With a price tag in excess of $10 billion, Australia’s biggest pumped hydro project, Snowy 2.0, is easily its single biggest white elephant. Sure, the Feds have already squandered magnitudes more on subsidies and soft loans to wind and solar. And the purported benefit of Snowy 2.0 is to use excess wind and solar power to pump water uphill so that it might deliver electricity on demand – rather than at the whims of mother nature. But one form of wicked waste, hardly excuses another.
The pitch for the project goes like this: if we use 3 MWh of wind or solar power to pump water through 27 km of tunnels, over an elevation of 900m, later, when power consumers actually need it, Snowy Hydro could return 2 MWh to the grid.
Never mind squandering 1/3 of the electricity originally generated; never mind that with the inclusion of the $85 per MWh REC the cost of the wind or solar power involved exceeds $110 per MWh; never mind that the owners of Snowy 2.0 will charge a further $150-300 per MWh to re-deliver power to the grid; never mind that, in reality, the power used to pump the water uphill will largely come from coal-fired power plants, delivered overnight when it’s cheapest. For a break down of the costs and engineering of what’s proposed see our post: Turnbull Plays ‘The Man from Snowy River’ in Uncosted Pumped Hydro Plan
Paul Broad, the CEO of Snowy Hydro has copped a deluge of criticism from all quarters over the last few months, particularly with the focus drawn on PM, Scott Morrison’s Energy Roadmap. Last week, in response to his detractors, Broad went out on a limb to promote his project, using figures apparently plucked from thin air.
Maurice Newman tackles Broad’s optimism and rubbery figures in this cutting piece below.
Nostalgia won’t protect Snowy white elephant
28 September 2020
Nostalgia is not enough. Paul Broad, the chief executive officer of Snowy Hydro, has provided a solid rebuttal (The Snowy 2.0 project will pay its way) to an open letter (On every count, Snowy 2.0 is a disaster in the making), published on this page on September 18. The letter’s 37 authors cannot be easily dismissed. All have relevant expertise in energy markets, engineering and the environment.
That said, Broad is adamant that Snowy 2.0 is “underpinned by a strong business case”. He alleges that “critics have run with every falsehood under the sun” and that most arguments are “flimsy” and not warranting a response.
He shouldn’t be surprised. After all, the project’s announcement bears many of the hallmarks of the National Broadband Network, which was a dream brought to life on the back of a drinks coaster. As predicted, it is a technological and commercial white elephant.
While there were no drinks coasters, former prime minister Malcolm Turnbull’s Snowy Hydro 2.0 announcement in 2017 was widely viewed as a cynically timed thought bubble. Like the NBN, it had no business case but was still acclaimed as an “electricity game-changer”. Turnbull boasted, “it will increase the generation of the Snowy Hydro scheme by 50 per cent, adding 2000 megawatts of renewable energy to the national electricity market”. He made no reference to cost. However, Broad later told a Senate estimates hearing that a “very rough, top-level estimate”, was $2bn.
Rough it was. Two years later, a construction contract was let for $5.1bn. The project will involve an unheard-of 27km of 11-metre-diameter tunnelling and the removal of 20 million tonnes of waste. Snowy 2.0 is a highly complex engineering challenge ripe for substantial cost blowouts. Recently, Origin Energy had to shelve the expansion of its Shoalhaven pumped hydro project, due to costs more than doubling and, because Snowy 2.0 had crowded it out.
Not included in Snowy 2.0’s $5.1bn are financing and project management expenses, which could add 20 per cent to the total. Also excluded are the costs of connecting the project to the grid and the massive upgrades to the transmission network itself. Then there’s the significant premium inherent in the $6bn purchase price paid to NSW and Victoria for their Snowy interests.
All in all, and without allowing for cost overruns, the final investment for the entire project could well sit at about $14bn or, seven times the original indicative figure. Broad may argue the project will show an 8 per cent internal rate of return but, even if it does, when properly costed, the real return to the Australian economy could be marginal, or even negative. And, while jobs will be created during the construction phase, few will be ongoing.
Broad asserts that: “True to form our initial assessment of Snowy 2.0, if anything, was conservative. The national energy market is evolving as we predicted.” That’s at odds with the Australian Energy Market Operator, which forecasts Snowy 2.0 will not attain the maximum annual output estimated in the business case. AEMO forecasts output of Snowy 2.0, out to 2042, to be less than half the business case estimate. In fact, AEMO says before 2033, Snowy 2.0 will be largely idle as the existing 1800-megawatt Tumut 3 pumped hydro station can satisfy forecast demand.
Broad says “no one is suggesting AEMO’s view is that Snowy 2.0 is uneconomic”. That’s not surprising. The market operator did not evaluate the project’s financial or economic merit. And, while bank lenders may have done their due diligence, they would have taken comfort from the owner, Snowy Hydro Limited, which is profitable, government-owned and has a sound balance sheet. Who to believe? Australians have seen too many “nation-building” projects commenced in the “tradition of courage and vision”, which become financial millstones around their necks. Costly stranded assets like desalination plants, the inland rail, the NBN, and the French-Australian submarine undertaking have all been heralded as game-changers.
Proudly, Broad invokes the spirit of the original Snowy Mountains Scheme to support the project. But nostalgia is not enough. Indeed, one of the criticisms of pumped storage is that it is old technology. While Snowy 2.0 has scale, it is inefficient, losing 40-60 per cent of the energy cycle in transmission. And battery storage is being used increasingly by renewable energy operators to “firm” their own generation, which will put pressure on Snowy’s margins.
Meanwhile, there have also been great strides in the development of small-scale modular nuclear reactors, which can integrate with renewable power sources and can generate highly resilient base-load power at cost-competitive prices from almost any location.
With capacity-firming solutions increasingly available, large-scale users can plan in advance, knowing they are buying energy at a set price for a fixed period. So, if AEMO is right and Snowy Hydro 2.0 is largely idle until 2032, it is in a race against time with competing technologies. Perhaps Snowy has recognised this by firming its own energy supply with the backing of three diesel power stations and two gas turbines.
Understandably, the question of commercial viability interests environmentalists. To permanently damage over 100sq km of Kosciuszko National Park and threaten already endangered species for a failed project would be sacrilege. By comparison, Adani’s commercial Carmichael coal project was held up for years over concern for the black-throated finch. Incredibly, Snowy 2.0 construction commenced in a national park even before an environmental-impact statement had been exhibited.
Notwithstanding, Broad maintains, “we have operated in this park for more than 70 years, in which time we have shown the highest level of respect for its heritage and biodiversity”. Permanent damage, he says, will be confined to a tiny operating area.
Whatever the reality, Australians are getting the impression that Snowy Hydro 2.0 is yet another “trust me” project where the business case has been written to reflect the announcement. It will take time for the truth to be known but, sadly, history is not on the government’s side.
via STOP THESE THINGS
October 5, 2020 at 01:32AM