The Queensland government is considering downsizing the $18.4 billion Borumba pumped hydro project to manage a cost blowout and to allow for the discovery of a culturally significant site, posing another setback to the state’s energy transition.

The 2-gigawatt capacity of the proposed hydro project south of Gympie could be reduced by one quarter or more as Queensland Hydro seeks to bring its budget back towards $14 billion, its cost before the latest increase, according to sources involved in the project who are not authorised to speak publicly.