Labor to spend $7.1bn on Snowy Hydro 2.0 project over next four years

Labor will spend $7.1bn over the next four years to complete works on Snowy Hydro 2.0, a project that has been beset by delays and cost blowouts.

Snowy Hydro 2.0 shapes as a critical piece of Australia’s energy transition.

Labor will spend $7.1bn over the next four years to develop Snowy Hydro 2.0, a project mired by delays and cost blowouts.

Snowy Hydro 2.0 shapes as a critical piece of Australia’s energy transition.

Once complete in 2027, it will be so large that it will be able to smooth out Australian energy supply volatility, but it has encountered a spate of problems that have stoked concern about whether it will be finished on time and on budget.

Snowy Hydro 2.0 was now expected to cost $12bn, and most of this would be delivered over the next four years, the government said on Tuesday.

The government said it would spend $7.1bn between 2024 and 2029. Some $4.5bn of this will be delivered as a construction loan.

This loan is expected to be refinanced in 2030.

The remaining $2.6bn will be injected via equity over the next two years.

The details of the funding requirements will increase pressure on the government over its handling of Snowy Hydro 2.0. The project was initially expected to cost $2bn and be completed in 2021 before being quickly revised to $6bn. Snowy in 2023 said it would now cost $12bn, a figure the development’s chief executive Dennis Barnes is confident will be met.

The government said it would spend $7.1bn on the project between 2024 and 2029. Some $4.5bn of this will be delivered as a construction loan.

Australia’s energy industry, however, said cost was now a secondary issue as a rapid transition to renewable energy increased the country’s dependency on the development of Snowy Hydro 2.0.

Australia has moved to significantly hasten the rollout of renewable energy generation such as solar and wind power, but the grid will be susceptible to so-called renewable droughts – periods when the sun is not shining or the wind is not blowing.

Snowy Hydro appears to be the only long-term solution. During periods of abundant renewable energy, Snowy Hydro will use the cheap power to carry water uphill.

When the sun has set or the wind is not blowing, or when wholesale prices spike, Snowy would then release the water downhill – turning turbines and generating electricity.

Snowy would be capable of producing enough electricity to meet demand for about a week.

But work on Snowy Hydro 2.0 remains painfully slow. Just a few years from its scheduled completion date, drilling on a vital tunnel is edging forward at less than 10m a day on current pace, well behind the necessary pace.

Sources close to Snowy insist work is on schedule, but Australia can ill-afford any delays.

By 2028, two of Australia’s larges coal power stations are set to have retired, increasing the importance of Snowy Hydro 2.0 to the grid. Coal is the dominant source of electricity, producing some 60 per cent of Australia’s power, but it is under sustained pressure from the rollout of renewables, which make the traditional power source nearly unprofitable during some parts of the day.