Material Insights · Understanding the Material World

Pumped hydro storage: Economics

High upfront cost, very low lifetime cost, uncertain revenue

What this tab covers Economics and financial structure: capital versus operating cost, levelised cost of storage, and how the asset earns money.

High upfront cost and long lead times, offset by very long life and one of the lowest levelised costs for 10-hour storage. Revenue certainty is the main barrier.

Capex versus opex

Mixed

Capital cost is high and site-specific: about USD 263 per kWh (roughly USD 2,630 per kW, calculated) for a 100 MW, 10-hour plant in the DOE/PNNL 2022 assessment. Operating costs are low and there are no stack or cell replacements, only periodic mechanical overhauls. IHA notes that construction risk is the main cost driver and that pushing all of it onto contractors raises prices.13

Installed cost, 100 MW / 10 h USD 263/kWh (about USD 2,630/kW, calculated)3 Installed cost, 100 MW / 24 h USD 143/kWh (about USD 3,430/kW, calculated)3

Levelised cost of storage

Favourable

For a 1,000 MW, 10-hour plant the DOE/PNNL 2022 assessment estimates about USD 0.11 per kWh (USD 110 per MWh), close to compressed air (USD 0.10) and below gravity storage (USD 0.13). PNNL's 2023 review gives USD 0.13 per kWh for a smaller 100 MW, 10-hour plant, reflecting economies of scale. IHA stresses that the result depends heavily on the discount rate: at 3 to 5 percent pumped hydro is competitive, while at higher rates shorter-life options look better.135

LCOS, 1,000 MW / 10 h about USD 110/MWh (2021 data)3 LCOS, 100 MW / 10 h about USD 130/MWh5 Competitive discount rate 3-5%1

Revenue stack and market participation

Mixed

Plants earn from daily arbitrage, frequency response, inertia, reserves and multi-day resilience. IHA reports that few markets pay for long-duration reserve capacity, so developers often depend on arbitrage spreads; it recommends capacity payments, flexibility tenders and long-term availability contracts. Rising numbers of zero and negative price hours in Europe and Australia are improving arbitrage. Great Britain is the clearest test of a regulated floor: Ofgem's June 2026 minded-to list for cap-and-floor support includes three Scottish pumped hydro schemes (Coire Glas, Earba and Loch Kemp).18

Australia negative-price share (one day, Sept 2024) 40% of prices1 GB cap-and-floor minded-to list (June 2026) 3 pumped hydro schemes, 3,900 MW of 7,645 MW8

Sources

  1. 2025 World Hydropower Outlook International Hydropower Association, 2025
  2. 2022 Grid Energy Storage Technology Cost and Performance Assessment US Department of Energy / Pacific Northwest National Laboratory, 2022
  3. Emerging Technologies Review: Pumped Storage Hydropower (PNNL-34458) Pacific Northwest National Laboratory, 2023
  4. Long Duration Electricity Storage cap and floor Window 1: minded-to decisions (consultation) Ofgem, 2026