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AGL has big hydro plans to save you money on your electricity bill

It seems hydro power is becoming increasingly popular in Australia, with AGL Energy Ltd (ASX: AGL) being announced as the planned developer of a pumped hydro energy storage (PHES) project.

Hillgrove Resources Limited (ASX: HGO) is selling its hydro project at its Kanmantoo mine site. The total sale price is $31 million, but there are a number of conditions and milestones that need to be reached for the entire proceeds to be paid.

AGL will utilise the ‘Giant Pit’ as the lower pond for the PHES and the upper pond will be located on land Hillgrove owns and/or will acquire under an option agreement with a neighbouring landholder. Hillgrove has agreed to subdivide the land required for the PHES and sell this land to AGL on a freehold basis.

Hillgrove will remain responsible for the environmental and closure liabilities associated with the mining activities at the Kanmantoo copper mine.

The PHES project, once completed, is expected to have generating capacity of 250 MW and 8 hours of storage, giving it the largest energy storage capacity in South Australia.

South Australian Minister for Energy and Mining Dan van Holst Pellekaan said “This is an exciting pumped hydro project which aligns with the Marshall Government’s policy of matching storage capacity with renewable energy resources to deliver cheaper, more reliable and cleaner electricity for South Australian households and businesses.”

I’m sure everyone in South Australia is pleased with this development. The withdrawal of coal fired generation, the significant increases in gas costs and the increasing reliance on somewhat intermittent renewable generation means another form of renewable energy that can be stored is very useful.

Foolish takeaway

AGL has a partially franked dividend yield of 5.4%. The more it invests in innovative ideas like this the more I think AGL will be okay for the future.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.