It’s the oldest and the biggest of all the clean energy technologies, but hydro has an uncertain role in Europe’s decarbonization plans.

Over the past five years, Europe's base of conventional hydropower and pumped hydro capacity grew at about 1 percent a year, reaching 251 gigawatts in 2019, according to the International Hydropower Association (IHA).

That feeble growth rate roughly tallies with scenarios developed by the European Network of Transmission System Operators for Electricity, which indicate that Europe could reach 277 gigawatts of hydropower and pumped hydro capacity by 2030 and 280 gigawatts by 2040.

And that's if everything goes smoothly. In the meantime, green hydrogen and batteries pose a rising threat to hydropower plants and their future profits.

"Forecasting growth in hydropower is always challenging as this depends on a range of policy and commercial decisions and market conditions," David Samuel, senior analyst at the IHA, said in an email. "By 2030 total installed capacity could be somewhat higher or lower depending on the progress of major projects that are planned or under construction."

The challenge from batteries and green hydrogen

Even at the upper end of forecasts for hydro, the build-out would pale in comparison to those planned for other renewables. Between now and 2030, Europe is looking to install roughly 159 gigawatts of solar above the 132 gigawatts it has today, based on forecasts by the International Renewable Energy Agency. Europe may install another 118 gigawatts of wind this decade on top of the 205 gigawatts already in place, according to WindEurope’s central scenario.

Perhaps more telling, given its dispatchable nature, is how the build-out of new hydro (pumped or otherwise) will compare to batteries and green hydrogen.

A European Union study on energy storage, published in May, estimates Europe will need to install 108 gigawatts of pumped hydro and battery capacity between now and 2030. But only around 15 gigawatts of that will be pumped hydro.

In other words, over the next decade battery capacity could increase at more than five times the rate of pumped hydro and more than three and a half times faster than the growth of all types of hydropower combined.

Even green hydrogen, which is in its infancy today, could overtake new hydro capacity in Europe over the coming decade. This month, the European Union set a target of 40 gigawatts of electrolyzer capacity by 2030, up from 250 megawatts today.

Spot market uncertainty works against new hydro

The reasons for hydro's middling role in European decarbonization over the next decade are not hard to fathom.

As a mature generation technology, it already plays a significant role in many European electricity mixes. With up to 70 percent of potential hydro sites already developed in Europe, according to the IHA, further opportunities for deployment are limited.

New hydropower projects are notoriously difficult to get off the ground, which is why future developments are likely to focus on pumped hydro conversions. "Modernization efforts will be increasingly important to boosting Europe's hydropower capacity,” said Samuel.

“Upgrading existing plants with improved technologies and enhanced flexibility, such as faster grid response, will be important to ensure that existing sites are properly equipped for the changing needs of the grid system,” he said.

Geographical constraints and permitting hassles aren't the only factors tilting the playing field away from new dams and toward upgrades and pumping adaptations. When it comes to major hydro projects, the sector faces a serious funding problem.

European investors are expected to take on massive upfront investment risks in exchange for uncertain spot market revenues, according to a June research note from Rory McCarthy, principal analyst for energy storage at Wood Mackenzie.

“The scale of capex required for new pump storage, [compared to] a fully merchant risk business model and more stringent environmental planning legislation, means we do not see any new build unless a purpose-built, revenue-based and construction planning supporting policy is introduced,” McCarthy said.

The bright spots for hydro

In spite of these challenges, Europe's existing hydro plants will continue to play a huge role, and new pumped hydro may gain traction in certain markets. Hydropower has a much higher installed power and energy capacity than most other storage technologies.

Spain, for one, has largely been able to absorb large wind contributions to its energy mix thanks to its hydropower and pumped hydro reserves. Spanish firms Iberdrola, Repsol and privately owned Villar Mir Energía are aiming to build almost 1.8 gigawatts of new pumped hydro capacity, according to local reports, as Spain pushes ahead with a renewables-heavy national energy and climate plan.

“I believe developments like these are much more critical right now,” said Brian Gaylord, principal analyst for Latin America and Southern Europe at Wood Mackenzie, in an email. “System flexibility will be critical as Spain moves toward higher levels of wind [and] PV penetration.”

Elsewhere, there are suggestions for turning coal mines into hydro reservoirs, and “better use can be made of existing capacity,” said Tom Andrews, senior consulting analyst at Cornwall Insight, in an email.

“Norway sources almost all of its power from hydro resources and has considerable potential for additional capacity but limited domestic demand,” Andrews said. “New 1.4-gigawatt interconnectors to Great Britain and Germany are under construction, which will allow Norwegian hydro reservoirs to act as a battery for much of northern Europe.”

Still, Andrews cautioned that hydropower's natural advantages may dim as technologies such as green hydrogen begin to mature.

Hydrogen is "a fuel which can be used over multiple vectors: to power cars, trucks, trains, ships and planes [and] to blend into existing gas networks to meet peak winter heat demand, as well as to convert back into power."

"Hydrogen can also be transported both within countries and internationally,” Andrews added. “This international dimension gives the hydrogen economy an additional cachet which even innovative pumped hydro solutions will struggle to match."