Three projects in the Upper Spencer Gulf are competing to be the first pumped hydro operation in South Australia to be backed by $40m of federal funds.
The projects will be assessed on their potential to deliver affordable and more reliable power to the state's electricity grid.
Federal member for Grey Rowan Ramsey said the projects will improve confidence while driving down wholesale prices.
"South Australia has more than 50 per cent of its electricity delivered by renewable sources now and this has led to stability issues in the network," he said.
"It is imperative we firm up our electricity by either putting in extensive new diesel or gas generation or by storage in some kind of battery.
"In this case, pumped-hydro appears to be by far the cheapest and best option and have a number of good sites we can marry up with our abundant, if sometimes spasmodic renewable energy sources."
The funding aligns with the government's ongoing consideration of shortlisted projects under the Underwriting New Generation Investment program announced in March 2019.
Six pumped hydro projects were shortlisted, including three located in South Australia:
- Rise Renewables - Baroota
- Sunset Power and Delta Electricity - Goat Hill
- SIMEC Zen Energy - Middleback Ranges
With a capacity of up to 250 MW and 8 hours of storage, the Goat Hill Project is well positioned to provide reliable and affordable energy storage and firm, flexible power into South Australia.
The Goat Hill Project has been fast tracked through development phases, with the state government affirming confidence in the plant design.
Federal Minister for Energy and Emissions Reduction Angus Taylor toured the Upper Spencer Gulf during the grant announcement this week.
"In South Australia we have seen some of the highest prices in the world, we have seen a grid that hasn't been reliable," Mr Taylor said.
"We lost about 800,000 connections at the end of 2016, which was a very poor outcome for South Australia. We need to sure that up.
"This is all about making sure that when the wind doesn't blow and the sun doesn't shine, you can flick on the light switch and know the power is there and there is downward pressure on prices."
Pumped hydro storage uses excess renewable energy during low demand periods to pump water uphill where it is stored until needed, at which point the water is released to power a turbine to generate electricity.
Traditional batteries provide split second stabilisation control, while pumped hydro provides hours of operation and complement gas-fired power when wind or solar are low.
While the initial $40m is for just one of the shortlisted projects, Mr Taylor did not rule out the possibility of future investment.
"We are looking at 12 different projects right across Australia as part of this underwriting program. We expect well more than that initial one to be ultimately underwritten," he said.
"There was too much renewable investment built without a plan to deal with those situations when the suns not shining and the winds not blowing.
"We are now putting the plan in place to make sure there is the power there, the generation is there, the supply is there and the competition is there to drive down prices and keep the lights on."