MICHAEL KEATING. Key Questions about Snowy Hydro 2.0

Oct 28, 2019

The Morrison Government has reaffirmed its commitment to expand the Snowy Scheme as a key part of its strategy to meet its target for carbon emissions. However, independent estimates suggest that the cost and completion date is blowing out dramatically. In addition, it is argued here that the pumped hydro power from the Snowy Scheme will no longer be economically viable when coal-fired power is phased out.

It appears that the Morrison Government is still committed to the Turnbull proposal to spend an estimated $3.8-$4.5 billion on new dams and tunnels to increase the supply of hydro-electric power from the Snowy Scheme. Indeed, Government statements seem to suggest that this proposal is a key element of the Government’s strategy to meet its targets for lower carbon emissions by 2030.

However, more recent independent estimates suggest that the cost of this proposal for increased hydro power has blown out dramatically, with an estimate by the Victorian Energy Policy Centre being as high as $10 billion. Clearly this would impact electricity prices, although the federal energy minister, Angus Taylor, is rejecting such estimates as being ‘simply incorrect’.

But in addition, to the capital cost of Snowy Hydro 2.0, and whether it represents an economic investment, there is also an issue regarding its economic practicality in a future carbon-free world.

The electricity that is presently available from the Snowy Scheme is what is called “pumped hydro power”. This is because this form of electricity is produced by allowing the water stored in one dam to run down the hill through the generators into another dam below. That water is later pumped back up the hill to restore the level in the original dam, thus allowing the operation to be repeated many times, and providing an almost inexhaustible supply of electricity.

You might well ask, however, how this is possible, given that it requires more energy to pump water back up the hill, than can be created by running that water down the hill. The reason why it is economic to create this pumped hydro-electricity is that the electricity from the Snowy Scheme can be created at short notice, and is sold into the market to meet peak demand at peak prices. Whereas the electricity purchased to pump the Snowy Scheme water back up the hill is base-load power which cannot be turned off and on at short notice, and as it is always therefore available it commands a much lower price at time of low demand, such as the early hours of the morning.

In other words, the economic viability of pumped hydro-electricity depends upon the availability of low cost base-load power, such as is produced at coal-fired power stations, and being able to sell the hydro-electricity at the much higher peak hour prices. But if these coal-fired power stations are being phased out in future, what is the alternative source of cheap power that can be used to pump the Snowy Scheme water back up the hill?

The alternative power sources would then have to be gas-fuelled power or power from renewables. In the former case, however, this gas-fuelled power can be turned on and off much more readily than coal-based power, and therefore its price never drops as low during the periods of slackest demand.

While in the case of power from renewables, would it be available at times of low demand in the early hours of the morning when it is dark and also the wind mostly blows less strongly? Even if power from renewables were available, this would probably be because it has been stored in batteries, and why would it then make sense to use this power up pumping water back up hill at a net loss of total power.

In short, if we are really going to phase out coal-based electricity power, it would make much more sense to invest in renewables power and its storage, than pursue the pipe-dream of an expanded Snowy Scheme.

Michael Keating is a former Head of the Departments of Prime Minister & Cabinet, Finance, and Employment & Industrial Relations. He is presently a Visiting Fellow at the Australian National University.

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