Economic Feasibility of Semi-Underground Pumped Storage Hydro Power Plants in Open Pit Mines

Michael Wessel,Christoph Hilgers,Reinhard Madlener

doi:10.2139/ssrn.3700795

Abstract

This work aims at the economic evaluation of a semi-underground pumped hydro storage power plant erected in an abandoned open pit mine. For the exploratory model-based analysis, we develop and apply both a simple deterministic and a stochastic net present value (NPV) approach, the latter of which uses Monte Carlo simulation to account for revenue uncertainty from electricity price fluctuations. The analytical framework developed is applied to two promising sites in the Rheinland region in Germany, Hambach and Inden, making reasonable parameter value assumptions and considering and ignoring the lengthy duration of lower reservoir flooding. The investor's value-at-risk is computed for alternative performance indicators (the NPV, net cash recovery, profit-to-investment ratio, and specific production costs) to compare the different outcomes in terms of the project's financial risk distribution. Calculations show that a semi-underground pumped hydro storage power plant in an abandoned open pit mine can be constructed at reasonably low investment costs and operated at low specific production costs. However, because the investment has to be made long before the pit lake is (naturally) flooded - a process that for realistic flow rates may take up to 20 years - the project is highly uneconomical and would require substantial subsidies, as compared to a situation where flooding happens immediately.

Highlights

Germany is shifting its power production away from fossil fuels and nuclear power towards renewable energies [1]
Scenario 1 reflects the conditions at the Hambach pit mine, and Scenario 2, those of the Inden pit mine. Both pit mines are located in the Rhineland, where the best conditions for pumped hydro storage (PHS) power plants in abandoned pit mines prevail thanks to high exploration depth and high pit lake volumes, creating sizable water storage volumes without exceeding the lake level variation of 1 m/d
This study shows that a pumped storage hydropower plant in an open pit can be constructed at relatively low investment costs and could be operated profitably and with low specific production costs, if it were not for the long flooding time

Summary

Introduction

Germany is shifting its power production away from fossil fuels and nuclear power towards renewable energies [1]. With increasing wind and solar photovoltaic power supply fluctuations, security of supply, and long‐term sustainability need to be managed [2]. One solution to this problem is the expansion of electricity storage capacities. Large areas and large height differences are required. PHS is placed in mountainous areas (e.g., in Austria, Switzerland, and Norway), often creating controversies due to their substantial socio‐economic‐ecological impacts. Potential locations for PHS are rare in Germany, but several lignite open‐pit mines will cease operation in the years to come (due to the planned 100% phaseout of coal‐fired power generation until 2035/2038), resulting in some areas being recultivated with large pit lakes. The aim of our investigation is to show whether such locations can be used profitably for the installation of what we call semi‐underground PHS (semi‐UPHS) power plants, in Energies 2020, 13, 4178; doi:10.3390/en13164178 www.mdpi.com/journal/energies

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Conclusion