We don’t need Morrison’s money, Snowy Hydro CEO declares

Snowy Hydro said it did not require a $1.4 billion equity top-up to get the Snowy 2.0 project off the ground.

Scott Morrison at Tumut 3 power station in NSW. Picture: Kym Smith

Snowy Hydro has declared it did not require a $1.4 billion equity top-up delivered by the Morrison government to get the Snowy 2.0 project off the ground, as energy ­experts said they were “highly sceptical” the 2000MW pumped-hydro plant would deliver a promised 8-9 per cent return to taxpayers.

Scott Morrison yesterday unveiled the fresh injection of taxpayers’ funds “into making this project a reality”, declaring Snowy 2.0 — which will only generate power 17 per cent of the time — was critical to the nation’s energy future.

“What we are talking about here is reliable, renewable energy,” the Prime Minister said. “It’s absolutely fair-dinkum power. It doesn’t get more fair dinkum than this.”

The total cost of the project is now estimated at about $12bn, including a build cost of $3.8bn-$4.5bn, a $6bn investment by the federal government to buy NSW and Victoria’s shares in Snowy Hydro, and an estimated $1.5bn to $2bn for transmission upgrades to get the power into the grid.

Finance Minister Mathias Cormann said the new $1.38bn equity injection would “make this project happen”, while allowing Snowy Hydro to continue making dividend payments to the government during the construction phase.

But CEO Paul Broad said the project, which Snowy Hydro planned to fund by raising its own debt, would have got off the ground without a taxpayer funds top-up.

“The government decided the way it wanted to balance out the funding. It wanted to sustain dividends,” Mr Broad said. “It wanted to support the project with equity. These things are part of negotiations that go on. We never asked for it. We never asked for anything.”

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Snowy was expected to ask for a “dividend holiday” if it had raised all of the funds through debt markets. However, the government’s investment ensures it will continue to receive a capital return, with Snowy paying out $265 million to government shareholders in 2017-18. Mr Broad said Snowy 2.0, designed to “firm” unreliable renewable power, would purchase 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.

The Snowy Hydro CEO, who is yet to release the full business case for the project, said Snowy 2.0 would deliver an 8-9 per cent return for taxpayers from 2025.

But the Grattan Institute’s Tony Wood said: “The numbers don’t give you enough revenue to deliver that sort of return. I don’t know anyone outside the company who thinks this is a good idea.”

Frontier Economics director Danny Price warned Snowy 2.0 was “guaranteed to be a commercial disaster”. “If you include the full costs of Snowy, including the build cost, the $6bn cost of buying the company, and the transmission costs, you need a spread between peak and off-peak generation of about $250/MWh,” he said. “That can never happen with Snowy because it drives up the off-peak price, and drives down the peak price.”

The Coal Council of Australia said the government could “comfortably” buy three 3000MW high-efficiency, low-emissions coal-fired plants for $12bn.

Mr Morrison dismissed suggestions Snowy 2.0 was not focused enough on lower prices and immediate power. “Lower emissions, lower prices, and reliability. That’s what I’m looking for. This is what Australian people want,” he said.

Labor environment spokesman Mark Butler said the green light for the project made it clear the government was forecasting a major expansion of renewable energy.