Scottish and Southern Energy has won approval from the Scottish government to build a 60MW pumping station at its hydro electric power plant at Loch Lomond.
SEE claims the new station will enable it to provide an additional 100GWh of electricity in a year to help meet peak demand.
Construction of the project is due to start in 2012 and is expected to take two years.
According to SSE, the new pumping station will enable water to be pumped from Loch Lomond to Loch Sloy during times of low electricity demand, which will then allow the storage of energy ready to be used during periods of high demand.
SSE project manager Bill Jack said: “Many of SSE’s hydro electric stations have been in operation for over 50 years and still make a significant contribution to the supply of renewable energy in the UK.
“Our goal is to maintain a diversified portfolio of power stations, with the flexibility to respond to customer demand for electricity, while achieving a 50% reduction in the CO2 intensity of electricity produced.”