Announcement of new Snowy Hydro CEO expected before Christmas
Snowy Hydro will soon have a new chief executive but the incoming boss faces a tough year ahead as S&P reviews its rating for the project.
The federal government is poised to announce a new Snowy Hydro boss before Christmas amid a slew of senior departures from the energy company, and as ratings agency S&P warns of a potential rating downgrade to the government-owned company.
Industry sources say a new chief executive is likely to be announced this week, along with extensions to the terms of current board members as Energy Minister Chris Bowen moves to stabilise Snowy ahead of what will be another difficult year for the power provider.
Sources say former APA Group chief executive Rob Wheals is one of the leading candidates, along with Australian Energy Regulator chair Clare Savage.
Former EnergyAustralia chief operating officer Liz Westcott is also believed to have been under consideration, along with interim Snowy boss Roger Whitby, but both are believed to now be out of contention.
Mr Wheals left APA in August in a surprise decision, and Ms Savage has chaired AER since 2019 after an extensive private and public sector career.
Snowy has also lost a number of key executives, following the exit of former chief executive Paul Broad in August.
Among the departures are group governance, risk and compliance executive Praveena Karunaharan, and corporate affairs boss Cesilia Kim. The Australian understands the company’s commercial director, Dean Thompson, has also recently left.
The executive departures come as ratings agency S&P warned of a potential downgrade to Snowy Hydro’s BBB+ credit rating over potential for further blowouts to the cost of the $5.9bn Snowy 2.0 expansion and its Kurri Kurri gas plant in the Hunter Valley, and as a result of “volatile” energy markets.
S&P said it expected the 600-megawatt Hunter Power Project “to face cost overruns, and commissioning may be delayed because of wet weather”.
Kurri Kurri is facing delays due to wet weather and flooding in NSW, and the ongoing struggle between the federal government and Snowy management over demands the generator be equipped to be capable of using green hydrogen when supply becomes available.
A dispute with Mr Bowen over that issue was a major factor in the departure of Snowy Hydro boss Paul Broad in August.
Mr Thompson, who left Snowy in November, is also believed to have oversight of the Kurri Kurri construction project, and his departure is likely to exacerbate concerns about delays and cost overruns at the $600m power plant.
Snowy’s new chief executive will need to urgently get to grips with potential disruptions to the company’s flagship expansion, after the collapse of WA contractor Clough in early December.
Italy’s Webuild is Clough’s joint venture partner in the $5.9bn construction job, and the European construction major has until midnight on Wednesday, Perth time, to finalise an agreement with Clough administrator Deloitte over a new deal to acquire some of the assets of the company.
Webuild’s decision to pull out of an earlier deal to buy Clough triggered the company’s early December collapse, but Deloitte announced on December 15 it was again negotiating exclusively with Webuild for an Italian takeover of a group of Clough’s projects, including Snowy 2.0.
Given Webuild’s intimate relationship with Clough on the Snowy 2.0 Future Generation Joint venture, its move to a full takeover of the project should not necessarily cause major disruption in itself. But the move would consolidate claims made by both Clough and Webuild for contract variations – believed to total up to $2.2bn – over additional costs caused by the Covid-19 pandemic.
S&P said the level of cost escalation was still unclear, but said the project’s importance to the federal government’s plans to green the east coast grid suggested the company would receive “extraordinary government support”.
“At this stage, the management has indicated that it is too early to determine what entitlements the contractor will be awarded or the extent of delay that the Snowy 2.0 project may face,” S&P said.
The new Snowy boss will take charge amid expectations earnings at the government-owned company will tumble over the next year.
“The persistently volatile market, with high wholesale electricity and gas prices, are likely to significantly depress the company’s earnings in the year ending June 30, 2023, at least,” S&P said in its ratings note this week.
“We expect Snowy Hydro’s earnings before interest, tax, depreciation and amortisation to decline to $240m to $300m in fiscal 2023, from $440m to $570m over the past two fiscal years.”
High gas prices could have a significant impact on Snowy’s earnings, S&P said, despite federal government caps, given it stepped in to release significant volumes of water when the National Electricity Market was suspended this year during the winter market chaos.
Snowy Hydro is Australia’s fourth largest energy retailer with one million power customers through its Red and Lumo brands.
“Wholesale electricity prices have fallen over the past couple of months from the highs seen in April to July 2022,” S&P said.
“They could reduce further due to the recent government caps on coal and gas prices. Yet, poor reliability of coal generation, low renewables output and scheduled closure of the Liddell coal-fired plant in April 2023 may see periods of elevated prices.
“Snowy Hydro may then have to resort to increased gas generation amid elevated gas supply prices, to meet requirements under its capacity and firming contracts, as well as to meet its retail load.
“To that extent, water used toward additional 1500 gigawatt hour of hydro generation during the market suspension phase in fiscal 2022 would have otherwise been available in fiscal 2023 to meet the company’s portfolio obligations.”
