Can hydropower keep the lights on?

Welcome back to Energy Source, coming to you from a sweltering New York.

It turns out war in the Middle East isn’t enough to save the oil industry from the threat of $50 barrels.

When Iran started firing at a US air base in Qatar on Monday, traders glued to their phones led a sell-off in a market that usually surges during geopolitical strife.

My colleagues Malcolm Moore, George Steer and Jamie Smyth outline here how major trading houses used X and open source intelligence to determine that the Iranian attack on the Al Udeid military base was largely symbolic — giving them the confidence to sell and push prices down 7.2 per cent to $71.48 on Monday, the sharpest daily drop in nearly three years. 

“It is all orchestrated, we know the base is empty. I knew from June 18 that the base was empty,” said Jorge Montepeque, an oil analyst at Onyx Capital Group, in a text message just after the attack began. “We have watched this movie before.”

Oil and gas have continued to flow from the region, with Iran increasing its exports and unable to threaten the Strait of Hormuz without hurting its Chinese partners.

Downward pressure on prices is only likely to continue as 2025 closes out, with some forecasts predicting oil at $50-$60 a barrel.

As the FT outlined in March, this could be a boon for consumers and a problem for the industry.

Proving that water and oil can mix, today’s newsletter asks whether hydropower is the clean, reliable energy source to bet on.

Thanks for reading, Martha

Can hydropower shore up electricity grids?

After Spain was recently plunged into darkness, the renewables industry had an image problem on its hands.

Its detractors said that the preponderance of solar in the country’s energy mix made it difficult to balance supply and demand to keep the grid stable, and that a lack of firm power — electricity supply that is available whenever needed — meant operators couldn’t react quickly.

The origins of the Iberian blackout are disputed. The Spanish government has denied that renewables caused the outages, blaming various technical and planning errors across the grid.

Still, the problem, as clean energy advocates see it, is that firm power typically comes from dirtier energy sources such as gas and oil. Whatever the cause, the blackout highlighted the need for renewable, reliable power.

Much has been made of the potential for a nuclear renaissance, but a new report from the International Hydropower Association suggests that hydropower is also part of the solution.

“The wind doesn’t blow and the sun doesn’t shine all the time,” said Malcolm Turnbull, a former prime minister of Australia who gave the green light a hydropower megaproject in New South Wales during his time in office (which has not been without its share of controversy). These days he serves as the outgoing chair of Upper Hunter Hydro, the company he founded in 2022, and president of the IHA.

“Hydro, especially pumped hydro, provides the long duration storage that you need to firm renewables,” he told Energy Source.

“I probably am a fanatic about pumped hydro,” he said.

According to the IHA report, global capacity grew by 24.6 gigawatts last year, including 16.2GW of conventional hydropower and 8.4GW of pumped storage hydropower.

Conventional hydropower uses the energy of water flowing through dams and reservoirs to generate electricity. The water passes through a turbine-span generator, creating a source of renewable power.

Pumped storage hydropower moves water uphill to a reservoir during times of low electricity demand and then releases it downhill when the need arises. It can function like a battery that stores and releases energy. But unlike chemical batteries, they aren’t reliant on a Chinese-dominated, tariff-exposed supply chain.

The previous year’s IHA report had noted a downward five-year rolling average trend in conventional hydropower, caused by long permitting waits, lack of demand and droughts.

But the new report says that global generation rebounded in 2024, rising by 10 per cent to just under 4,600 terawatt hours, equivalent to about 10 times the electricity consumption of France and 2.2bn tonnes of CO₂ into the atmosphere.

And more projects are set to come online. The hydropower development pipeline now exceeds 1,000GW, with 600GW of pumped storage and 475GW of conventional projects. Most projects that are under construction are expected to be commissioned by 2030.

While it attracts fewer headlines than wind, solar and nuclear, hydropower is the world’s largest source of renewable energy, providing 14.3 per cent of global electricity across 150 countries.

And yet, hydropower faces significant barriers to achieving its full potential.

At the current pace, the industry would fall 60GW to 70GW short of the International Renewable Energy Agency’s hydropower 2030 target.

Financing projects is a significant hurdle. According to the report, pumped storage hydropower projects require high capital investment and longer lead times, especially compared to chemical battery storage projects.

The challenge arises because while pumped hydro storage can provide power on a daily basis, its value lies in issuing power during “rare but critical” periods of low renewables output. Without long-term contracts, payments for this kind of output are rare, meaning developers often rely on arbitrage, buying electricity when it’s cheap and selling when it’s expensive, to make money.

Large hydropower projects are vulnerable to cost overruns and delays, due to their scale and complex geology, social and environmental factors. Snowy 2.0, the pumped hydro project announced when Turnbull was Australian prime minister in 2017, was initially expected to cost A$2bn. It is now forecast to cost A$12bn.

According to the Internal Displacement Monitoring Centre and Oregon State University, an estimated 80mn people have been displaced by dam projects worldwide. In the event that they are compensated, project costs shoot up.

“Hydropower involves major infrastructure projects that usually lead to the displacement of people — even though they are compensated it’s complicated to make everyone happy,” said Ismael Arciniegas Rueda, an energy economist at the Rand School of Public Policy.

“Also periods of extreme dryness are increasing, which hydropower is exposed to,” he added.

The high level of risk means that government support is necessary for projects to be successful. China, which has the world’s largest hydropower fleet, uses state-owned groups to finance and build megaprojects such as the 3.6GW Fengning Pumped Storage Power Station, the largest of its kind in the world.

On the other hand, support for hydropower in the US is less certain. While projects such as the 1.2GW Goldendale energy storage project in Washington state have been awarded funding from the Department of Energy, others like California’s 1.3GW Eagle Mountain pumped storage project had to rely on private capital.

In the Senate version of President Donald Trump’s flagship tax bill, support for hydropower through investment and production tax credits is preserved at full value until 2033. The House’s version would have required projects to start construction within 60 days and be in service by 2028, impossible for most hydropower projects.

Since the fate of these incentives is being ironed out, US hydropower developers have considerable uncertainty hanging over them. (Martha Muir)

Data visualisation by Stephanie Stacey

Job moves

HyOrc has appointed Andrea Magalini to its board.

Paladin Energy named Paul Hemburrow managing director and chief executive.

Iberdrola appointed Pedro Azagra Blazquez as its group chief executive.

Power Points

Shell denied it is in talks to acquire rival BP after months of speculation about a deal.

EDF’s new boss is conducting a portfolio review that could lead to the French energy group selling assets.

A proposed £250mn investment in a green fuels “superhub” will be put on hold unless the UK government intervenes.

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Kristina Shevory, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.