Snowy Hydro 2.0’s pipeline to a green future

Snowy 2.0’s scale gives it a strong business case, its backers say.

Malcolm Turnbull at Tumut No 3 power station: ‘The historic agreement will generate more reliable energy, cheaper electricity, better infrastructure and more jobs’. Picture: Andrew Taylor

Its keenest champion conjures up heroic visions of the original Snowy Mountains scheme, which harnessed mighty rivers for renewable energy and turned them inland to transform the dry ­interior into an agricultural oasis.

“I am a nation-building Prime Minister and this is a nation-building project,” Malcolm Turnbull trumpeted on one of his regular publicity visits to the NSW high country to promote the Snowy 2.0 project.

“This is the next step in a great story of engineering in the Snowy Mountains and the courageous men and women who are confident and committed to Australia’s future.”

Turnbull makes these sweeping testimonials to the Snowy at carefully selected locations, such as with massive hydro-electricity pipes and the Tumut River behind him for the cameras to capture.

In fact, Turnbull loves the whole Snowy thing so much that last month he bought it.

He announced the federal government would pay NSW and Victoria $6 billion for their shares in Snowy Hydro, making him effectively the sole shareholder.

“The historic agreement will generate more reliable energy, cheaper electricity, better infrastructure and more jobs for NSW and Victoria,” Turnbull said.

Snowy 2.0 came back into the news this week when a federal ­Coalition backbench ginger group calling itself the Monash Forum urged the federal government to build a new coal-fired power ­station to secure baseload energy supply into the future.

The group, whose key members include jilted Liberal leader Tony Abbott and forced-out ­Nationals leader Barnaby Joyce, believes the government should build a $4bn “Hazelwood 2.0” power station in Victoria’s Latrobe Valley.

The fact the group dubs it ­Hazelwood 2.0 is no coincidence: it’s a deliberate effort to contrast it with the similar cost of Snowy 2.0, with the implication being, why is that more worthwhile than a new coal-fired power station if the objective is to secure reliable energy?

“If the government can intervene to build Snowy 2.0, why not intervene to build Hazelwood 2.0 on the site of the coal-fired power station in Victoria that is now being dismantled?” the Monash Forum’s manifesto asks.

The fact of the matter is Snowy 2.0 will not do what the original Snowy Mountains project did at all; it’s a very different sort of beast.

It’s not, of its own, going to produce any more renewable power or water for irrigation by putting new dams on rivers and redirecting their flow to the Murray for ­irrigation, as the Snowy projects built between 1949 and 1974 did.

“It doesn’t produce energy any more than a warehouse makes cornflakes; it stores cornflakes,” says Tony Wood, an energy expert at think tank the Grattan Institute.

Snowy 2.0 is what’s known as a pumped hydro scheme. It will pump huge quantities of water from one existing Snowy Hydro reservoir up through reversible turbines in a new power station to be built 1km under the mountains, to another existing reservoir 700m higher up, via 27km of new tunnels.

The theory is that it will pump water uphill at off-peak times when electricity is plentiful and cheap, and that water will serve as stored energy. It then will generate electricity during times of peak demand and less supply when electricity is expensive, by letting water flow back down through the same turbines.

Critics have made a number of observations questioning just how green, efficient and financially ­viable the whole thing really is.

Early on and in an immediate sense, at least, when Snowy 2.0 becomes operational in 2024 to 2025, it will probably mean more coal gets burnt and more carbon emissions enter the atmosphere. That’s because it will take electricity from the national grid to pump water uphill, and the grid will still be largely supplied by coal-fired power stations.

It takes about a quarter more energy to pump water up than that same amount of water will generate when it is allowed to flow back down and produce electricity, so again in a narrow sense, it will ­actually waste energy.

Wood and others says this also raises questions of profitability; the gap between peak and off-peak power has to be greater than 25 per cent to make it worthwhile.

“Every time you store some electricity you will lose about a quarter of it,” Wood says.

The cost of Snowy 2.0 keeps blowing out, mainly because the geology looks difficult.

