Snowy Hydro profits double as it cashes in on grid outages and higher retail prices

The federal government owned power utility Snowy Hydro has revealed its underlying earnings in the latest financial year have doubled to $899 million, helped along by its ability to cash in on extreme pricing events such as those triggered by grid outages, and from higher power bills to consumers.

The taxpayer-owned utility’s annual report for the 2023/24 financial year – published on the parliamentary website – reveals that Snowy Hydro increased its “underlying” profit to $899.3 million, an increase of 98 per cent from the $455.1 million it made in fiscal 2023.

Its net profit actually fell to $418 million from $441 million, mostly the result of a significantly higher tax bill, and a $102 million loss on the “fair value” of financial instruments. Overall revenue rose to $4.1 billion.

The improved operating performance results in a significantly higher dividend to the federal government of $236 million, but the government is also being forced to inject $2.6 billion of new equity into the company in the coming years, largely to deal with the cost blowouts at its two signature but controversial projects.

On the operating front, Snowy Hydro says it found itself “well positioned” to exploit market events such as those in Victoria in February when a severe storm blew down six transmission towers, and again when a combination of transmission and baseload outages hit NSW – and forced the suspension of the market – in May.

“During both periods, Snowy Hydro’s plant provided essential peaker generation to support the market and keep the lights on,” the company says.

However, the response of all the country’s big utilities to the outages has caused questions to be raised by the Australian Energy Regulator, which reported in July that prices had jumped sharply, compounded by outages (including Snowy Hydro’s Colongra peaking plant), and their bidding activity.

“While rebidding to maximise profits is permissible under the National Electricity Rules, the behaviour may not have been in the best interests of energy consumers,” the AER noted in its compliance report.

See: Energy retailers cash in and send customer bills soaring as coal plants fail again. All the big retailers have recorded big jumps in profits, helped by the gains pocketed during those outages. Retail customers are also paying the price.

On the retail front, Snowy Hydro says its customer base from its brands Red Energy and Lumo grew by 10 per cent to 1.4 million customers, but noted its revenue jumped 21 per cent to $2.97 billion, which it said reflected retail price increases.

“All customers experienced higher retail prices as the effects of the energy crisis in winter 2022, which provided a headwind to financial performance in 2023, flowed through into retailers’ wholesale electricity costs and prices,” it said.

Other adjustments after tax include the change in fair value of financial instruments loss of $102.3 million, and other net operating expenses of $2.0 million.

Snowy’s two controversial projects are the Snowy 2.0 pumped hydro scheme, where costs have blown out to $12 billion and its intended completion to late 2028, and the 660 MW Hunter Valley Power Project, where costs have also jumped and which is struggling to secure reliable gas supplies and plot a path to its planned green hydrogen fuels.

Snowy Hydro says the forecast completion date for commercial operation of all units at Snowy 2.0 is now December 2028, with first production in the second half of 2027.

But it says it anticipates “challenges and variable performance on the path to the December 2028 target date for all generating units to come online, as would be reasonably expected with a megaproject of this scale and complexity.”

CEO Dennis Barnes told a Senate committee on Monday that tunnel boring machine Florence, which has repeated stoppages due to soft and then too hard ground, has now tunnelled a total of 1.6 kilometres, out of 17 kms it has to do.

“We’re confident that Florence has found a groove,” Barnes said. A fourth TBM to help out Florence is due to start in 12 months time.

The company says construction is now approximately 58 per cent complete, as of 30 June 2024. The Hunter power project is due to start commissioning in December this year, with the first generator operating on diesel only, Barnes said.

Barnes said the first gas should be available in March next year. The plant will be able to run – on principal – on 30 per cent green hydrogen, but the company has not yet sought any green hydrogen supplies, he said.

On the coming year, Snowy Hydro anticipates good news from the impacts of climate change. “Looking ahead, climate drivers favour a trend towards average or slightly wetter than average conditions in spring,” it says. “Overall water availability remains healthy and we are not expecting to have to mitigate water scarcity risks in the medium term.”

It says, however, that the outlook for its retail business is “challenging” as it seeks to grow the customer base while minimising the impact on revenue “in a market of declining retail prices.”

Barnes was paid a total of $2.3 million in salary and bonuses in the last financial year. Like other senior executives, he was rewarded for the short term operating performance of the company, but no “long duration” bonuses were paid for the Snowy 2.0 and Hunter Power project components.