Research released this year put dollar signs on deforestation’s drag on generation at marquee plants like Itaipu and Belo Monte – aligning conservation and energy security in ways that could reshape basin management and compensation schemes.


Technology and asset management:


uprate, digitise, de-risk Away from large headlines, 2025 was rich with the kind of incremental improvements that compound over time. In Peru, modernisation of turbines, generators, and fire systems on the Mantaro complex exemplified a global wave of reliability-driven upgrades - with procurement standards now tying equipment replacement to water quality and greenhouse-gas co-benefits. In the Alps and Scandinavia, uprates and cavern retrofits pushed more megawatts through existing penstocks. And across all regions, digital twins and condition-based maintenance crept from pilot to practice, supported by lenders who now see O&M analytics as a bankable efficiency lever. Hydro manufacturers also had a showcase year. The


Limberg III build demonstrated the tight choreography now common in PSH – massive component lifts (a 355-ton rotor in May), high-precision civil works, and formwork innovations that make nine-meter dam raises feasible on short alpine construction windows. Suppliers leaned into modularisation and pre- assembly to keep schedules on track despite labour shortages.


Markets and money: finally paying


for flexibility Hydropower’s economic case has always been strongest when grid operators value what only hydro can do: inertia, black-start, seasonal storage, minute-to-minute regulation, and long-duration shifting measured in days, not minutes. 2025 saw real movement toward that valuation. In Britain, the conversation around cap-and-floor-style support for long-duration storage migrated from think-tank papers to policy scaffolding; the capacity market rewarded PSH portfolios, and investors started to price a lower revenue-risk profile into models. On the continent, the shift to 15-minute markets and the spread of scarcity pricing increased the upside capture for flexible assets. In the US, while the patchwork remains, federal process on PSH permitting sharpened and state IRPs increasingly modelled long-duration storage explicitly rather than treating it as an add-on to batteries. International finance also tilted green in ways that


matter for hydro. The EBRD, EU, and partners put hydropower upgrades and greenfield anchors onto priority lists in the Western Balkans and Central Asia, packaging grants with sovereign loans to crowd in private capital. Where older fleets dominate, blended


finance for rehabilitation, paired with environmental remediation, looks set to be 2026’s biggest hydropower investment theme.


Climate volatility Climate remained the wildcard. Europe’s hydropower


generation rebounded in 2024 after a bruising 2022–2023, and that recovery rolled into 2025 in many basins. But South America’s El Niño-intensified droughts stressed systems and tested dispatch strategies; in Brazil, the diversification to wind and solar proved its worth, but policy now has to catch up with multi-year hydro variability. Globally, the IHA Outlook emphasised that hydropower’s value grows as climate makes grids spikier, provided dams and reservoirs are operated with water, biodiversity, and downstream communities front of mind. The research linking forest cover to hydropower output sharpened that point. If deforestation can erase tens to hundreds of millions of dollars a year from flagship plants, then watershed management is not a social program, it’s risk management and revenue protection. Expect more PPAs and concession agreements to incorporate basin-level conservation covenants, and more utilities to join jurisdictional deforestation-free compacts.


Key points from 2025 1) Scale returned, but with new guardrails. GERD’s


inauguration showed large hydro is not dead; Limberg III proved PSH can still be built on time in Europe. But both were accompanied by tighter standards, stronger social expectations, and a recognition that basin health equals project health.


2) Pumped storage moved from “should” to “shall.” China’s buildout dwarfs the field, Europe is modernising the rules, and the UK is inching toward durable revenue models. The US is looking to clear permitting pathways. Could 2026 see more financial closes on PSH than any year since the 1980s?


3) Rehabilitation is the fastest decarbonisation dollar. From the Balkans to Peru and Norway, uprates and rehab packages are stretching MWs and MWhs within existing footprints. Lenders like EBRD are leaning in with blended capital.


4) Markets started to pay for flexibility. Cap-and-floor concepts, scarcity pricing, shorter market intervals, and adequacy products are turning PSH economics from a hand-wave to a spreadsheet.


5) Social license is the gating item. 2025 reminded us that hydropower is as much about communities and rivers as it as about turbines and transformers. Successful projects in 2026 are likely to be the ones that engage early and prove benefits continuously.


www.waterpowermagazine.com | December 2025 | 13


Above: Limberg III pumped storage project. Image courtesy of Verbund


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