Snowy Hydro’s two main energy projects have had their completion costs double to almost $13bn as delays and rising costs for equipment and staff take their toll.
The giant Snowy 2.0 pumped hydro project in the Kosciuszko national park, first touted by the Turnbull government in 2017 as costing $2bn, was later revised to a cost of $5.9bn. That tally, though, has escalated to $12bn, with that estimate contingent on completion by the end of 2028.
The separate gas-fired Hunter Power Project at Kurri Kurri near Newcastle in New South Wales will be completed by December 2024. Its costs have been revised higher from $600m to $950m.
Snowy Hydro said it had spent $4.3bn on the project up until the end of June this year. Its power generating capacity – by moving water through 27km of tunnels between two existing dams – has also been revised 10% higher to 2.2 gigawatts.
“I am committed to ensuring these critically important projects are transparent and are placed on a robust and sustainable footing,” Dennis Barnes, Snowy’s chief executive said in a statement on Thursday.
“Snowy 2.0 is being engineered to deliver clean and reliable storage and electricity generation for Australians for the next 150 years,” Barnes said.
The federal energy minister, Chris Bowen, and the finance minister, Katy Gallagher, have backed in the revised plans by the commonwealth-owned Snowy.
“When the Albanese government was elected, we were advised of serious problems with the Snowy 2.0 project which had not been made public by the previous government,” they said in a separate statement. “Snowy 2.0 is a critical project to Australia’s energy future – providing enough renewable energy and storage to power three million homes for a week.”
The project is ambitious, being more than twice as large as any other pumped hydro venture in the world. The cost revisions may also not be the last, should it hit further engineering snags such as the unexpectedly soft soil that bogged one of its three tunnel boring machines since late last year at the start of its tunnel near Tantangara reservoir.
Still, Snowy the project remained “value accretive”, based on a projected net present value of about $3bn. The company, though, also has to settle on a revised funding model with its Italian construction partners, Future Generation Joint Venture, that will set incentives to meet deadlines.
The Australian Energy Market Operator, meanwhile, has set a completion date for 2.0 as the end of 2029 in its latest market update, also released on Thursday. It warned of the need for “immediate” action to ensure new renewable energy capacity comes on line in time to offset the loss of ageing coal and gas-fired plants as they drop out.
The 2.0 project also excludes the $5bn HumeLink project that will connect it to the wider grid. That tab will be picked up by NSW consumers.
Barnes said the Hunter Power Project remained “economically viable” as demonstrated by the energy crisis of early winter 2022, with the need for extra capacity.
At a press conference in Sydney, Bowen said the $12bn cost for Snowy 2.0 was “obviously very, very substantial”.
“Firstly, this is one of the most complex engineering projects under way anywhere in the world,” he said. “And it is subject to the same constraints and blowouts that all major infrastructure projects around the world are experiencing. That’s just a fact.
“We support the new steps being put in place by the new management of Snowy 2.0 to put the important project back on track.”
On Wednesday, shadow energy minister Ted O’Brien said the cost of Snowy 2.0 had doubled since Labor took office in May 2022. He also questioned the terms of the new construction contract, saying it shifted the cost risks “to the Australian taxpayer almost in an uncapped fashion”.
