Snowy Hydro ponders gas plant expansions
Snowy Hydro will consider expanding its two Victorian gas-fired power plants to support growing renewables generation.
Snowy Hydro will consider expanding its two Victorian gas-fired power plants to support growing renewables generation, underlining its growing clout after Scott Morrison revealed Snowy was developing options to build a gas generator in NSW’s Hunter Valley.
The federal government-owned Snowy will look at expanding its 320 megawatt Laverton North gas plant and 300MW Valley Power gas power station even as it enters several years of heavy spending for its giant Snowy 2.0 pumped hydro expansion, due to come online in 2025.
“Obviously our balance sheet can only do so much but we will look to see what we can do with our Laverton and Valley plants and expanding them in future years to bring more capacity to Victoria,” chief executive Paul Broad said on Monday.
“I know a lot of people say we are owned by government but the reality is we are the only ones really investing heavily into firming capacity.”
The Morrison government shocked investors in late September after revealing Snowy was developing options to build a 350MW gas generator in the Hunter Valley at Kurri Kurri if private investors failed to step up and build new supplies before AGL Energy’s Liddell coal unit closes.
Gas for the Kurri Kurri facility could be supplied from Santos’s Narrabri project if it proceeded, and LNG imports were unlikely to be considered due to cost concerns. Negotiations with several suppliers were already under way, Mr Broad confirmed.
Coal, which currently provides 70 per cent of electricity, will contribute less than a third of supply in Australia’s power grid over the next two decades as renewables take pole position. However, up to 19 gigawatts of ‘‘firmed’’ dispatchable resources such as gas, pumped hydro and batteries will be required in the next two decades to back up renewables.
“Renewables can’t be sustained unless you firm it,” Mr Broad said. “So we’re investing heavily into firming. There’s no magic answer. Unless you’ve got firming on scale all the renewables in the world can’t be sustained.”
However, there are complications in gaining funds to proceed with a Victorian gas expansion in addition to Snowy 2.0 and its Hunter Valley development.
Standard & Poor’s downgraded Snowy’s credit rating, saying a weak trading environment was expected to crimp earnings and heavy spending on its Snowy 2.0 expansion underlined a tight balance sheet.
Snowy is expected to spend between $1.2bn and $1.5bn each year over the next two to three years, after already investing $800m, according to S&P. It predicts the tougher earnings environment and peak capital spending will increase debt to EBITDA to between 4.7x and 4.9x over the next two years.
Snowy’s underlying profit for the 2020 financial year fell by a quarter to $240m from $321m a year earlier, with underlying earnings slipping 15 per cent to $537m.
Separately, the Clean Energy Finance Corporation delivered a $89m operating result in 2020 against a $110m target while its cumulative returns were 4.75 per cent against a 5.28 to 6.28 per cent target. An impairment provision of $121m was also set aside due to the challenging market. “This is a satisfactory result in light of the level of concentrated risk the CEFC is required to undertake,” chairman Steven Skala said.