Snowy Hydro’s 2.0 expansion faces pressures on deadline and costs

A giant expansion of the Snowy Hydro scheme faces a jump in costs and struggles to meet its original deadline.

The Snowy 2.0 project is a year behind schedule and the cost has jumped by $800m to $5.9bn. Picture Gary Ramage

Snowy Hydro’s giant expansion is a year behind schedule and the official budget has jumped by $800m to $5.9bn, the latest crunch for an energy project deemed critical to replace coal in the power grid.

Roger Whitby, Snowy’s acting chief executive, told a parliamentary hearing on Monday that the government-owned energy operator remained hopeful of reducing the delay but the setback could imperil the target of first power by mid-2025 and delivering the facility by early 2026.

Any delay will also add to risks after the grid operator warned of worsening forecast reliability in NSW in 2026 and 2027 should it not hit the original deadline.

The budget has jumped to $5.9bn from the original $5.1bn forecast, according to Mr Whitby. It is unclear whether the higher cost reflects a $400m contingency and $100m in environmental offsets, or whether it factors in any exposure after the builders filed claims for more than $2.2bn in cost overruns.

The details – disclosed at a Senate committee hearing – followed an admission from Snowy chairman David Knox that Energy Minister Chris Bowen had raised concerns about the tone and communication style of ousted chief executive Paul Broad amid tensions over a plan to transform its Hunter Valley gas plant into a green hydrogen facility.

Mr Whitby told the Senate hearing the company could not yet estimate the Snowy Hydro 2.0 project’s final budget and completion date with any certainty, but confirmed the Covid-19 pandemic had put its contractors – the Future Generation Joint Venture, including Italy’s Webuild and struggling West Australian contractor Clough – badly behind schedule.

The target of first power by mid-2025 could be in peril with construction delays.

Snowy locked in a $5.1bn budget for the expansion in April 2019 under a turnkey contract that allows little room for changes.

“If you had to snap a chalk line at the moment, my personal opinion is they‘re about 12 months ­behind the program – but they are required to accelerate, and we’re working with the contractor to see how best that can be ­achieved,” he said.

Mr Whitby said Snowy Hydro was still working through a log of claims made by Clough and Webuild over additional costs for their work, but said it would be “premature” to venture an estimate on the likely cost overruns.

“You would be wise to expect that there is some pressure on the major contractor. Any professional contractor will obviously try and make up for any pressure or shortfalls that they may see,” he said. “Some of those claims will be valid and to the extent we have valid contractual claims, we will happily own them … and some of them will not be valid.”

Snowy’s chairman said he had attended a meeting on August 23 with other energy department officials where Minister Bowen raised a string of issues with the company. Snowy advised on August 26 that Mr Broad had quit his role.

“We discussed at that meeting on August 23 the communication issues between Snowy Hydro, the secretaries, the departments and the ministers,” Mr Knox told the hearing on Monday.

“The minister was very clear that he needed to see those communications improve and they were unsatisfactory. That was one of the core bits of feedback we had from that meeting. And I took that away and obviously fed that back to my chief executive.”

The abrupt departure of Mr Broad led to speculation he had been dumped from his role after he expressed doubts over Labor’s pre-election pledge to convert the Hunter gas plant to a 100 per cent green-hydrogen generator by the end of the decade. “The tone of the conversations from Snowy to the minister was not as open and as straightforward as it should have been,” Mr Knox said.

A giant expansion of the Snowy Hydro scheme faces a jump in costs and struggles to meet its original deadline.

The Snowy chairman said there had not been a “particular incident” which had caused the tension. “It was much more around Snowy wasn’t giving ministers a heads-up before saying things in the public forum. I have sympathy both for my ministers and also my chief executive at the time,” Mr Knox added.

Both Mr Whitby and Mr Knox were quizzed on the green hydrogen component to the Hunter Valley gas plant, which is due to be completed by December 2023.

Both said it would initially rely on gas and a green hydrogen component would follow at a later stage. A retrofit of the gas plant would then be needed to achieve greater green hydrogen capacity.

Labor in January backflipped on opposition to the Kurri Kurri gas plant but promised to convert the facility to a green hydrogen generator by the end of the decade. It committed a further $700m to ensure it is fully powered by green hydrogen “as soon as possible”, potentially by 2030.

However, the $700m had not been allocated in the October federal budget and Snowy said it was still working out a “business case” for the cost, due early 2023, and sourcing of hydrogen for an initial 30 per cent target of the clean fuel.

Snowy has only committed that the Hunter Valley gas plant in NSW would be able to run on 15 per cent hydrogen after it signed a supply deal with Mitsubishi Power in October 2021.

Originally published as Snowy Hydro’s 2.0 expansion faces pressures on deadline and costs