Customers ‘to pay $160m a year’ for PM’s Snowy scheme
Up to $1.2 billion must be spent in NSW alone to deliver power created by the Snowy Hydro expansion, new figures show, prompting a prediction that power customers will be slugged $160 million a year to pay for Prime Minister Malcolm Turnbull’s pet project.
The billion dollar figure, which will substantially increase when Victoria’s costs are included, is the first confirmation of the potential full price tag attached to the pumped hydro scheme, raising questions over its economic viability.
But the federal government insists the plan, dubbed Snowy 2.0, will deliver more affordable energy.
Mr Turnbull in March announced the “supercharged” proposal to shore up electricity supplies to the east coast market. It would act as a giant battery and increase generation capacity by 2000 megawatts.
The scheme was conservatively priced at $2 billion. However this was expected to increase when factoring in upgrades to transmission lines and other infrastructure to deliver the extra capacity into Melbourne and Sydney.
Snowy Hydro Limited has engaged NSW power grid owner TransGrid to provide costings on the upgrades to both NSW and Victoria.
While those figures have not been finalised, in a submission to the n Energy Regulator, TransGrid estimates the work would cost between $831 million and $1.228 billion in NSW alone.
The figures are contained in a proposal that sets out the maximum revenue TransGrid can recover from consumers through network charges – meaning customers would wear the cost of the transmission upgrades over the life of the asset.
A TransGrid spokesman told Fairfax Media the scope of transmission work associated with the Snowy upgrade, should it proceed, “will be dependent on a number of factors”, most significantly the amount of additional generation installed and the preferred transmission route.
Respected energy economist Bruce Mountain of consultancy CME said once transmission upgrade costs are extended to Victoria – where much of the network is located – the full cost could easily reach $2 billion, bringing the true Snowy 2.0 price tag to $4 billion or more.
Mr Mountain estimated that power customers would be charged about $160 million a year to recover the expense – an amount that could escalate if costs blow out. His figure comprises the depreciation of the investment over 50 years and the cost of finance.
“This begs the question of the economics of Snowy Hydro compared to alternatives,” Mr Mountain said.
He questioned why the government had attempted to “pick a winner” in Snowy Hydro, when other options could meet peak power demand without expensive transmission upgrades.
Mr Mountain said the government should have run a competitive tender process seeking ways to create extra power storage capacity, which could have attracted solutions such as battery storage, gas generation and managing the power demands of customers at peak times.
Grattan Institute energy program director Tony Wood said the cost to be borne by consumers of transmission upgrades was “a serious issue”.
“All these people who are talking about how prices are going to down [as a result of Snowy 2.0], in many cases I don’t know if they have counted these sorts of numbers [TransGrid has proposed],” he said.
A $29 million feasibility study for the Snowy Hydro expansion, due in December, will not include transmission upgrade costs – a decision Mr Wood said was “insular” and did not reflect the critical contribution of transmission to the overall plan.
Environment and Energy Minister Josh Frydenberg said options for transmission upgrades were still being developed.
“The Turnbull government is confident that Snowy 2.0 will deliver more affordable and reliable energy for n households and businesses,” he said.