pumped Storage Hydro plants are uniquely well placed to fill the gap by using flows of water between lochs and reservoirs to release energy from windfarms when required. However, the facilities concerned take years to construct with costs potentially running into billions of pounds.

SSE and Drax are at advanced stages of planning big developments. There are fears that unless the next Westminster Government implements Rishi Sunak’s plan to introduce a cap and collar scheme to support revenues it may be impossible for firms to secure the investment required.

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Under cap and collar schemes developers are guaranteed a minimum price for the energy they supply. They pay over a share of revenues when prices exceed the upper limit.

“Cap and floor is key to this happening,” said Mike Seaton who has spent years working on the Coire Glas pumped storage hydro scheme that SSE plans to develop between Inverness and Fort William.

Mr Seaton, who is development director at SSE Renewables, reckons Coire Glas could be operational in 2032 assuming the group feels able to give the go ahead to the project in 2026. But it will require around £1.5bn investment.

 “SSE are intending to bank finance this project. It’s a big slug of money to have out the door for seven years of construction so we need some form of safety net,” he said.

Noting that SSE has already invested £100m in preparatory work, Mr Seaton warned a decision not to proceed with cap and floor might undermine the economics of Coire Glas. It could leave SSE struggling to secure funding from the usual sources.

“We’re not saying we would definitely pull out. [But] it would give us a big problem. We would be looking to divest equity to partners that were prepared to take that level of risk. It would greatly reduce our ability to divest to the normal people,” said Mr Seaton.

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Uncertainty about the outcome of the consultation process has increased as the UK is preparing for a general election, which could result in a change in government.

“With an election pending everything is up in the air,” said Dan Eager at the Wood Mackenzie energy consultancy before Rishi Sunak called a snap July 4 election.

Regarding potential delays, Mr Seaton noted: “The biggest risk like it is for a lot of the offshore wind projects around the world is this is a global market for large contractors.

“If the Government slows up a cap and floor type mechanism that allows us to progress towards bank finance and financial close then there is a risk that the supply chain lose interest in the UK.”

SSE has invested £100m in preparatory work on the Coire Glas pumped storage hydropower scheme (Image: SSE)

Drax wants the Government to introduce a cap and floor mechanism as it works on plans for a massive expansion of the Cruachan plant in Argyll, which has been operational since 1965.

The so-called Hollow Mountain facility works by using electricity generated at times of low demand to pump water from Loch Awe to a reservoir above. The energy stored is released by letting water run back down so that it spins huge turbines in a cavern that was created in Ben Cruachan.

 “It is highly unlikely that Drax, or any would-be developer of new build pumped storage, could take a positive investment decision on a project without an appropriate new framework from the UK Government,” said a spokesperson for the group.

Drax underlined its interest in the expansion plan recently by starting work on seismic surveys which it said would “provide crucial geological data about the rock in which the new plant would be housed”.

While any support for generators could provoke controversy after the surge in household energy bills in recent years, developers dismiss suggestions a cap and floor mechanism would provide them with a subsidy.

“Cap and floor is not a subsidy, it’s a safety net in case policies are changed and returns fall below our costs,” said Mr Seaton of SSE. “It’s a mechanism to allow bank finance to invest in major infrastructure projects that support the development of UK plc.”

He added: “If we’re at the floor it’s a disaster for SSE. The only people who will get their money back are the banks, we get nothing.

“Most of the time you’re going to be between the cap and the floor in which case it doesn’t cost the consumer anything.”

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Coire Glas could provide huge economic benefits, which might allay concern about the cost of a support mechanism.

“Unlike a windfarm or a solar farm where a lot of the components are made in factories overseas 70 percent of the capex cost is going to be spent in the UK … It’s labour-intensive work, it’s plant-intensive,” said Mr Seaton.

Around 800 people would be working on the Coire Glas site on the shores of Loch Lochy during the construction phase.

A cap and collar mechanism could unlock investment in other schemes that are in the pipeline in Scotland such as Red John by Loch Ness. The project was acquired by Norwegian energy giant Statkraft in December in a deal that showed overseas investors saw significant potential in the UK pumped storage market.

But Statkraft cautioned at the time: “There needs to be an appropriate support mechanism in place.” 

Statkraft bought Red John from Lanarkshire-based Intelligent Land Investments, which is working on plans for the Balliemeanoch and Corrievarkie developments in the Highlands.

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Glen Earrach energy is consulting locals about a project to maximise the storage potential of the waters of Lochs Ness and Breac Darga, with a reported £3bn cost estimate.

The property business owned by the Duke of Buccleuch won backing from the Foresight investment firm in 2022 for its plans for a pumped storage hydro development on the site of a former coal mine at Glenmucklock in Dumfries and Galloway.

Geographic constraints mean there are not many sites in the UK that are suitable for pumped storage hydro, which Wood Mackenzie’s Mr Eager reckons offers advantages over other storage technologies.

Pumped storage schemes cost more and take longer to develop than Lithium-ion battery facilities. However, they can store more power and release it over longer periods.

On the subsidy question Mr Eager suggests any payments involved would be insignificant relative to the size of the UK renewables market.

“Or think of it the other way around. When renewables are curtailed that costs the system operator money.”

Mr Eager notes cap and floor arrangements have helped to support hefty investment in grid infrastructure.

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Pumped storage hydro technology is tried and tested. Countries such as Spain and Portugal are investing in big schemes.

But UK developers may face practical challenges in addition to financing issues.

While the Scottish Government is supportive the planning questions posed by local authorities can be tough.

Mr Seaton said SSE has had support from Highland Council for Coire Glas but noted: “We have had local issues to deal with. There is going to be construction impact for a few people that we are having to address.”

In a reminder that low-carbon projects can trigger environmental concerns, fishing enthusiasts have sounded the alarm about the potential impact of pumped storage hydro schemes on Loch Ness’s salmon population.