Origin Energy shelves proposed expansion of Shoalhaven-pumped hydro project
The investment failed to stack up partly due to the giant government-owned Snowy 2.0 impact on the electricity market.
Origin Energy has shelved a proposed expansion of its Shoalhaven-pumped hydro project in NSW with the investment failing to stack up partly due to the impact of the giant government-owned Snowy 2.0 on the electricity market.
Australia’s largest power retailer, which will report its annual results on Thursday, has been studying a potential expansion of Shoalhaven in the state’s Kangaroo Valley to boost national electricity market reliability, and company profitability, as east coast solar and wind power capacity increases this decade.
However, a feasibility study part funded by the government’s Australian Renewable Energy Agency found the project was “not commercially feasible” due to commercial risks including higher costs than originally forecast and a hit to revenue from pumped hydro facilities due to Snowy 2.0 and the growing use of batteries.
Origin said while the expansion was “technically feasible, it is not commercially feasible at this point in time”, a spokeswoman said.
“The project will remain one of the options Origin could consider for any future expansion of our portfolio.”
Pumped hydro projects operate like batteries by releasing water for power use when it is needed or prices are high, and then using off-peak power to recharge by pumping water back up to the reservoir for when it is next needed.
Origin had originally hoped the extra 235 megawatts of capacity could be running by 2021 or 2022 but chief executive Frank Calabria told investors in February that progress had slowed partly due to higher geotechnical and tunnelling costs.
Shoalhaven would cost between $570m-$630m to be built, dwarfing an original $250m estimate, with Origin noting in its study that capital costs were 15-20 times forecast annual revenue.
The federal government-owned Snowy Hydro’s $4.5bn expansion, the 2000MW Snowy 2.0, was named as a reason for the Shoalhaven expansion failing to proceed.
“Snowy 2.0 would be in direct competition with the Shoalhaven pumped hydro scheme expansion and so is a key risk to the project,” Origin said in its report.
Modelling shows the addition of Snowy 2.0 would see Shoalhaven revenues falling from $150,000 per MW annually to $110,000 per MW immediately after the Snowy expansion came online.
Typical annual revenues over the life of the project were expected in a $125,000-$165,000 per MW range compared with total costs in a $190,000-$310,000 per MW range.
“The economics of the Shoalhaven expansion under the current and forecast market conditions are challenging,” Origin stated.
Up to 19 gigawatts of dispatchable resources such as batteries, pumped hydro and fast-start gas plants will be required in the next two decades to back up renewables, according to the Australian Energy Market Operator.
However, the nation’s biggest power players have been wary of committing to major spending given market and regulatory uncertainty. AGL Energy warned the rapid fall in electricity and gas prices could result in an investment strike, raising concern as the country looks to boost generation before coal plants retire.
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