Too big to fail? Snowy 2.0 critics predict fresh cost blowouts, while others say it’s far too late to turn back

Long-time critics are worried the controversial Snowy 2.0 pumped hydro project is not just blowing out costs in construction, but in interest and other infrastructure as well. 

Energy executive Ted Woodley and economist Bruce Mountain are putting the total price tag at $42 billion, saying the extra costs of interest plus connecting the project to the grid is massively bumping up the final bill, The Australian reports.  

Woodley’s last estimate in October was $30 billion, days after Snowy Hydro revealed it knew its then-latest $12 billion capex figure for the 2,200 megawatt (MW) was likely to be breached, but that it needed nine months to uncover the full damage.

Snowy Hydro declined to answer specific questions about costs, the volume of work required to finish and the expected deadline, but said the reassessment currently underway by its contractor Future Generation Joint Venture (FGJV) “will be verified by independent construction cost experts.”

“The figures published in The Australian today are unsubstantiated and developed by individuals not involved in the project, with no knowledge of the cost reassessment currently underway,” the statement provided to Renew Economy says.

Woodley and Mountain speculate that the new Snowy Hydro bill will be around $20 billion, reasoning that every cost reset has been double or thereabouts of the previous guide. 

However, they are also tallying tangential costs such as the interest and cost of building connecting transmission.

These include $8 billion in interest payments, $2 billion in costs such as environmental offsets and transmission connections, and $12 billion of the total $25 billion combined cost of building the transmission lines Humelink, VNI West, the Western Renewables Link, and the Sydney Ring South, which they attribute purely to Snowy 2.0.

“Interest is a component that has been ignored all the way through and it’s an opportunity cost to the government. The government is now financing 100 per cent of this project [via equity and loans],” Woodley tells Renew Economy. 

“Every year delay adds about another billion just in interest.”

In March, global ratings agency S&P warned it would downgrade the rating of some of Snowy Hydro’s debt due to delays and cost blowouts at Snowy 2.0 and the controversial Hunter gas project.

Both projects were started by Coalition governments. 

A downgrade will increase costs such as interest rates. 

Cost of connection

Woodley and Mountain attribute about half of the cost of building the northern transmission links Humelink and Sydney Ring South, and about a third of the cost of building the southern ones, can be sheeted back to having to include Snowy 2.0 in the grid.

Woodley cites examples such as the “dog leg” to connect Snowy 2.0 to the Banaby to Wagga Wagga Humelink transmission line as costs that didn’t need to happen, if Snowy 2.0 was never built. 

“We’ve been saying right from the outset, just dump it. And people say ‘we’ve sunk $12 billion into it, let’s not waste that money.’,” he says. “But even now it could well be in the best interests of the nation to dump it. Even though Snowy is claiming it’s 70 per cent complete.”

However, Nexa Advisory CEO Stephanie Bashir says those figures don’t take into account the benefits those lines will have in bringing new wind generation into the grid. 

Snowy 2.0 was part of the original plans for the Snowy hydro system, and finally got its shot in 2017 when then-Prime Minister Malcolm Turnbull said it would go ahead – but with no business case or formal up to date costings.

Two years later, Mountain was already calling out a doubling in cost, saying he’d be surprised if it came in by 2027 at less than $10 billion. The cost estimate in 2019 was $5.1 billion, and Snowy Hydro’s last deadline estimate was for December 2028.

Since its inception, the project has been blighted by safety issues, engineering problems as boring machines ran into rock and other subsurface conditions planning hadn’t prepared for, and contractors that have not managed supply chains or costs well. 

Teachable moment

Bashir, another long-time critic of the project, says it’s too late to dump Snowy 2.0 but it needs to be a salutary lesson for the other massive projects underway in Australia. 

“We can’t have Australia’s energy transition built on random political decisions because there is an election coming. Energy distribution is essential to our lives,” she tells Renew Economy.

“Snowy 2.0 needs to be a lesson learned for the other major infrastructure projects that we’re building. It’s about time that we have a proper major energy transition plan that not only forecasts the different generation mix but also forecasts how much transmission, batteries and long term energy storage projects we need.

“They take a long time to build and the sooner we send that investor signal, the sooner we can get those projects going.”

Having costings and a business case up front should be a bare minimum for major projects, she says.

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