Snowy Hydro 2.0 cost spirals to $42bn sparking calls for Royal Commission

By the time all associated infrastructure and financing costs were priced in, Dr Mountain said the bill was 20-times higher than former Prime Minister Malcolm Turnbull first promised. Snowy Hydro 2.0 insiders were so concerned about the cost inflation, they doubted there will be any benefit realised from cheaper energy bills.

Others described how its secrecy was perpetuated by Freedom of Information requests denied under the cover of commercial confidence.

Unlike the National Disability Insurance Scheme, where cost overruns have dominated political debate and budget headlines, the true price of the energy transition has been deliberately hidden from public scrutiny through off-budget accounting and separation of interconnected costs.

“The NDIS, at least you know the cost of it, because that’s public in all the Budget papers. Whereas a lot of this is hidden, you just wouldn’t know,” said former Labor politician Jennie George, former president of the Australian Council of Trade Unions.

Major contractors on Australia’s flagship renewable energy project are simultaneously reaping profits at taxpayers’ expense under arrangements that guarantee payment irrespective of performance, while a series of prime ministers have maintained a wall of secrecy around the project.

The vision for Snowy Hydro 2.0 should replicate the work of a colossal battery.

It will use surplus solar and wind during bright or blowing days to pump water to an elevated reservoir that is released to create electricity.

The exact boring technology is untested. The project is five years behind Mr Turnbull’s original timeline, and 900 per cent more expensive for the main plant alone excluding the necessary transmission lines.

The former Coalition government kept supporting Snowy Hydro 2.0 – it was its idea after all – and now the Albanese Labor government is reaping the reward of having a unionised workforce deliver it.

“Successive governments have failed to respond to a project that was so obviously doomed right from the start,” said Dr Mountain, who is the Director of the Victoria Energy Policy Centre at Victoria University.

Ms George, who retains strong connections to the Labor movement despite her criticism of current government policy, argued the lack of transparency represented a fundamental breach of ALP commitment to accountability.

“For a government committed to accountability and transparency, there’s no defence for keeping from the public – particularly from the taxpayer who underwrites a lot of these projects – just what it’s actually costing us,” said Ms George. “No one knows.”

The comparison to NDIS is stark: The government had justified winding back disability support due to cost overruns and exploitation by “unscrupulous people,” yet it refused to reveal the full cost behind the green transition, through which corporate interests have secured government-backed returns.

“Vested interests wouldn’t be pursuing projects unless they had the certainty of being underwritten by government,” Ms George said.

Royal Commission into Snowy 2.0

Dr Mountain supported a Royal Commission into the secrecy and profligacy. “What’s always been needed here is properly independent investigation,” he said. “I think there is a case for a Royal Commission into this.”

On Dr Mountain and Mr Woodley’s estimates, Snowy and its critical transmission infrastructure cost have ballooned 2000 per cent to $42bn. That estimate includes $20bn in direct construction costs, $8bn in interest charges over the 15-year build time, and $12bn as Snowy’s attributable share of transmission infrastructure, including Humelink and VNI West, originally designated as Snowy Link South and Snowy Link North.

There are existing power lines that service the original scheme from its remote location but these are “fully loaded” and already struggle to cope on hot days.

Many of these costs are impossible to track. For instance, the government is leaning on Clean Energy Finance Corp to effectively fund $1b of a planned bailout of the Tomago smelter, by asking it to provide that financing to Snowy Hydro which in turn guarantees a below-commercial rate of power to the smelter.

Not only have costs ballooned, Ms George foresaw household power bills would not decline as a result. A recent contract with NSW Transport suggested energy will be priced at $200 per megawatt hour “which is quite astronomical,” Ms George said, highlighting how the lack of planning is “pretty evident in every major project that you look at.”

Energy Minister Chris Bowen promised “independent review and absolute transparency on Snowy” when Labor returned to power, yet has failed to deliver this, according to Dr Mountain.

“All that he released publicly to justify doubling Snowy 2.0’s budget was a PR document with no substance,” he said.

Who is making money from Snowy?

Italian construction giant Webuild is in charge of the project and booked €4bn of revenue from Australia last year alone (a figure that included other projects). Australia is now a close-second in terms of revenue for Webuild behind Italy, and is its biggest pipeline going forward.

Webuild operates under a controversial cost-plus margin contract. Based on industry standards, that probably means it gets $1.20 for every $1 it spends, creating a perverse incentive to go big.

“That’s a wonderful business to have, isn’t it?” said a former insider.

The federal government instructed Snowy Hydro’s board to renegotiate Webuild’s original performance-based contract. Senior executives travelled to Milan for discussions that resulted in a departure from incentive-based terms.

“The contract was based on getting paid on performance. They had to meet milestones – and they weren’t meeting them,” the former insider said.

Under the original agreement, Webuild faced claims of approximately $2bn for delays and underperformance. When co-builder Clough collapsed, those claims ballooned to $6bn, with the additional costs absorbed by taxpayers through the cost-plus arrangement.

The project now employs 50 per cent or roughly 3000 more workers than originally budgeted, averaging $250,000 annually according to Dr Mountain, with powerful unions including the CFMEU and ETU participating.

Webuild has faced severe criticism for basic competency failures that plagued the project from the outset. The Italian company was late to start work because of an early decision to source worker accommodation from Italy, rather than using Australian suppliers experienced in mining camps. Tunnel boring machines took three times longer than expected to assemble, while safety issues created constant concerns.

“From day one, they were a complete bloody disaster,” the former insider said.

Transmission providers Transgrid and AusNet are also similarly positioned to maximise profits through the expansion of their regulated asset bases.

Transgrid (owned by a consortium of investors including the Future Fund and Abu Dhabi’s equivalent) is building the transmission lines in NSW, and Brookfield-controlled AusNet is building them in Victoria.

The Australian Energy Regulator approves expenditure outlays and has “in several cases provided money for early works, and then they later revise the costings,” according to Ms George, who described this as “a constant problem”.

The AER’s decision on Transgrid’s latest $1.1bn increase to capital expenditure – $173m to be shared by households – is due this week.

Snowy ‘Too Big to Fail’

Dr Mountain argued the project represents a fundamental policy failure that successive governments refuse to acknowledge. “Snowy 2.0 is, and always was, a dreadful idea,” he said, citing its price, environmental damage and a storage system that cannot be quickly recharged like batteries.

It takes months to pump water through a cascade system before the upper reservoir can be refilled, making it unsuitable for the flexible backup role it was designed to fill.

Dr Mountain argued that extremely rare periods requiring extended backup power would be more efficiently served by gas or diesel generation, with negligible greenhouse gas impact due to infrequent usage.

When finished, Snowy Hydro should provide 350GWh of long-duration energy storage, impressive enough to power 3 million homes for a week. Whether it is worth $42bn is another thing entirely.

Ms George acknowledged the project is “probably too big to fail, but it exposes all the weaknesses, starting with the lack of adequate planning”.

The Australian National Audit Office is due to table a report on Snowy Hydro 2.0 in May but it is confined to considering whether the 2023 contract reset is informed by “sound planning and advice,” and if Snowy Hydro Ltd is “effectively managing contract performance to achieve value for money and to deliver the outcomes required of the project”.