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.