Unlocking the Potential: Harnessing the Power of Mining Expertise for Pumped Storage Development
Mark HavekostNorthwest Regional Manager/Energy Market Lead
Some of the largest and most complex underground projects are pumped storage hydro facilities. These projects typically require a wide range of specialized construction techniques and include multiparty underground interfaces such as installation of hydromechanical and electrical equipment and shared underground access. One approach to addressing the challenges of complex civil projects that involve significant underground rock excavation is to actively involve mining development contractors in project development and construction. By engaging experienced contractors in this specialized industry, it is possible to reduce the obstacles and difficulties associated with project delivery. The premise is that these contractors have the unique skill sets, capable workforces, and specialized institutional knowledge to engage in highly effective partnerships with civil contractors or directly with owners to help reduce the cost and duration of complex underground construction.
The complexity of pumped storage projects creates uncertainty in both time and costs. This is particularly influenced by variable excavation shapes and orientations, water pressure confinement constraints, and the accommodation of numerous multiparty interfaces. These factors pose challenges in achieving a balanced and cost-effective allocation of risk. Since a contractor is responsible for determining means and methods for construction, and the owner is responsible for representing performance requirements, subsurface conditions, and contract interfaces, complicated discussions can develop over cause-and-effect issues during all project phases. In early planning phases this can result in difficult decisions when budgets are exceeded. In later phases it may become more difficult to reconcile large capital investment decisions when facing various external obstacles. These obstacles include uncertainty with environmental and regulatory constraints, suitability of transmission infrastructure, market forces, and the projected return on investment once the project is operational.
Mining development contractors, by the nature of their work, may perceive risk and engage in means and methods to mitigate risk quite differently than contractors that are primarily focused on the civil industry. In a civil project, there are many instances where the underground excavation is not the singular focus of the project and where the effective coordination between a myriad of other task and discipline interfaces is a key to success. Therefore, a civil contractor’s approach to a large complex underground project can be more programmatic and commoditized. In addition, a civil contractor’s resources may include limited mining expertise that is not culturally tied to their main business. This can lead to high contingency pricing, sometimes reflected in conservative production rate assumptions that have a compounding negative impact on the other components of an underground project (i.e., mechanical and electrical equipment that is installed within the excavations).
The right partnership on the right project can be a game changer for the hydropower industry. Creating more meaningful engagement opportunities for specialty contractors such as those in the mining development industry would be a significant step towards advancing pumped storage hydro projects through completion. To deal with numerous complex interfaces between separate work contracts, the work of the specialty subcontractors may need to be compartmentalized to mitigate contractual risk. Also, additional or modified contract clauses that implement risk allocation mechanisms for interface impacts outside the control of the specialty contractor could be considered to encourage project collaboration. Such modifications might include time and materials pricing models that switch back to a fixed pricing model when the interface issue is resolved.
Increasing awareness of the unique features and capabilities of the mine development industry could also lead to more opportunities. Like the mining industry, the hydropower industry involves a wide variety of owners and stakeholders. Currently, private developers are contemplating or planning several large, pumped storage projects. These developers may have flexibility with contracting, which could lower entry hurdles to specialty contractors. Furthermore, major utilities with underground hydropower assets may also be interested in understanding the capabilities of the mining industry and how a mine contractor workforce and contract practices could be used to efficiently tackle challenging, one-of-a-kind projects.
Pumped Storage Hydro Development Interest is Increasing
Obstacles to pumped storage project implementation have proven to be persistent in North America, where the last large scale pumped storage projects went online 30 to 40 years ago. While there has been significant interest in the development of pumped storage projects in the United States and Australia, only a few have advanced beyond the initial licensing phases. However, growing renewable energy markets, potential decrease in thermal generation capacity, and the opportunities to strengthen domestic energy grids are increasing interest in pumped storage hydro development.
The construction of the Pacific Gas and Electric Co. (PG&E) Helms Pumped Storage Project facility (pictured above) began in 1977, and the operation of the facility started in 1984. It was designed to be paired with the Diablo Canyon Nuclear Power Plant, also owned by PG&E.