Unlocking hydropower: A strategic imperative for Australia’s clean energy future

In working closely with many developers, operators, and other industry leaders across the pumped hydro sector. What has stood out from these interactions is the number of shared challenges we face – yet, we didn’t have a single, unified voice advocating for the support this industry needs to thrive.  

When the opportunity emerged to bring people together, from across professions, states, and perspectives, there was an immediate sense of alignment. It was clear that many of us were having the same conversations in parallel, and that we’d be stronger tackling these issues together.  

What began as a working group quickly evolved into a collaborative and nationally focused initiative. In partnership with the International Hydropower Association, we’ve developed a Pumped Hydro derisking guidance note alongside supporting the IHA’s first formal events on Australian soil, creating space for deeper conversations around risks, delivery models, and policy settings. 

Now, at the Australian Clean Energy Summit, Hydropower Leaders have called for national policy action with the launch of Pumped Storage Hydropower: Powering Australia’s Energy Future. Informed by the insights, challenges and opportunities shared from our events, this report highlights the urgent need for a coordinated national policy framework and hydropower roadmap to accelerate investment in pumped storage hydropower, a technology critical to Australia’s long-duration energy storage and net zero ambitions. 

Our intention is to drive collaboration, honest dialogue, and meaningful progress. We have a unique opportunity ahead of us – with the right frameworks and partnerships in place, I am confident this industry is well-positioned to become a powerful force for good.   

Revenue uncertainty remains one of the most pressing challenges in reaching a Final Investment Decision (FID). This uncertainty often discourages full early-stage investment in engineering and environmental studies, leading to heightened risks, cost overruns, and timeline delays during construction. A more balanced approach is needed: one that encourages thorough site investigations and due diligence up front while managing Development Expenditure prudently. By strengthening planning, transparency, and stakeholder engagement, projects can reduce risk and become more viable to private capital.

Pumped hydro projects require sustained commitment due to their complex, long-term development timelines. Investors need assurance that market mechanisms will remain supportive over a decade or more. The recent awarding of the first Long-Term Energy Service Agreement (LTESA) to ACEN’s Project Phoenix – a GHD-originated project/development – is an important step forward. This 20-year revenue guarantee under the New South Wales scheme offers a replicable model for other Australian states and territories, giving investors the long-term certainty that they seek.

Meanwhile, the recently published draft of the Nelson Review of Australia's National Energy Market, has proposed the creation of the ESEM (Extended Services Energy Market) as a new market mechanism embedded within the National Electricity Law (NEL), specifically designed to address the ‘tenor gap’—the mismatch between short-term buyer contracts and the long-term investment certainty required by capital-intensive projects such as pumped hydro. The ESEM aims to facilitate investment in long-duration and firming capacity as well as shaping and firming services such as batteries and pumped hydro, and essential system services including inertia, system strength, and restart capability. 

Key features of the ESEM include contracts that target the later years of a project’s life (years eight to 20), thereby complementing early-stage merchant or short-term contracts. These contracts would take the form of standardised, tradable financial derivatives co-designed with industry. The mechanism would also include adjustments to accommodate projects with high market entry barriers, such as pumped hydro.

A stable policy and market environment will be essential to maintain momentum and ensure these foundational projects go ahead.

Unlike other infrastructure projects, pumped hydro faces disproportionately complex and time-sensitive environmental approval pathways, particularly for borehole drilling and geotechnical studies. These multi-party approvals often span state and federal governments, creating parallel bureaucratic hurdles that can significantly delay early-stage work. In many cases, these permits sit on the project’s critical path and are the root cause of development delays. For example, local council-led approvals can take up to 12 months, delaying vital feasibility work and increasing project risk.

How can this be addressed? The guidance note recommends transferring approval authority to state or federal levels and formally classifying pumped hydro as qualifying development. Legislative changes have already been proposed to facilitate these reforms, with the goal of reducing project timelines and improving investment certainty. 

To accelerate the delivery of new storage capacity, the guidance note outlines several key recommendations, including:

• Fast-track geotechnical approvals at the State level, similar to those used in exploration projects.
• Allow flexibility within Environmental Impact Assessment (EIA) frameworks so that design changes – within the same project footprint – do not require full resubmission.
• Establish a nationally consistent, sector-specific approach to permitting for pumped hydro to streamline the early development phase.

Unlocking private capital for pumped hydro requires a reassessment of how risk is allocated. Under current models, private boards are often reluctant to accept geotechnical and civil construction risk, particularly in the early stages.

However, government-owned corporations are better positioned to absorb these risks, opening the door to co-investment and co-development models. Queensland, for example, is emerging as a leader in this area, where collaboration between public entities and private firms is creating viable project pathways. 

Many current contracting models are not equipped to manage the uncertainties involved in tunnelling and geotechnical works, creating challenges for project budgeting and delivery. Pumped hydro also carries significantly higher DevEx costs than other technologies, with up to 10 years from development start to revenue. This long horizon increases financing risk and reduces attractiveness without government support.

The guidance note recommends that government bodies consider underwriting key development risks to unlock private investment. 

As a key contributor to the guidance note, GHD has facilitated broad industry engagement and aligned stakeholders around a common vision for hydropower development in Australia. The Pumped Storage Hydropower: Powering Australia's Energy Future report will inform advocacy at both state and federal levels, supporting evidence-based policy reform and infrastructure planning.

Recognising the socioeconomic value of pumped hydro development, particularly its ability to support regional employment, is also an important impact to highlight. With many mining communities transitioning, the skills needed for hydropower align closely with Australia’s existing workforce capabilities. Yet this potential is often overlooked. With the right incentives, pumped hydro projects could support local communities and economies, retrain displaced workers, and create long-term economic opportunity in regional areas.

The release of the guidance note marks the beginning of a broader engagement strategy, whereby advocacy for reform continues through direct engagement with policymakers, industry leaders and clients.

As the energy landscape evolves, we remain committed to progressing these recommendations and supporting clients as they navigate the complexities of long-term energy infrastructure development.

Delivering large-scale long-duration storage is essential to meeting net zero targets, and pumped hydro remains a cornerstone of that goal. Realising this opportunity will require bold leadership, clearer policy, and streamlined delivery models. With strong collaboration between industry and government, Australia can unlock the full potential of pumped hydro, and as a result secure a more reliable, resilient energy future.