Origin Energy’s bid to nearly double the capacity of its Shoalhaven Pumped Hydro Storage Scheme in New South Wales has won federal government funding, as part of a significant new stage in the transition to a renewable energy dominated grid in Australia.

The Australian Renewable Energy Agency said on Monday it had granted $2 million towards a $6.8 million full feasibility study into increasing the pumped hydro facility’s capacity from its current 240MW to 475MW.

Shoalhaven currently consists of two pumped storage hydropower stations at Kangaroo Valley and Bendeela, 150km south of Sydney in the NSW Southern Highlands.

Earlier this year, Origin undertook pre-feasibility work on three potential design options for expanding the scheme. ARENA’s funding will go towards a full feasibility study based on the preferred option: to bypass the Kangaroo Valley Power Station and instead pump water from Lake Yarrunga to Fitzroy Falls Reservoir.

That option includes a 235MW underground power station, taking advantage of the longer water head available, resulting in a higher output and efficiency.

“With more renewables in the system, Shoalhaven looks like an obvious, a really good investment,” Origin Energy’s head of energy trading and operations Greg Jarvis told RenewEconomy in a recent episode of the Energy Insiders podcast.

“Shoalhaven is a pretty good investment in its own right, and it’s a good fit for system. The transmission capacity is there and it has got spare capacity.”

As Giles Parkinson reported here earlier this month, Shoalhaven is just one of many pumped hydro schemes being looked at in detail, as energy market players and policy-makers begin to recognise the importance of energy storage as more renewable generating capacity comes on-line.

Hydro Tasmania, with the enthusiastic support of the state government, is looking at its own extensive pumped hydro plans to dovetail with increased wind energy and new transmission lines to the mainland to become the “battery of the nation”.

In South Australia, five different projects are being investigated, while at least one more is under consideration in NSW, and some other existing projects are also looking at revival or expansion.

And in Queensland, the Kidston project will combine 250MW of pumped hydro capacity, with eight hours of storage, installed in the old Kidston gold mine in the state’s north, and sited next to a new 270MW solar farm, as well as the existing 50MW solar farm switched on a few months ago.

In comments this week, Origin – which recently backed the ACCC’s call for an end to government subsidies for rooftop solar, at the same time as it reported a huge surge in profit – said it welcomed ARENA’s contribution to its study of the expansion of the Shoalhaven pumped hydro scheme.

“Shoalhaven is in the unique position of having much of the required infrastructure needed for expansion already in place,” Origin’s Jarvis said on Monday.

“This means it can be developed with less community and environmental impacts and in a shorter timeframe compared to developing the same amount of additional capacity as a greenfields project.

“This is a strong prospect for future expansion, because Shoalhaven can feed electricity into the grid in as little as three minutes, therefore improving reliability and complementing growing intermittent renewables in the system.

ARENA CEO Darren Miller said the proposed expansion would help provide large-scale storage for the NSW grid while also informing other pumped hydro developments.

“For more than 40 years, Shoalhaven’s pumped hydro scheme has been delivering reliable renewable power to the NSW grid. When it was built in 1977, Shoalhaven was future proofed to allow for more capacity to be added later on, which should reduce the cost and environmental impact of this project.

“The potential expansion of this scheme would provide more electricity over a shorter period so Origin can deliver capacity when needed – when demand is high or when renewable output is low,” he said.

Origin is aiming to have its own share of renewables at 25 per cent, or greater, of its generation mix by 2020, and leads the market in both commercial rooftop solar (number 1) and residential penetration on its network.

Miller said the findings of the study at Shoalhaven would offer “key understandings” for other hydro projects ARENA had supported, including Snowy 2.0, Hydro Tasmania’s Battery of the Nation initiatives, Kidston in Queensland, Cultana and the Iron Duchess in South Australia.

“We know that storage technologies – both pumped hydro and batteries – will be key to the transition to renewable energy in Australia, which is why we’re supporting projects such as this that will help deliver secure and reliable electricity,” he said.

Jarvis said the ARENA funding meant Origin could now “get on with important assessments and the necessary regulatory approvals” to pave the way for doubling Shoalhaven’s generating capacity.

A full feasibility study is expected to be completed in 2019.