Vattenfall Europe, the plant's owner, says energy from the scheme will be used to supply last-minute power to the grid and make up for fluctuations in electricity supplies from wind farms which are being built across Germany.

"Speed is the major advantage this plant has over conventional power stations - if the grid needs to be balanced out, this station will only need one to two minutes to provide its full capacity," Reinhardt Hassa, head of Vattenfall Europe's generation unit, told Reuters in an interview.

The pumped storage scheme was originally proposed by the Communists in the mid 1960s and some engineering work started 10 years later but the building work did not begin in earnest until 1997 after Germany was reunited.

One of its four turbines has already started whirring and the rest the plant is due to come on line by early next year.

The advantage of pumped storage schemes is that they are more flexible than coal-fired power plants which usually need around five hours to reach full capacity, while nuclear power stations need even longer, Hassa said.

The 1,060-megawatt (MW) hydro plant at Goldisthal in the state of Thuringia works by flowing water through four turbines, each of 265 MW capacity, as it travels between two basins separated by an average drop of 300 metres (984 ft).

"One turbine has been operational since the end of 2002 and the others will follow by the end of September, after which we will have a test phase and we hope to officially start by the end of the year," Hassa said.

BIG MONEY MAKER

Once completely operational, the upper basin at the Goldisthal plant needs 10 hours to fill with a volume of 12 million cubic metres. It then may provide its full capacity for up to eight hours a day.

"We will use spare and cheap electricity, usually at night time, to pump up the water and start producing when capacity is short, during peak times when wholesale prices are high - that will make this plant very profitable," said Hassa.

After investing around 650 million euros ($702.8 million) in the plant's construction, the company now expected an annual rate of return of between 10-15 percent, he said.

"Goldisthal will be latest and biggest pumped storage station in Germany, so we also expect it to be the most efficient."

Vattenfall Europe already operates various other pumped storage plants in Germany, including the 1,050 MW Markersbach plant in the state of Saxony.

Network operators, responsible for balancing supply and demand on the transmission grid, increasingly need access to quick supplies to cover shortages due to the often erratic contribution from wind generation, which is dependent on weather.

Europe last year boosted its wind generating capacity by 33 percent to a total of 23,000 MW. That amounts to about four percent of total power generating capacity in the EU.