Snowy Hydro 2.0 suffers construction delay

The big hydro expansion scheme trumpeted by the Coalition, may face an 18-month delay in delivering first power.

Snowy Hydro faces an 18 month delay delivering its giant hydro expansion scheme. Picture: Supplied.

Snowy Hydro has suffered a potential 18-month delay on its flagship Snowy 2.0 project in the Snowy Mountains with the giant hydro expansion scheme now not expected online until the end of 2026.

The holdup presents a fresh headache for the energy market given the extra power from the expansion is seen as a critical bridge as the pace of coal generation accelerates and more back-up electricity is needed to support growing renewables in the market.

The Future Generation joint venture – comprising Italy’s WeBuild, Australia’s Clough and the US-based Lane Construction – is building the project with first power scheduled for mid-2025 and the facility online from early 2026.

However, first power may now be delayed until the end of 2026, sources said. The setback has been blamed on a series of issues including bushfires, and Covid-19 hitting both supply chains and restricting the availability of workers.

Federal Energy Minister Chris Bowen said it was “inconceivable” that the former Liberal government, including Scott Morrison and Angus Taylor, did not know about the problems at Snowy, which is owned by the federal government.

“This looks to be another hidden parting gift from Morrison and Taylor,” Mr Bowen said. “I find it inconceivable that the former minister, now shadow treasurer, didn’t know about this delay. This is exactly the kind of chaos and mismanagement of the energy portfolio that put Australia in its current mess.”

Snowy is also battling delays ensuring new transmission links have been built to carry power from the expansion which will boost its existing 4100 megawatt capacity by an extra 50 per cent or 2000MW.

That includes TransGrid’s proposed Hume Link to southern NSW, set to open in 2026, and the southern transmission link to Melbourne called VNI West later this decade. Snowy in February warned a failure to push ahead with crucial investment in new electricity transmission could trigger higher power prices, blackouts and dangerous system instability.

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.

Snowy‘s $5.1bn budget includes a $400m contingency factor but the company put the overall cost schedule under review in mid-April with chief executive Paul Broad saying it was carrying out an assessment of Covid impacts and the contractor’s mitigation.

With a number of big coal plants exiting earlier than planned including Origin Energy’s Eraring station potentially closing in mid-2025, the delay could spark problems for broader system security.

The delay “will probably have implications for the reliability outlook for NSW post-Eraring exit,” said Dylan McConnell, a research fellow with the University of Melbourne’s Climate and Energy College.

Cost blowouts also loom as an issue, according to Australian National University professor Frank Jotzo.

Oh what a surprise, Snowy 2.0 is behind schedule. Will cost blow outs follow? We need smaller, simpler pumped hydro, closer to demand centres. And more large batteries. https://t.co/PfEtAF22lR

— Frank Jotzo (@frankjotzo) June 9, 2022

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.

The facility aims to add a further 2000 megawatts of generation capacity and 350,000 megawatt hours of energy storage to the NSW site in the Snowy Mountains.

The Coalition paid $6bn in 2018 to win control of Snowy after buying stakes owned by the NSW and Victorian governments.