Snowy 2.0 budget to be exhausted in coming months, ratings agency says, as gas plant hit by new delays

The federal government owned Snowy Hydro is expected to exhaust its existing $12 billion budget for the controversial Snowy 2.0 pumped hydro scheme in coming months, as news of yet more delays at its equally controversial Hunter gas project come to light.

Global ratings agency S&P issued a note yesterday warning of a potential downgrade to the rating of some of its debt – which will increase costs – citing the ongoing cost blowouts and delays at both projects.

Snowy Hydro has already admitted its latest official estimate of $12 billion capex for the 2,200 MW Snowy 2.0 will be breached, but has said it will take it up to nine months to discover exactly by how much, such are the deep complexities of Australia’s biggest ever storage project.

“We assume capex for Snowy 2.0 will reach $12 billion in fiscal 2026 (ending June 30),” S&P writes in the report, noting that the project is only 70 per cent complete as at the start of this year. “The project is facing persistent and material cost pressures, prompting a reassessment of the project costs.”

S&P also raised flags over the 660 MW Hunter gas project, another Coalition-led initiative, which is also facing significant cost over-runs and yet more delays in its commissioning process.

“The HPP project has experienced extended periods of extreme weather and other factors, including commissioning complexities, that have impacted its cost and timeline,” S&P notes.

That plant has now completed its commissioning process using gas as a fuel, but is now considering delaying testing for the use of diesel, given the current fuel demand issues, a company spokesman was quoted as saying by the AFR on Thursday..

Hunter gas, which was supposed to be online in 2023, is now expected to come online in May – likely without the diesel component in the short term – and at least double the original cost of $610 million.

The budget blew out to $950 million in 2023, then to $1.3 billion by late 2024, and the company is not sure what the final cost will be. “The final cost will be known when commissioning is complete,” a company spokesman was quoted as saying by the AFR.

S&P notes that the federal government has provided $5.98 billion of equity support since 2021, including $1.4 billion of preference shares and is now also providing a $4.5 billion shareholder loan for construction of Snowy 2.0, of which A$3.3 billion remains undrawn – which means despite the budget overruns it will not run out of money.

“While the extent of the cost overrun at Snowy 2.0 remains uncertain, we expect additional shareholder support will be provided after the project costs have been reassessed,” S&P writes.

“We could lower our rating on Snowy Hydro if timely and adequate support from the government is not forthcoming to support the balance sheet.

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