All images: Snowy Hydro.
BY ELIZABETH FABRI
This month, the Government announced it will spend $6 billion to buy out NSW and Victoria’s shares in Snowy Hydro to become the sole owner. On the back of this news and the release of a feasibility study and independent economic analysis for the project, we chat to Snowy Hydro managing director and chief executive Paul Broad.
Q. Can you explain Snowy Hydro 2.0 in brief?
The Snowy 2.0 project will supercharge the existing Snowy Scheme by adding an additional 2000 megawatts (MW) of dispatchable generation and 350 gigawatt hours (GWh) of large-scale storage.
The project scope includes linking the two existing reservoirs of Tantangara and Talbingo through approximately 27km of power waterway and a new underground power station. The pumped hydro capability means the water utilised for electricity generation can be ‘recycled’ in a closed system between the two reservoirs and used again to generate energy supply when it’s needed most.
Q. Why this is such a significant project?
Snowy 2.0 is a critical project for the NEM and will serve the market and consumers by providing dispatchable generation to address supply volatility, as well as fast-start capability and large-scale storage to address intermittency issues.
We believe that the NEM is at the tipping point of renewables becoming the dominant source of power with coal on its way out.
This transition to renewables cannot be achieved in an orderly fashion without massive storage. Snowy is the supplier of storage on scale and is strategically located between the two major load centres of Sydney and Melbourne.
Intermittent renewable generation, underpinned by dispatchable generation such as hydro-power to ensure reliability of the energy supply, is a combination that could replace thermal base load energy.
The high degree of urgency with which Snowy Hydro is progressing the project reflects the rate of change being experienced across the NEM.
Q. You recently released your feasibility for the project – how would you sum up the findings?
In a nutshell the feasibility study confirms the project is technically feasible, identifies a base-case project design, and that the project will be a solid investment for Snowy Hydro who will fund the capital costs.
The independent expert market analysis done as part of the study confirms that , if Snowy 2.0 was not built, the need for storage would be met by open cycle gas plants (that require associated infrastructure such as gas pipelines and storage), supplemented by batteries. This would cost at least double the cost of Snowy 2.0.
Q. The feasibility report estimates capital cost of between $3.8 billion and $4.5 billion for Snowy Hydro 2.0. Why is this more expensive than the initial $2 billion price tag?
The purpose of the feasibility study was to determine the costs of the project. The estimates of between $3.8 billion and $4.5 billion are the first time we’ve had project costs.
Early numbers that were discussed were based on very rough estimates from plans that we had from when we last looked at this project in 1991 (that plan was also only half the size of the Snowy 2.0 project).
Furthermore, the geotechnical drilling program uncovered some very challenging rock types which will require extensive reinforcement of the project’s structures.
Q. What work are you currently doing ahead of a final investment decision later in 2018?
There is a lot of work underway to prepare the project for a final investment decision (FID). The major work streams are finishing the second phase of the geotechnical drilling program to further refine the project’s design, undertaking a comprehensive and robust Environmental Impact Statement and raising capital and funding as Snowy Hydro will be funding the project.
Q. How do you respond to critics claims that the economics of the project don’t stack up?
At Snowy Hydro we take a very commercial approach to all capital investments and unlike our competitors, we have an impeccable investment track record in not having written off a single dollar.
Even based on conservative assumptions, Snowy 2.0 has an internal rate of return of 8 per cent, which exceeds our stringent investment hurdles.
Snowy Hydro is a growing and successful business and we have done extensive and forensic work on the project’s business case.
This includes expert independent modelling that says the products Snowy Hydro sells today will be in even higher demand as we move to a low-emissions NEM. These products include capacity contracts, energy storage and ancillary services.
Many of the project’s critics have made the mistake of trying to superimpose Snowy 2.0 on today’s NEM.
Snowy 2.0 is not a project for today but for the future when coal-fired generation is retiring and the increasing penetration of intermittent renewables makes large-scale storage projects critical.
Batteries will play a role too, but over short time intervals (several minutes up to an hour). Batteries don’t play a role in the large-scale storage markets served by Snowy Hydro’s existing or future operations.
Snowy 2.0’s size and scale (350 gigawatt hours) will underpin the stability and reliability of the NEM even during prolonged weather events such as ‘wind or solar’ droughts.
For example, in South Australia (across FY2015 and 2016), the difference (deficit) between average wind production over a two week period, and the minimum wind production over two weeks, was 60GWh.
Assuming a 100MW battery was fully charged at 0.129GWh, it would be only be able to cover 0.2 per cent of this two week energy deficit (and with no off-peak power to recharge becomes a stranded asset).
In the energy markets of the bigger States of Victoria and New South Wales energy shortages will also occur and could be as much as 300GWh.
Q. What are the biggest engineering challenges ahead for the project? Do you think the 2024 timeframe for first power out of Snowy 2.0 is achievable?
Like building the existing Snowy Scheme there are a number of engineering challenges and some potential world-firsts in the Snowy 2.0 project.
The high water pressures combined with the long power waterways presents a challenge in controlling the maximum and minimum water pressures during both normal and emergency operating conditions.
Careful design of the facility surge tanks, turbines and control systems is required to overcome this challenge.
Constructing the huge underground cavern for the power station about 1km below ground is also not without its engineering challenges.
The cavern fit out includes six main transformers that could weigh up to 250 tonnes each. Transporting the transformers and getting them down into the cavern will be a big logistical challenge.
Combining global experience and local expertise (across academic institutions, specialist engineers, facility owners, equipment manufacturers as well as construction and service companies) will enable the project team to overcome the engineering challenges.
The work being done ahead of FID will firm up the construction schedule however at this point there is no reason to revise the 2024 timeframe.
Q. How many jobs will the project create?
We expect Snowy 2.0 will create up to 5000 direct and indirect jobs over the life of the construction.
There will be many opportunities for local businesses to be involved in the project or provide supportive services.