Snowy 2.0 pumped hydro fiasco faces another major cost blowout, analysts expect more delays

The controversial Snowy 2.0 pumped hydro scheme is courting further disaster as the federal government owned Snowy Hydro flags yet another major blow out in costs, and analysts question where it can meet its already delayed delivery timelines.

Snowy Hydro announced on Friday that it has directed its main contractors to undertake a comprehensive “line by line” reassessment of its costs. It indicated that the cost blowout could be so great it will take nine months to tally and verify.

It says it is clear that productivity improvements had not been delivered as expected, and the project can no longer absorb the costs associated with the “geological challenges”, which have ranged from rock too hard to penetrate to land too soft to drill.

The project was originally unveiled by the Turnbull government in 2017 with what was an absurdly low cost prediction of $2 billion.

After several cost blowouts (see table below), a reset in 2023 – after the departure of CEO Paul Broad – put the costs at $12 billion, and energy experts have said repeatedly that the total bill will exceed $20 billion.

Critics say that is an absurdly high cost, particularly given the plunging price of battery storage – a technology that the company’s previous management had gone out of its way to deride.

Snowy Hydro insists that the project will still be useful as a sort of giant battery for the grid, but critics say it’s been a disaster for the speed, scale and social acceptance of the Australian green energy transition, given also the huge transmission lines that must be built to support it.

CEO Dennis Barnes said in a statement on Friday that the project is now 67 per cent complete and has made good progress since the 2023 reset, which was put in place shortly after his appointment.

But he said it could take nine months for independent experts to complete and verify the cost reassessment, but insisted that the project will be delivered for its revised deadline of December, 2028.

“Since the reset, the project has generally been progressing well and is now 67 percent complete,” Barnes said in a statement.

“Despite disruption, including work stoppages due to safety concerns and continuing challenges with geology, we’ve been able to recover that time and get us to where we need to be in terms of schedule. 

“The reset was about getting Snowy 2.0 moving again by creating a more collaborative relationship with the principal contractor and achieving safe progress. We’ve done both, but the productivity uplift hasn’t been to the degree we needed.”

Barnes said costs associated with contractor productivity targets have not been realised, blaming the stoppage in tunnelling machines, other work stoppages and general “productivity underperformance.”

He also said that the costs said the costs of “de-risking challenging geology” can no longer be absorbed. This included the fourth tunnel boring machine which Snowy Hydro had insisted would be covered within the project costs, despite skepticism from analysts. It now admits “this is no longer possible.

Barnes also cited “significant” supply chain cost increases, particularly in relation to offshore purchases associated with its underground power station.

“Snowy 2.0 will be a cornerstone of Australia’s transition to renewable energy, providing more than half of the long-duration storage the grid needs by 2050,” Barnes said in a statement.

“It will enable the introduction of more wind and solar by acting like a giant battery, storing and delivering enough excess energy to power around 3 million homes for a week. “Snowy 2.0 is being built to operate for 150 years. It is as important to Australia now as the original Snowy Scheme was decades ago.”

Critics say they do not believe that timelines will not slip further, pointing to the fact that the tunnelling is nowhere near complete, and caverns for the power station have not been hollowed out so that the power station can be installed.

“A December 2028 completion date requires commissioning of the six units (expected to take 12-18 months) to start in mid-2027,” one said. “This means that all the ancillary works, especially the tunnels, need to be completed in less than two years – simply impossible.”

They also questioned why it would take nine months to assess the new blow out in costs, given the project should have been meticulously managed on a day to day basis.

The release comes just a few weeks before Snowy Hydro delivers its annual report for the 2024/25 financial year, and comes as it starts the commissioning phase of the Hunter Valley gas power station, another controversial project that has run over time and over budget.

See: The abject saga of one of Australia’s most controversial gas fired power station projects

Snowy Hydro last week did, finally, sign a contract for a big battery, with a landmark “virtual tolling” agreement for the 300 MW, 1200 MWh Elaine battery that was the biggest of its type in Australia.

Federal energy and climate minister Chris Bowen said the news was disappointing, but argued that other civil construction projects – such as the Metro rail lines in Sydney, and nuclear plants being built in the UK – were also running far over budget.

“When we came to Government we discovered a project that had effectively stalled, amid poor planning and a lack of oversight under the former Coalition Government,” Bowen said in a statement.

“Under us the project has made significant progress and is more than two thirds complete, safety at the site has significantly improved and transparency means we’re acting early to deliver best value for taxpayers.  

“This costs reassessment is disappointing and the Government will be scrutinising its findings – this project must be delivered, but it must come at value for the taxpayer.” 

Pumped hydro – despite being cited as an essential storage technology for the transition to wind and solar – has struggled in Australia.

The only other project under construction, the much smaller Genex facility in an old gold mine in north Queensland, was running more or less on schedule and within budget, but has recently advised it has pushed back its commissioning to next year.

There is no word on costs, given that the company is now privately owned. The facility was largely backed and funded by government agencies. The Queensland state government has since cancelled the massive Pioneer Burdekin pumped hydro project, although NSW is pursuing several pumped hydro opportunities.

Australia’s most advanced renewable grid, South Australia – which averages 75 per cent share of wind and solar and aims for 100 per cent “net” renewables by 2027 – has no pumped hydro, although it is supported by eight operating batteries and another ten under construction or contract.

If you wish to support independent media, and accurate information, please consider making a one off donation or becoming a regular supporter of Renew Economy. Your support is invaluable.