The site of the 400MW Glenmuckloch PSH electricity generation station is currently operating as a surface coal mine.
The scheme is being developed by Buccleuch and 2020 Renewables.
However, Scottish Ministers have given the go-ahead to redevelop the site, which will employ around 327 workers during the construction phase and 15 posts will be created on completion.
PSH electricity stations contain the capacity to to store large quantities of energy when there is a greater proportion of electricity from renewable energy technologies.
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Cabinet Secretary for Economy, Jobs and Fair Work Keith Brown said: "Renewable energy sources generated more than 56% of gross electricity consumption in Scotland in 2015, helping support our world-leading ambitions to become a low-carbon economy.
"The Scottish Government believes there is a huge opportunity around pumped storage hydro. This tried and tested technology can support peak demand and effectively store greater levels of electricity at times when renewable energy output is high but demand is low.
"With an installed capacity of up to 400 MW, and supporting 327 temporary and up to 15 permanent jobs, the Glenmuckloch station will help support the local economy in Dumfries and Galloway and support the growth of renewables in Scotland's energy mix."
(LM/CD)
