Snowy Hydro 2.0 grows in size and cost, but due online earlier

The hydro project will provide much needed electricity to Australia’s grid one year earlier than planned, but it comes with a $12bn bill for taxpayers.

Snowy Hydro 2.0 will be 10 per cent larger than previously flagged and commercially operational one year earlier than schedule, though federal energy minister Chris Bowen confirmed the project has experienced another cost blowout and will now set back taxpayers $12bn.

The project, once anticipated to cost $2bn, has been beset by delays and blowouts, but its completion is widely seen as vital if Australia is to avoid a catastrophic energy transition.

Snowy Hydro chief executive Dennis Barnes earlier this year said the project may not be operational until 2029, but in an update on Thursday, the developer said first power was expected in 2027 before being commercially operational in December 2028.

Snowy Hydro said the project will also be 10 per cent larger than previously anticipated, a boost to the country’s energy transition as Australia lags in developing so-called firmed storage, which can be dispatched when the sun is not shining or the wind is not blowing.

“Snowy 2.0 is being engineered to deliver clean and reliable storage and electricity generation for Australians for the next 150 years,” said Mr Barnes.

“It is a truly transformative national project that is generating jobs and significant investment in regional areas; it will deliver benefits immediately following its completion and will continue to do so for many future generations of Australians.”

The accelerated timetable and capacity will be welcomed by Australia’s energy industry, which is increasingly alarmed by the pace of building new renewable energy generation and storage to replace rapidly retiring coal power stations.

The Australian Energy Market Operator on Thursday said Australia could endure the threat of blackouts and evaluated prices over the next decade if the country did not move with more urgency to replace coal power generation.

Coal is the dominant source of electricity in Australia, accounting for nearly two-thirds of generation throughout a typical day – but AEMO now expects 62 per cent of the country’s coal power stations to have retired over the next decade.

The transition, while now baked in, will increase Australia’s dependency on Snowy being finished on time.

In 2028, EnergyAustralia’s Yallourn coal power station – Victoria’s biggest electricity generator – will retire, while Origin Energy’s Eraring coal power plant in NSW will likely have been mothballed for years by then.

The loss of the two large power stations will heighten concerns about Snowy being built on time, but Mr Barnes said the revamped contract with contractor WeBuild provides significant financial incentives for Snowy to be completed on time.

“I’m pretty confident that the project will get done by 2028 for $12bn,” said Mr Barnes.

“The contract is based on a date of December 2028 and they have the opportunity to earn a decent margin – not what they would receive in today’s market, it is less than that. If they do a really good job and come in earlier with lower costs then they have the opportunity to double it. If they go past December 2028, they share the pain and at a point, they begin to pay us back.”

While confident, Mr Barnes acknowledged the threat of unpredictable geology which has hampered the project. A large tunnel boring machine known as Florence has been stuck in soft soil for several months after developers encountered unexpected conditions.

While Australia’s energy industry can afford no further delays, the Federal government is also under mounting political pressure to deliver the transition and drive down electricity bills.

Australia has some of the highest power bills in the world, and the Labor government has said it can drive the transition and deliver bill relief.

Voters, however, have been left angry after two years of prices increases of more than 20 per cent, and an increase in the value of Snowy will do little to improve confidence in the transition.

Federal energy minister Chris Bowen defended the project financing, insisted the government has turned the pump hydro development around.

“If the contract is not reset, the very clear advice to me is that the project would have taken longer, even longer, and will cost even more than the $12bn,” Mr Bowen said.

“That is not acceptable to the government, so we support the new steps being put in place by the new management of Snowy 2.0, to put this important project back on track.”

Originally published as Snowy Hydro 2.0 grows in size and cost, but due online earlier