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Snowy 2.0 mega project costs double to $12b in six months

By James Massola and Mike Foley

The cost of the Snowy 2.0 pumped hydro project has doubled within the past six months to be close to $12 billion, according to a new cost estimate, forcing the Albanese government to make a critical and costly decision about the project’s future.

The massive 2000 megawatt expansion of the Snowy pumped hydro scheme was announced by former prime minister Malcolm Turnbull in March 2017 with a completion date of 2021 and a price tag of $2 billion. By May this year that had blown out to $5.9 billion and a 2029 deadline.

Snowy Hydro’s pumped hydro project has been beset by delays.

Snowy Hydro’s pumped hydro project has been beset by delays.Credit: Jamila Toderas

But amid concerns it was falling behind schedule, Snowy’s chief executive Dennis Barnes ordered an internal review. Three sources familiar with the details of the review – who asked not to be named so they could speak freely – said the revised cost had now reached close to $12 billion.

Climate Change and Energy Minister Chris Bowen was due to receive advice from Snowy on Tuesday about the huge upwards revision in costs. The board of the Commonwealth-owned company on Thursday will discuss the review and revised corporate plan, which is due to be published after the meeting.

This masthead was told the review will for the first time blame a failure to adequately account for geological conditions such as soft soil in Snowy 2.0’s design, which was produced under the former Coalition government, alongside inflation, wages and delays due to COVID-19 restrictions.

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A Snowy spokesperson said the company would not comment on speculation, but it would provide a “full and transparent” update of the project at the appropriate time.

“In May, Snowy Hydro indicated it was working towards a reset of the delivery timeline and budget for the Snowy 2.0 national energy storage project, with its principal contractor, Future Generation Joint Venture,” the spokesperson said.

“The process in relation to the budget reset is advanced, but ongoing.”

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Construction was delayed for months earlier this year when Florence, Snowy’s massive tunnel-boring machine, got stuck in soft rock beneath Kosciuszko National Park.

Snowy 2.0 is considered an important project in driving the shift to clean energy, as it can back up renewables when the wind isn’t blowing and the sun isn’t shining. The scheme uses surplus electricity to pump water uphill and then releases it to spin turbines at times of high demand.

Bowen declined to comment, but has previously said Snowy 2.0 was critical to the government’s pledge to more than double the amount of power the electricity grid sources from renewables to 82 per cent by 2030 – the main source of greenhouse cuts needed for its target of reducing emissions 43 per cent by the end of the decade.

Snowy 2.0 will bring the scheme’s total generation capacity to 375,000 megawatts hours, or 2000 megawatts for an entire week. By comparison, Tesla’s big battery in South Australia can only supply 150 megawatts for 195 megawatts hours - meaning maximum power for roughly 1.5 hours.

Grattan Institute climate change and energy director Tony Wood, commenting on the potential for massive cost blowouts, said it raised questions about Snowy 2.0’s value for money.

He said the government must declare if it will stick with the megaproject or nominate an alternative to back up electricity supply as more renewables pour into the grid.

“There has always been a sound case for serious long-term energy storage like pumped hydro, and Snowy 2.0 has got a much better combination of megawatts and megawatt-hours than alternatives,” Wood said.

“The government could say Snowy 2.0 will cost this much, and it’s still worth doing at $12 billion. They could also say we’re not going to do it, and why, and what we are going to do instead.

“Or they could blame the previous government and say we are sitting down with [electricity grid operator] the Australian Energy Market Operator to understand what the consequences will be if we do or don’t go ahead and we will report back.”

The government could opt to double down on its support for the Battery of the Nation project, which will use the Marinus Link undersea cable to link Tasmanian hydroelectric dams to the eastern seaboard, or potentially boost gas-peaking plants and batteries.

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The Victorian and NSW governments are nervous about energy security and the risks of blackouts as the grid is weaned off fossil fuels, with coal plants closing at a rapid rate as cheaper renewables come on the market.

Victoria has committed taxpayers’ dollars to cover the potential costs of keeping two of its largest coal plants operating until their expected closure dates, and NSW is considering subsidising Eraring, its biggest coal power plant.

NSW’s Liddell coal-fired generator closed in April and at least another seven of the remaining 14 coal plants on the eastern seaboard are due to shut within 12 years.

Power line projects in NSW and Victoria are being delayed by objections to projects such as HumeLink in NSW – which will link both states to Snowy 2.0, as well as the Western Renewables Link and VNI West in Victoria, which locals say will have negative impacts on property values, the environment and the landscape.

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correction

An earlier version of this story made an incorrect comparison between Snowy 2.0 and Tesla’s South Australian battery. The story has been updated with the correct figures.

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Original URL: https://www.smh.com.au/link/follow-20170101-p5e046