It still makes sense to walk away from Snowy 2.0

At this late stage, the public is starting to learn the true cost of Snowy 2.0.  The (Turnbull initiated) project was initially supposed to cost $2 billion and to come online in 2021. 

The official story now is that the

...target cost following contractor reassessment is $22.2 billion, with Snowy allowing for a cost scenario of $25 billion.  The project is now targeting to be fully commissioned in late 2029.  Machine tunnelling is 65% complete and cavern excavation 90% complete, with work to build the underground power station underway….Snowy Scheme expansion aims to provide long-duration energy storage equivalent to around 26 million home batteries, enough to power 3 million homes for a week….Snowy 2.0.0’s long-term asset life means it is predicted to reduce wholesale electricity prices by more than $7 billion to 2075.

So much for the spin!

A more sobering version  comes from veteran business journalist, Robert Gottliebsen.  He regards Snowy Snowy 2.0as an intended net user and not a generator of power.  The power is generated in remote areas and transported via wires to the Kosciuszko region.  It is stored and regenerated as required, when water passes down a 17km tunnel.  In the process about 20 per cent of the original “renewable” power is lost.

Gottliebsen reckons the real cost of Snowy 2.0 is around $50bn, which is a huge cost for a project that merely stores a limited amount of power. The official cost of the hydro section of the project at $25bn also needs to: 

...take into account the looming role of the CFMEU and the high-risk drilling program whereby the drill must get through 800m of very difficult material….$30bn is a better figure for the High Country part of Snowy 2.0.0”….and “the Snowy Snowy 2.0transmission cost will be between $20bn and $25bn – so the $50bn total estimate is a conservative figure….even if we spend $50bn on Snowy 2.0.0, we will still need gas to generate 17GW of power to secure 24-hour power.

 According to Gottliebsen:

If Snowy 2.0 and its $50bn expenditure is abandoned or does not work, then only another two or three strategically placed gas-fired power stations would be required, costing a total of between $8bn to $12bn. The savings are huge and the need for additional gas is marginal.

Even though the latest cost quote for Snowy 2.0 is over ten times the original estimate, the official prognosis in my opinion is still a sugar-coated narrative. 

No proper evaluation (including geological investigations) was ever undertaken before the original go ahead was given by the Turnbull government.  Under Labor, Webuild took over the job when the original contractor, Clough, went into voluntary administration.  Webuild’s contract was set as a cost-plus one, which reduces the incentive to contain expenses, and is claimed to have contributed in a major way to the cost blow out.  Albo and Bowen are wasting billions more because they refuse to lose face and stop this now totally uneconomic project.  They are also ignoring the huge environmental damage being caused in the high country and in the path of massive transmission lines.

There is a real risk that drilling the very difficult 800 metres of tunnel may not be feasible.  If this tunnelling is unsuccessful, then almost the entire project, wires included, becomes a white elephant (an even bigger one than now exists with the $30 billion plus Inland Rail).  Plans to use the power from Snowy 2.0 and “renewables” in, for example, the Tomago aluminium smelter, would also end up being scrapped.  It would have made sense to ensure the problematic tunnelling could be completed before embarking on other expensive parts of the project, but this did not happen.

A second key question is whether Snowy 2.0 will yield anything like $50 billion worth of benefits.  There is clearly no chance of this.   Snowy Snowy 2.0is officially predicted to “reduce wholesale electricity prices by more than $7 billion to 2075”.   This alleged benefit only amounts to one seventh of the total cost of the project and about a quarter of the sum remaining to be spent.  The so-called mega-battery in any case is only capable of providing power for barely a week, and wind droughts can last much longer than that.

The Albanese and NSW governments committed $2.5bn to securing the future of Australia’s largest aluminium smelter beyond 2028.  The idea of spending huge sums on such a (now) loss-making industry (unviable because of expensive electricity) is nuts, though the pumped hydro project is still central to Tomago’s survival plan.  Taxpayers could be further on the hook now that Snowy Snowy 2.0 is officially running so late.

Australians for several generations will be paying for the wasteful spending already committed on “renewables”.  Irrespective of whether you are a supporter of Net Zero or not, Snowy 2.0 simply never made economic sense and has continued to be pursued for purely political reasons.  It was intuitively appealing because it was neither a fossil fuel project nor (in itself) wind or solar, and the project risks were deliberately played down or ignored.

Turning to the broader issue of “renewables”/net zero, the big question is how much public money has been committed to date?  An added issue is how to cope with intermittent power, especially given the taboo that zealots have placed on using gas, the obvious means of backing up unreliable power.

There is said to be massive cost concealment in the wider “renewables” scheme.  According to Gottliebsen the total renewable scheme costs, including the secret high-return guarantees from the government, look to be about $900bn (nearly half a year’s GDP), split roughly evenly between construction costs and secret financial return guarantee deals.  Most of the public liabilities for renewable energy are concealed from the public due to the costs being “off balance sheet”.  There is equal non-transparency regarding the identities of the ultimate beneficiaries profiting from all these expenditures.

Off-balance sheet funding for renewables refers to financial activities that are not shown as impacting the government's headline budget balance.  They include things like loans and investments made through government financial corporations to support projects like inland rail and “renewable” energy.  This is hidden debt accumulation, undisclosed financial risk, and reduced transparency, which would be illegal if a public company did this. 

Hundreds of billions of dollars have likely been squandered due to scaremongering and reckless spending on (often dud) “renewables” projects, which in large measure outsource emissions to other countries and maybe triple the cost of Australia’s electricity in the process.  A big part of the problem is that so many Australians have been suckers for exaggerated scare campaigns about climate.  Another problem is that price signals to consumers have effectively been destroyed through massive subsidies for solar and wind, penal regulations impacting on coal fired generators and gas explorers, and huge hikes in the price of electricity and gas.  Most household expenditures on things like solar panels and batteries would never have occurred in the absence of generous public subsidies and expensive electricity.

Donald Trump was right, when he claimed that clean energy sources, such as solar and wind, don't work and are more expensive than fossil fuel options.  He also said the UN exaggerated the consequences of climate change, and he repeatedly warned that the economics of renewable energy are harming the world economy and causing higher energy costs.   

Australia needs to follow the US in withdrawing from the Paris Agreement and deregulating its energy market.

As for Snowy 2.0, the smartest and the most economic strategy would be to just close it down straightaway before further tens of billions get wasted.  At the same time Australia should freeze any further expansion of costly subsidised wind and solar.  Instead, Australia should build modern high-output low-emissions coal-fired power stations, mostly where existing coal power stations stand or previously stood. This would ensure reliable low-cost electricity, minimise the need for new transmission lines, keep our electricity investments mainly local, and allow our heavy industries to prosper once again.   

An inevitable negative would be the need to brace for a violent reaction from the radical left, but some struggles are necessary to prevent further destruction of our standard of living.