Snowy Hydro CEO Apologises for Cost Blowout, Says Aussies Will Benefit in the Long Term

Snowy 2.0 pumped hydro project in New South Wales' Kosciuszko National Park, Australia in this undated photo. (New South Wales Department of Planning, Industry and Environment)

Snowy Hydro’s chief executive, Dennis Barnes, has apologised for the project’s six-fold cost blowout, saying that previous estimates were made prior to his tenure and that Australians will see a return on investment.

Speaking to ABC radio on Sept. 1, Mr. Barnes, who was appointed to the role in February, said there were four factors that led to the two to $12 billion cost blowout.

“It was the mobilisation of people—the project staff had in 2020 … inflation on people, steel, materials, shipping … an investment decision, which weren’t properly designed out … and of course the famous Florence tunnel boring machine has been stopped for a while,” Mr. Barnes said.

“So we have encountered some geology which has challenged us.

“Obviously (we’re) very disappointed in the cost increase, and of course, we apologise for that.”

Former Prime Minister Malcolm Turnbull announced in 2017 that the project would cost $2 billion and be completed in 2021. That has now been adjusted to cost $12 billion and December 2028.

Former Prime Minister Malcolm Turnbull during the National Ceremony at the Australian War Memorial on April 25, 2016 in Canberra, Australia. (Photo by Stefan Postles/Getty Images)

The CEO said he was confident there would be no further cost blowouts, but admitted that there were “no guarantees.”

“I’m very confident $12 billion by 2028 is a good target for us to achieve,” he said.

“Of course, we could encounter other problems but we’ve done an awful amount of work, which is really rigorous work.

“We’ve learned a lot in the 40 percent of the project we have completed. So it gives me a degree of confidence.”

Mr. Barnes added that while he was disappointed with the cost increase, he said that the project is an investment that Australian taxpayers will get a return on.

“One thing to consider with Snowy Hydro [is] that we are an investment by the Commonwealth government—we’ve paid $2 billion in dividends in the last 10 years, and $1 billion in tax.

“So the way the energy transition has played out, the Snowy 2 project has actually got more valuable.”

Project Hampered by Soft Ground

In May, the NSW Department of Planning and Environment (DPIE) placed restrictions on the operation of tunnel boring machine Florence after it hit soft ground in Kosciuszko National Park in December.

The incident caused a 9-metre hole to appear on the surface.

“Tunnel boring at the Tantangara location is on hold until the Department gives approval for operations to continue,” the Department said in May, reported the Australian Broadcasting Corporation (ABC).

Mr. Barnes said that the company is waiting for approval from the Department to continue with the boring activities.

So far, Florence has only moved 180 metres out of the planned 17 kilometre tunnel.

“We’ve been ready to move through the soft ground, we’ve obviously taken our environmental obligations incredibly seriously,” he said.

“Once it gets moving, [it will get moving from] somewhere between 10 and 20 metres a day for the next three years.

“And bear in mind we have drilled more than 6 kilometres of tunnels now, so we know how to do it. We encounter the problem here which we’ve virtually worked through and will get going again.”

Florence is one of three major tunnels that will form the Snowy Hydro 2.0 project.

A worker takes a look at the cutter head of Tunnel Boring Machine (TBM) Kirsten at the Snowy Hydro Scheme in Talbingo, Australia, on Dec. 3, 2021. (AAP Image/Lukas Coch)

The project is touted as the country’s “largest committed renewable energy project” that will eventually see Australians pay for affordable, low-carbon emissions energy.

Once operational, it will provide an “additional 2,200 megawatts of dispatchable, on-demand generating capacity, and approximately 350,000 megawatt hours of large-scale storage to the National Electricity Market.”

“To provide context, this is enough energy storage to power three million homes over the course of a week,” the company website states.

The project would generate money by pumping water to an upper dam during times of low-cost electricity and then releasing it through the power plant at times when power demand is high.

Incentives for Contractors Who Deliver On Time

On Aug. 31, federal Energy Minister Chris Bowen unveiled a new working model for contractors under the Snowy 2.0 “reset.”

Under this new model, contractors who deliver on time and on budget while adhering to environmental and safety obligations will “benefit financially.”

“If the opposite happens they will suffer financially,” Mr. Bowen said, adding that if the contractual change is not made, the project will suffer further costs and delays.

Mr. Bowen said that not resetting the contract would increase the cost beyond the projected $12 billion.

Mr. Barnes said that of the $4.3 billion Snowy Hydro has spent so far, $3.7 billion of that has been paid to WeBuild—Snowy’s lead contractor.

“And of course, 80 percent of that spend has gone into the Australian economy through their subcontractors and people,” he added.

Mr. Bowen blamed the previous Coalition for the project’s delay and said that the Albanese government will continue to provide full and transparent updates to Australians, “including working with Snowy Hydro to develop an appropriate capital structure to support the cost escalation.”