Cost blowouts and construction delays at the Hunter Power Project at Kurri have contributed to Snowy Hydro's credit rating being downgraded.
The ratings agency Standard & Poor's said this week that problems with the $600 million project were among the reasons it had issued a negative credit rating for the federal government-owned energy supplier
"We also anticipate cost escalations and delays at Snowy Hydro's Hunter Valley gas project and Snowy 2.0 project owing to inflation and global supply chain issues," it said.
The 660 megawatt peaking plant, which is still scheduled to open at the end of next year, will help compensate for the loss of baseload capacity associated with the closure of Liddell power station next year.
The project's two M701F gas turbines arrived at the Port of Newcastle in October. However, flooding at the site has hindered construction.
Acting Snowy Hydro chief executive Roger Whitby said in a recent email to staff that the company was working through the challenges.
Adding the project's complexity was the government's mandate to introduce green hydrogen into the plant's fuel mix.
Prior to the May federal election Labor pledged to inject an additional $700 million into the project, which it said would develop the Hunter Region into a green hydrogen powerhouse.
Prime Minister Anthony Albanese and energy minister Chris Bowen promised the project would run on 30 per cent green hydrogen from the start of operations.
However, the reality of the challenges surrounding the use of hydrogen technology in power generation soon hit home.
The issue contributed to the departure of former Snowy Hydro chief executive Paul Broad who expressed doubts about the feasibility of the government's pledge to convert the gas peaker into a green hydrogen project.
While the peaker's two open cycle turbines have been built with the capacity to use 15 per cent hydrogen, they will require further modification to use higher concentrations.
The plant will initially run on diesel while a gas lateral from the Sydney to Newcastle gas pipeline to Kurri is completed.
Standard and Poor's also said Snowy Hydro's earnings could fall by half this financial year, because of its greater reliance on gas generation and its inability to use hydro reserves already depleted in the last year.
"The negative outlook indicates that we could lower the ratings over the next 12-24 months if earnings remain depressed," it said.
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