Snowy Hydro 2.0 contingency budget remains secret

Snowy Hydro has a contingency budget for its Snowy 2.0 project but will not publicly reveal the scope of the buffer.

Tumut 3 Power Station is the largest power station in the Snowy Hydro scheme. Picture: Rohan Thomson

Snowy Hydro has a contingency budget in place to cover unexpected costs on its Snowy 2.0 project but will not publicly reveal the scope of the buffer to ensure the scheme’s builder focuses on delivering its $5.1bn contract.

Snowy chief executive Paul Broad told Senate estimates on Monday that while its $5.1bn construction deal with Australia’s Clough and Italian group Salini Impreglio reflects the future escalation of prices through the eight-year build, it also holds a separate contingency fund in place for the mammoth project.

“We put a contingency on top of those numbers in case there is something like an environmental issue … that we have to cover. But part of contract negotiations is that you don’t want to signal to the contractor what you might have in your own contingency because they’ll want to come back — and it’s in their interests to come back,” Mr Broad said.

Asked by Greens senator Sarah Hanson-Young for the scope of the contingency, Mr Broad declined to specify.

“I don’t like to signal. I could give it to you in confidence but I don’t want to signal,” he said.

Snowy’s chief executive agreed to provide details to Ms Hanson-Young privately.

The original feasibility study for Snowy estimated a budget ranging between $3.8bn and $4.5bn in real dollars, which increased to $5.1bn including fixed cost escalation over the construction period.

That jump sparked speculation costs could rise further given the long life of the project. The total cost of the project was originally estimated at about $12bn, including a build cost of $4.5bn, a $6bn investment by the federal government to buy out the states and an estimated $1.5bn to $2bn for transmission upgrades to get the power into the grid. Snowy expects 2.0 would deliver an 8-9 per cent return for taxpayers from 2025.

Mr Broad also shrugged off last year’s demise of the national energy guarantee and broader policy instability, citing figures showing the renewables boom would need significant firming back-up to ensure the power grid remains stable.

Some 11,500 megawatts of renewables was available in the national electricity market in the day on October 18 which then declined to just 2500MW once the sun went down and the wind died off.

“There was a 9000MW swing depending on what the wind was doing and whether the sun was shining, so that gives you a sense of the scale of the challenge we have in balancing the output of renewables,” Snowy’s chief operating officer Roger Whitby said in response to questions from South Australian senator Marielle Smith.

The expansion scheme, designed to “firm” renewable power, expects to buy power off-peak at $40/MWH, using it to generate hydro power which would be sold into the market at peak periods at about $100/MWh. Snowy 2.0 will use electricity mostly from wind and solar plants in off-peak periods to pump water from one reservoir in the Snowy Mountains to a higher one through a massive tunnel; and reversible turbine system.