MICHAEL KEATING. Key Questions about Snowy Hydro 2.0

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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8 Responses to MICHAEL KEATING. Key Questions about Snowy Hydro 2.0

  1. Stephen Lusher says:

    It seems counter productive for the Government to be producing intermittent energy from Snowy 2.0 that can be sold at peak prices. Snowy 2.0 economics seem to depend on differential pricing – buy energy low, sell it high.

    Isn’t the policy objective to get dispatchable energy into the system at affordable prices?

    Discussions around new coal or gas plants seem directed at low cost dispatchable electricity that will bring consumer prices down – and perhaps save, for instance, the aluminium industry.

  2. John Vincent says:

    Energy economists have highlighted a finding in the Snowy 2.0 Feasibility Study that found that Snowy 2.0 has a so-called round trip efficiency of only 76 per cent (others say it will be closer to 67 per cent). That is, for each unit of electricity to pump water to the upper reservoir – Tantangara Dam – Snowy 2.0 will only produce 0.76 (0.67) units of energy, the rest being lost in pumping and production frictions. Therefore, it is argued that economically the proposal doesn’t stack up.

    Moreover, Snowy 2.0 is designed to produce 2000MW of electricity, essentially what the old coal-fired Hazelwood Plant in Victoria produced before being shut done. So no additional power to the eastern grid from this large investment. It is also understood that the Snowy Hydro Scheme produces electricity predominantly when the demand for electricity in the National Electricity Market (NEM) is at its highest, thereby maximising the financial return to Snowy Hydro. To see this, drop into the Snowy Hydro Discovery Centre, Cooma, and, particularly on a weekend, you can observe on a LED screen in realtime the hydro scheme system producing very little output when demand for electricity and financial returns are low.

    And of course the elephant in the room is how the power from Snowy 2.0 will be delivered to the current east coast electricity transmission grid and the NEM. The Feasibility Study highlights that Snowy 2.0 will be unable to operate effectively unless the transmission network to NSW and Victoria is upgraded, preferably to a 500kV line standard to alleviate voltage stability and high losses. (see Chapter 10 – Transmission, pp 4, 6 and 17-18 ), supported by a network Transmission Connection Agreement (Ch 10, p 22) . This upgrade has not been costed in the study and early estimates range between $2-3 billion for the work. How will this necessary transmission connection and upgrade be funded?? With $5.1 billion already committed to the project, a total bill approaching $10 billion to Snowy Hydro shareholders and Australian taxpayers in general looks highly likely to deliver Snowy 2.0.

  3. Michael Keating’s critique of Snowy Hydro 2.0 contains several glaring errors.
    In the first paragraph after the summary he refers to new dams. This is incorrect. Snowy Hydro 2.0 will connect existing dams with a new tunnel.
    He goes on to say the electricity presently available from snowy hydro is “pumped hydro power.” This is also untrue. Most of the electricity available from Snowy Hydro is conventional hydroelectric power, which uses the gravitational potential energy from rain and snow falling on high mountains to turn the turbines. There is a tiny amount of pumped hydro capacity already installed in the scheme.
    He also says that electricity purchased to pump Snowy scheme water back up hill is base load power which cannot be turned on and off at short notice. This is not quite correct. Any electricity that cannot be sold into the grid at a commercially viable price will be available to be transformed into gravitational potential energy for later generation of power at times of peak (i.e. high-priced) demand. As more variable renewable energy comes on line, there will be plenty of times when supply from these sources exceeds demand, and the excess power can be purchased cheaply for pump-back schemes or battery charging or other types of storage. Off-shore wind power is more likely to be available all night than terrestrial wind, and the Bass strait coast off Gippsland is under active investigation. As the old coal-fired generators chug on for their last few years, there may be opportunities for them to sell power in the early morning hours to Snowy Hydro, rather than just wasting it. Is this such a bad thing? The more storage available in the grid, the less “base-load” capacity is required in order to meet peak demands.
    An informed analysis might compare the typical availability of solar and wind power with the typical temporal (hour by hour) profile of demand. Keating’s suggestion that power stored in batteries might be sold to Snowy Hydro for storage in another form is ridiculous.

  4. Mark Freeman says:

    It’s true that there’s suspicion that snowy 2 is intended somehow to prop up coal generators. However the principle of a renewables based system is to have a very large amount of generation. Some is used directly and some stored. There’s also an intention to use still more to produce hydrogen or some sort of liquid based storage such as ammonia or various hydrocarbons.