What was estimated in a back-of-an-envelope calculation at $2bn has now risen to $4.5bn, following a recent feasibility study, and some independent observers think even that may be a huge underestimate.

So the question some are asking is this: is Snowy 2.0 a real, ­financially viable project that will actually do what the Prime Minister says it will?

Or is it an excuse for Turnbull to continue to pose in his favourite leather jacket in the Snowy Mountains and talk about clean, green nation building? That is, at least up until a final investment assessment and decision due later this year, which could still find Snowy 2.0 unviable.

The people at Snowy Hydro in charge of making Snowy 2.0 a ­reality insist it’s the former.

“We have done eight months of forensic work,” Snowy Hydro chief commercial officer Gordon Wymer says.

Wymer says the team has looked at pumped hydro schemes in other parts of the world, some of which, he says, make money. Some don’t, and in those cases the 2.0 team has examined why.

Snowy 2.0 would be, Wymer says, just as transformational as the original Snowy projects for the economy and energy market by revolutionising the prospects for wind and solar energy through two dynamics.

The first is tangible: using ­engineering to store renewable energy on a grand scale.

As everyone knows, solar and wind energy don’t produce electricity all the time. Moreover, they tend to produce the most electricity when people don’t need it most. Wymer says the peak of electricity production for solar is, not surprisingly, around midday, and wind farms make the most electricity about 3am.

They can produce so much electricity at those times that there is just not enough demand to do anything with it, and it can be bought for nearly nothing.

So, during those times, Snowy 2.0 would pump water uphill from Talbingo reservoir to Tantangara reservoir, sucking up super-cheap solar power production in the middle of the day and wind power production late at night.

That water is then there to generate power during the times of high demand, by just running it back down through the tunnels and the turbines, which can go from zero to full power production in just 90 seconds. So, as Wymer puts it, Snowy 2.0 would act like a giant battery to store solar and wind energy, but on a scale that just makes anything else look insignificant by comparison.

Here are a few figures to provide some idea of how big it would be.

Former South Australian premier Jay Weatherill liked to brag about the battery Elon Musk built for him that can produce 100 megawatts and store 129 megawatt hours.

Snowy 2.0 could produce 2000MW of electricity, which is more than the 1800MW produced by Snowy Hydro’s biggest existing generating plant, Tumut 3, and also more than the 1800MW capacity of NSW’s much discussed Liddell power ­station.

The Tantangara reservoir’s extra pumped water could store 350,000MW/h.

On that basis, Snowy Hydro says, Weatherill would have needed about 2700 of Musk’s “mega-batteries” to equal the energy storage capacity of Snowy 2.0.

The broader point there, Snowy Hydro spokeswoman Stephanie McKew says, is that the mega-battery could hardly cover a fraction of the need for stored electricity during times when South Australia finds itself strapped for power because of weather unsuitable for producing renewable energy — cloudy conditions and lack of wind.

While the Musk battery would be able to produce 1000MW of power for about one hour and 17 minutes before running out, McKew says, stored water from Snowy 2.0 could produce that level of electricity to the South Australian market for two weeks.

As Snowy Hydro is fond of saying, Snowy 2.0’s energy storage ­capacity will be equivalent to 35 million standard household solar storage batteries, and for a fraction of the capital cost per storage unit.

The overall equation, Wymer says, will make buying, storing, and reselling solar and wind power on a big scale practical from an engineering point of view and commercially viable for Snowy Hydro.

But there’s a second dynamic that is a little more esoteric but, its proponents say, will make solar and wind energy projects far more financially feasible and bankable, thus encouraging many more of them to be built.

The project would be based on Snowy Hydro signing a series of what are called power purchase agreements with wind and solar power companies, agreements which will be very long term. In a PPA, notionally, Snowy Hydro will typically purchase vast amounts of power from the renewable energy companies, for a fixed price well below the average price but also well above the minimum.

Because the power from these plants will go into the grid along with all other production, including from coal-fired power plants, and Snowy Hydro will take power out of the grid to pump water uphill, again from all producers, there’s no way for Snowy Hydro to actually buy any specific electricity from any one specific producer.

