The Economics of Mitigating Flexible Hydropower: A Systematic Review

Flexible hydropower is essential for integrating variable renewables, yet its short-term flow fluctuations (hydropeaking) can result in negative ecological impacts and, when mitigated, financial losses for operators. As balancing these impacts with energy system flexibility represents a key policy challenge for sustainable energy transitions, we conduct a systematic review of the economic dimensions of hydropeaking mitigation using the PRISMA methodology. We identify 35 studies and find that operational mitigation measures (e.g., ramping restrictions, minimum flows) can be effective in reducing ecological stress but may also reduce revenue by 1-8%, depending on market conditions and the perceived severity of the constraints. Structural mitigation measures, such as re-regulation reservoirs and compensation basins, lead to better ecological effectiveness by buffering flow variability, while also maintaining long-term economic feasibility, particularly when designed for multipurpose use. Emerging new hybrid mitigation measures, especially hydro-battery energy storage systems, exhibit potential to balance ecological objectives with system flexibility and market profitability. While some mitigation measures reduce hydropower revenues, several studies indicate that the associated environmental improvements can generate broader economic benefits for society, potentially resulting in net welfare gains. Additionally, the review highlights recent methodological advances used to assess economic trade-offs in hydropeaking mitigation contexts. Overall, environmental externalities associated with hydropeaking are often not fully internalized in market outcomes, with implications for hydropower regulation and market design. Policy frameworks such as environmental flow regulations, compensation mechanisms, and targeted support for mitigation infrastructure may help internalize environmental externalities and incentivize hydropower operation that balances system flexibility with river ecosystem protection.