Scottish and Southern Energy (SSE) has received consent from the Scottish government to develop a 60MW pumped storage project at its existing Sloy hydro electric power station at Loch Lomond.
Construction of the pumped storage scheme is likely to start in 2012 and will take around two years.
The Sloy power station was commissioned in 1950 and was the first scheme built by the North of Scotland Hydro Electric Board (NoSHEB).
The construction of a new pumping station will enable SSE to provide an additional 100GWh of electricity in a typical year to help meet peak demand, the company said.
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.