Project Balliemeanoch will see Lochan Airigh turned into a headpond containing 58 million cubic metres of water that will feed a hydro pumped storage scheme near Loch Awe at Dalmally.
The system will use green electricity to pump water from a lower reservoir to a higher reservoir at times when more energy is being supplied to the network than is needed.
The water can then released to flow back through a hydro turbine, generating electricity to meet sudden or predicted spikes in consumer demand.
The new project is the largest of three pumped hydro projects by Hamilton-based developer Intelligent Land Investments (ILI), which is behind the consented Red John scheme at Loch Ness and the planned Corrievarkie at Loch Ericht.
If it goes ahead, Balliemeanoch will be able to supply 1.5 gigawatts of power for up to 30 hours – enough for 4.5 million homes.
Estimates suggest the scheme could offset more than 200 million tonnes of carbon dioxide equivalent over its lifetime.
Wider adoption of long-duration energy storage facilities such as pumped hydro is seen as essential to the further deployment of renewable energy projects, which can be intermittent due to weather conditions, and critical to meeting Scottish and UK climate targets.
Mark Wilson, chief executive of ILI Group, said: “Without projects such as Balliemeanoch, the renewable generation capacity in the country will soon hit a green glass ceiling, whereby adding more variable renewable generation actually threatens grid stability and security of supply in our grid network.”
Mr Wilson said the projects would also bring major economic opportunities to Scotland and help reduce dependency on natural gas and its fluctuating international prices.
"The benefits for these projects will extend beyond climate, bringing over £3 billion in construction investment into the UK and Scotland, creating thousands of new jobs just as we emerge from the Covid crisis,” he said.
"Everyone is feeling the impacts of our over-reliance on natural gas.
“Renewable energy alongside energy storage projects will increase our energy security and reduce the country's household energy bills."