Tasmania is optimistic the Albanese government will lift funding for a key new transmission link to the mainland after projected costs blew out by at least $2bn.
The Marinus Link was originally priced at $3bn in 2021 for its two-stage construction of separate cables across the Bass Strait, each with 750 megawatt capacity.
Recent estimates by the market operator, though, put revised costs at more than $4bn while the Tasmania government has not ruled out a final price tag of $5bn-$5.5bn.
Guardian Australia understands the federal government has held discussions with its counterparts in Hobart to review funding arrangements after tender costs soared. Last October, the energy minister, Chris Bowen, said the undersea links would “deliver up to $4.5bn in positive net market benefits, including to electricity users”.
Under that deal, Tasmania, Victoria and the commonwealth would split 20% of costs as equity. The remaining 80% would be funded by a concessional loan from the federal Rewiring the Nation agency through the Clean Energy Finance Corporation.
However, the premier, Jeremy Rockliff, and the energy minister, Guy Barnett, have recently warned there was a limit to Tasmania’s ability to pay.
“There’s a line in the sand that we will not cross,” Barnett said on Tuesday, adding the Albanese government had responded to a letter outlining their concerns “in a very collaborative and cooperative way”.
“This is national infrastructure. They have an important role to play here in terms of the benefits for the nation and the benefits for Tasmanians,” he said.
Marinus looks like joining a lengthening list of major energy projects whose costs have soared because of equipment and staff shortages. These include Snowy Hydro’s giant pumped hydro project that could cost $10bn, excluding extra transmission costs, while Victoria’s VNI-West’s costs to consumers may end up doubling.
The fate of Tasmania’s “battery of the nation” series of pumped hydro projects and a slew of windfarms hinge on Marinus proceeding.
Dylan McConnell, an energy specialist at the University of New South Wales, said it remains a “fundamental question” about who would ultimately pay for Marinus.
The Rewiring the Nation agency was not providing a grant and, for now at least, had to recover its loans. Typically, costs would be clawed back from the regions connected – in this case, Victoria and Tasmania – but such a scheme would be “a complete non-starter” for the island state, McConnell said.
“The cost impost on Tasmanian electricity consumers would be extraordinary, given the population base and electricity consumption,” he said.
A spokesperson for Bowen declined to say whether a decision on more support for Tasmania was imminent.
“Marinus Link is an incredibly important project for Tasmania and Australia,” the spokesperson said. “While it is facing similar pressures to other major energy and infrastructure projects around the world, we are working carefully to ensure its benefits are realised.”
Victoria’s energy minister, Lily D’Ambrosio, said new transmission interconnectors would play “a critical role in powering Victorian homes and businesses with renewable energy as our ageing coal-fired generators close”.
“Infrastructure costs are increasing globally,” D’Ambrosio said, adding “we will continue to engage with the commonwealth and the Tasmanian government to make sure Marinus Link stacks up for Victorians”.
Dean Winter, Tasmania’s shadow energy minister, said Rockliff owed it to Tasmanians “to spell out the full cost of Marinus Link and explain whether this and other major projects are facing the axe”.
“[Just] nine months after signing a deal to build Marinus, this government is now walking away from its own deal,” Winter said.
The minority Liberal government’s status is not helping, with at least one of the two rebel Liberal MPs opposed to Marinus. Groups such as the Bob Brown Foundation also reject the project on environmental grounds.
Tony Wood, the director of the Grattan Institute’s energy program, said Marinus “has been a dog’s breakfast for a long time”, with the commissioning date “pushed forward and back several times”.
The energy market operator has the first stage being commissioned by July 2029 and its second stage two years later in a recent report.
Should the federal government’s revised deal prove unacceptable to Victoria and Tasmania, Marinus may be abandoned. Victoria would then likely have to build more batteries as well as additional offshore wind projects to meet its decarbonisation goals, Wood said.