So, the PPA is structured as a ­financial derivative, like a futures contract, which will act as a hedge for both parties and provide the ­effect of an agreed steady price.

“They will underpin us and we will underpin them,” Wymer says.

Snowy Hydro has signed a PPA with renewable energy company and investor Equis Energy to ­notionally buy all the power of its new solar plant in Tailem Bend in South Australia, for 22 years.

“In general, PPAs enable cash flow projections that underpin long-term project financing,” Equis Energy’s managing director, Australia, Anil Nangia, says.

This one, Nangia says, gives Equis and its lenders “the assurance their investment in the ­Tailem Bend Project will be ­financially viable”.

And this, says Wymer, is the big picture.

“We are facilitating the de­carbonisation of the national ­energy market.”

Somebody had better do so, Wymer says, because based on their own public statements the oligopoly of Energy Australia, AGL and Origin are going to be closing down coal-fired power stations in coming years and appear disinclined to build new ones.

Yesterday Snowy Hydro chief executive Paul Broad told Inquirer there was a good reason no one in private enterprise wanted to build a new coal-fired power station: the economics didn’t stack up.

Broad says the cost of producing electricity from a new coal plant, meeting reduced emission standards, would be $70 to $90 a megawatt hour, whereas wind and solar now cost $40 to $50 a megawatt hour.

The world has moved away from a carbonised economy, Broad says.

“If the Monash group thinks we haven’t, that’s their problem. If they want to build it, they’ll do their dough,” he says.

And if energy company Alinta bought Liddell and extended its life by several years, Broad says, “we’d love it” because the ­extended supply in Snowy 2.0’s early years of operation would make off-peak power even cheaper for it pump water uphill.

The green purity sound of Snowy 2.0 and Turnbull’s public enthusiasm for it make players in the coal industry hesitant to criticise it, but they make diplomatic observations suggesting it’s not a silver bullet.

Minerals Council of Australia climate change and energy director Patrick Gibbons says something certainly has to be done because 40 per cent of low-cost baseload plant coal and older gas is likely to have retired between 2012 and 2030.

“In the absence of investment to replace this retiring plant, Australia will become more reliant on intermittent energy sources and this may impact on the reliability of the Australian energy market,” Gibbons says.

“In that context, Snowy 2.0 is a clear recognition that renewables (such as) solar and wind need to be backed up by power sources that are not weather dependent.

“These sources include hydro, gas and coal.”

People such as Wood express some doubts about whether the concept — which involves a lot of projections and assumptions — really stacks up as simply and comprehensively as Snowy Hydro says it does.

“The economics of Snowy 2.0 depend on needing something that big, and turning it over a lot … they are bold assumptions,” Wood says.

Some observers suggest Turnbull, having made himself practical sole shareholder in Snowy Hydro where he can call the shots, could at least subconsciously see Snowy 2.0 as his chance to carve out a legacy for himself as the prime minister who made renewable energy really happen.

The risk, Wood says, is that “if it’s driven by political objectives, one might decide to invest in something that the private sector would not invest in”.

Environment and Energy Minister Josh Frydenberg says Snowy Hydro will still run as a government-owned corporation answerable to its independent board, with clear, practical objectives.

“Snowy Hydro will continue to operate as it does now, providing energy and helping stabilise the grid,” Frydenberg tells Inquirer.

Snowy Hydro has been doing that very profitably for its shareholders.

McKew says: “For our financial year ending July 1, 2017, our revenues were $2.6bn.

“The underlying profit after tax was $412 million and the dividends paid in relation to the 2017 year ­totalled $260m.”

The suggestion is that the people who run Snowy Hydro — many of whom, like Wymer and Broad, have come from high-level private sector jobs — are pretty serious about making money.

If the final investment decision goes in favour of building Snowy 2.0, they say it will be because it makes financial sense; the fact it will also give them the warm inner glow of having helped save the planet will just be the icing on the cake.