Analysis of financial mechanisms in support to new pumped hydropower storage projects in Croatia

This paper analyses potential supporting schemes for pumped hydro storage (PHS) facilities in Croatia, which would guarantee recovery of the investment cost, with feed-in tariffs – for instance – which would guarantee payment for discharging wind-originated power as a reward for boosting the integration of renewable energy sources (RESs). The payment level acts as a floor basis for the PHS operator during the decision-making process to contract fixed payments for wind support or to act market-free on other market segments, through price arbitrage and reserve provision. The market share required for the efficient operation of a PHS facility and the levels of feed-in tariff (FIT) are set mathematically. Main findings put the level of FIT for an applied project in Croatia in the range 42–265€/MWh for an average load factor of 20%, depending on particular local conditions, such as the level of wind power curtailment in the system, the power price for charging the storage and the number of pumps and penstocks, which could lower the capital cost. It is claimed that not all services that PHS provides to the electricity system are adequately rewarded by the electricity market, and thus there is a serious uncertainty as to how investment costs in energy storage would be recovered. Other elements, outside the market, are likely to influence the operation of PHS, such as the regulated level of a desirable rate of curtailment of RES power excess, the adequate level of energy security and the reserve margins which PHS could help to ensure.