Snowy 2.0

Snowy 2.0 is a triumph of politics over economics. It will happen because of the political imperatives of our leaders. Contracts may have been awarded, announcements made but as Ben Potter of the Australian Financial Review told us back on 27^th February, 2019 (pp. 36-37) – there is no NSW Government approved EIS (Environmental Impact Statement) as no proposal has been submitted so delays already. The optimistic deliver date is 2025 – three years after the scheduled close of AGL’s Liddell.   

Many of us who went to school in Australia remember the celebration of the Australian spirit in the building of the Snowy Mountains Scheme. I don’t ever remember being told that it was a great investment. Social Studies and History teachers saw it as Australia’s answer to the Hoover Dam – we can do great engineering too.

Snowy 2.0 is an impressive project linking two of the existing dams and having a capacity of 2,000 MW for 175 hours (i.e. 350,000 MWh). It is a big battery. There are plans for Snowy 3.0 and 4.0 too.

The base case for the project is that it will return 8.2% - not what an investor would be looking for – we see 8% real after tax as their want. (See https://www.snowyhydro.com.au/our-scheme/snowy20/snowy-2-0-feasibility-study/snowy20economics/). This was at an investment level of AUD 4.5 bn. It is already more than AUD 5.0 billion with AUD 1.38 bn coming from the Commonwealth Government – Macquarie Bank has been asked to find the balance. (See https://www.afr.com/business/banking-and-finance/maccap-hired-for-snowy-hydro-s-5b-funding-package-20190404-p51aq2)  Salini-Clough JV have been awarded a AUD 5.1 bn contact to construct the project (https://phys.org/news/2019-04-italian-company-big-australian-hydroelectric.html) in an election eve promise by the Liberal / National Party Governmnt. If it ends up costing AUD 7bn as suggested by the AFR 13 December 2017 it will be another NBN (https://www.afr.com/news/malcolm-turnbulls-snowy-20-project-could-cost-7b-20171213-h046460). It will need AUD 2.0 bn of transmission upgrades! (https://www.afr.com/news/snowy-20-explained-silver-bullet-or-white-elephant-20190226-h1bqg9) so AUD 7 bn is closer to the real cost.

Snowy 2.0 once build will be an asset which the nation will have for over 100 years. But it could be a lemon which our grandchildren won’t thank us for.

As Australia moves forwards with a privatised energy market, we now have a massive government intervention in the energy market. What we have is government by announcement in the dying days of Malcolm Turnbull’s reign as Prime Minister. Given the current political environment no-one in politics has asked the hard questions such as how much will it really cost and how long will it take to build. The project estimates to get 40% of its income from “capacity revenue” known also as an “availability fee”. We are going to pay for it to simply sit idle for when it is needed and then it can run for 7 days without being supported.

We need stop and ask if the new political thinking is correct and we move to 50% renewables, and peak demand is during the night and early evening where is the cheap power coming from to pump the water back up hill. I am no engineer but I guess it takes more energy to pump water up hill than is released when it runs down hill, we need find more than 2000 MW of capacity to pump it back.  This historically came from base load coal fired power stations Given the answer is to close these – when is the power coming from to recharge the “National Battery”?

Australia needs a robust energy mix with system strategic support for an emergency and we all need to pay for this but not too much. What we need is also cost effective and financially viable projects. We need took at the ASX listed Genex solar / pump hydro model and we need look at new generation coal ultra super critical fired based load power.

I suspect that the recent announcement by Labor to require 50% of new cars being electric by 2030 will apply to buses too and this will be endorsed by the urban Liberals despite the excellent arguments of Barnaby Joyce to the contrary (see https://www.theguardian.com/australia-news/2019/apr/01/50-of-new-cars-to-be-electric-vehicles-by-2030-under-labor-climate-change-policy). I just ask where is this power coming from?

We will need an energy mix which is distributed, reliable and cost effective. This will include modern efficient solar and battery storage.

Internationally Tabatinga (See www.tabatingasg.com) is working on electric bus mandates in Cali Colombia and solar power to support remote metals mining and at site processing in Argentina in the mountains near its border with Chile. Both are today diesel clients. The change decision is driven by economics with a positive environmental outcome.  The answer for these is cost effective solar with battery storage. This reduces transmission losses and the capital investment in transmission assets. In Australia we really need look at distributed power generation and local storage.

What we see happening overseas could change rural life and mining activities in Australia too. Projects RH (see www.projectsrh.com.au) would please to work with parties which have commercial propositions which share over vision.

Paul Raftery