http://www.inference.phy.cam.ac.uk/withouthotair/c26/page_18...
basically the author says that what you describe is the best option right now but there are only so many places you can put those facilities because they require very specific geography.
That being said building lakes and dams is really bad for the river eco system and really expensive to buy land out from under people to flood it.
We do this to some extent, but the reality is we do need to ensure rivers continue to flow for a number of reasons (I guess).
I'm guessing that at current wind/solar capacity, any fluctuations can be absorbed by just slowing down the flow out of the reservoir, rather than ever having it reverse.
You also need a downhill source of water, which means any dam that's the last one downstream can't really use this approach.
You could maybe even get away with an entirely closed-loop system, but if you look at the scale of the problem, you need either a huge pair of reservoirs (lake-sized) or a huge elevation difference (mountain-sized), or preferably both. It doesn't appear economical to build e.g. a tank on a tower.
It's just not very cost effective right now.
I can certainly believe the capital requirements are much higher for pumped storage than for natural gas peakers.
Round trip efficiency isn't great, but also not terrible. It beats the fuel-cell/electrolysis cycle, but loses to batteries. It can be profitable though because energy rates can reach near zero (and even occasionally slightly negative) at night.
99% of installed energy storage is pumped hydro.