    Battery storage is only currently available and will probably remain as a short term low capacity form of storage. This is very useful and also allows for a much better range of stabilisation services. Bulk level energy storage is another matter completely and pumped hydro as you point out has been doing this around the world for decades. Pumped hydro has no inherent connection with fossil or any other type of generation

    There are many websites explaining the various forms of storage and their applicabilities. I’ll leave it to you to look them up.

  5. Peter McCawley says:

    I attended a briefing in Jindabyne last week by an engineer working for Snowy Hydro on the Snowy 2.0 project. There are some points to add to these comments from Mike Keating.

    (1) The cost has already moved up $5.1 billion, and quite likely will rise further. Some details are in a recent ABC news report —

    https://www.abc.net.au/news/2019-04-09/snowy-hydro-2.0-cost-and-timeline-blows-out/10983998

    (2) I’m not sure that Mike Keating’s argument that low-cost renewable power will not be available when needed is quite right. Not surprisingly, the supporters of the project have thought about this. In our briefing, we were presented with a scenario where low-cost renewable power would indeed be available at key times when it was needed to pump water upwards (from the lower Talbingo reservoir to the higher Tantangera pond). The scenario we were presented with was one where Snowy 2.0 will be a suitable complement (in effect, a “battery”) for solar and wind power expected to come on-line during the next decade or so.

    (3) The most questionable aspect of the project, however, seems to be one which Mike Keating touches on but does not spell out in detail. In effect, the project is a 2,000 MW “batttery.” This means that whether or not it is a sensible project depends, to a considerable degree, on how good it is (or, rather, is likely to be) compared with other battery technologies likely to become available over the next 20-30 years or so. In other words, construction of the project is a bet about emerging battery technologies — it is a bet that the cost of using the Snowy 2.0 “battery” will be cheaper (and more functional in other ways) than the cost of other batteries. We will probably need to wait for a decade or so to find out whether this bet pays off.

  6. R. N. England says:

    Even when we move entirely to renewables, there will still be a problem of matching supply and demand, and a need for storage. The comparison will then be between batteries and pumped hydro. A hell of a lot of batteries means a hell of a lot of mining, all of whose short-term and long-term (mainly environmental) costs need to be taken into account. Sloshing huge amounts of water in and out of Tantangara on a daily basis will quickly erode the banks down to bedrock, turn a beautiful place into a dangerous desert, and gum up the works downstream. These are some of the environmental engineering problems. Allowing the population to decline is also part of the solution which economics need to get its head around. Economics can tell us how to decide between them, but only if we get all the long-term environmental engineering right.

  7. Peter Farley says:

    Already there is excess solar during the day, that is why most (but not all) of the zero or negative price intervals occur during the day. Over the next 5-10 years solar and wind output will probably quadruple so there will be plenty of excess wind and solar on at least 250 days per year. However, there are about a dozen cheaper ways of storing/using it than Snowy II. Pumped hydro in SA with 6-10 hours storage seems to be about 1/3rd the cost per MW than Snowy II. changing fixed timers on hot water services, water pumps, chillers and pool pumps is about 1/10th the cost.
    Building excess wind and solar, just like we still have excess coal and gas, and not using all its output all the time is also probably cheaper.
    This project is truly a white elephant. I definitely agree with you that it will be almost a Billion dollar a year burden on taxpayers

  8. Chris Mills says:

    There are times when wind and solar generators produce more electricity than the market demands As renewable generation grows, there have been recent events when wind generators had to pay to have their electricity added to the grid.

    At these time of surplus renewable energy, pumped hydro provides a ‘sink’ to store energy for later generation and sale at higher prices. Logically, the system works because the hydro-pumps run when there is surplus, low-cost energy and the hydro-generators run when demand and hence price is high.

    The newest buzz-word is ‘firming’ in that the exact connection generation = consumption is opened for the first time since electricity generators and grids were invented and built.

    There is, though, doubt that in a widely distributed renewable energy system where the sun is shining or the wind is blowing, that storage is required. More transmission lines are needed to move electricity from the generators to the consumers.

    Then the are the coming Molten Metal Batteries that are showing great promise as low-cost, high capacity storage. These batteries could be close-coupled to renewable generators as in the very cost-effective South Australian ‘Big Battery’.

    https://www.youtube.com/watch?v=4hnE4Viq-LE

    What is obvious is that what is required for Australia is a Strategic Energy and Emissions plan, not a political knee-jerk response to kick the problem into the future.

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