$40bn Snowy Hydro 2.0 to never finish?

Australia’s worst-kept secret is out. The energy transition is meaningfully behind.

At the current build rate, we will hit about 75% renewables by 2030, versus the planned 82%, a shortfall of roughly 8 GW of wind and solar (mostly the former).

AEMO puts the shortfall at up to 12 GW.

Basically:

• solar is largely on track
• wind is miles behind
• batteries are ahead of forecast
• gas peakers are behind.

Without a carbon price to impose some order on this mess, we have instead made a series of random decisions based on political expediency.

Gotti describes one such arbitrary disaster.

The premiers who are meeting this week to discuss renewable energy and data centres need to know the tense drama taking place at Australia’s biggest infrastructure project – Snowy 2.0 in the high country.

It is possible that the Snowy 2.0 pumped hydro battery designed to provide reliability to our proposed renewables network – which includes a vast array of transmission towers and solar and wind generators – cannot be constructed in the way that has been planned.

In a worst-case scenario, the $12bn that has already been spent plus investment in the generators and towers that have so far been erected would have token value. It is now clear that the warnings in the feasibility study for Snowy 2.0 were not heeded because of the desperate need to get the project up and running so that artificial and foolish time-based renewables targets could be met.

If the project reaches anywhere near that number, it should be abandoned in favour of an alternative portfolio of battery and gas storage. Even though Snowy Hydro is a deep-storage project, these numbers simply don’t make sense compared to the alternatives.

But that won’t happen because of sunk political capital.

Worse, we will need cheap and reliable gas, so first we need domestic reservation, which remains uncertain. We have already lost a decade in which we could have built a dozen gas peakers instead of the one built in Kurri Kurri by ScoMo, which had no gas pipeline.

Inevitably, this mess means we will have to expand the secret deals to subsidise coal in VIC and the less-secret ones in NSW. They will be done in QLD as well.

This situation is also ridiculous.

Our coal fleet has reached its age limit in NSW and VIC and, to a lesser extent, in QLD. Propping them up with secret deals and income guarantees is pointless because it does not incentivise the investment needed to keep the plants reliable and is corrosive to public trust.

This means we are now fast approaching the worst-case scenario of a renewable transition that takes longer, with gas held hostage by an export cartel and deep storage falling short thanks to Snowy Hydro, while coal plants must continue to run at increasing losses, even as they break down more often.

A plant like Yallourn runs permanently at about two-thirds capacity because its ageing units have so many problems. This is typical of the next four coal plants scheduled to retire.

Taking Yallourn as an example, it is already being squeezed out as renewables crush electricity prices during the day, making it unprofitable. And now, as batteries boom, it makes far less money in the evening peak.

If we choose to use coal for a longer timeline to build out the low-carbon grid, we should do so transparently and as insurance, not as a secretly subsidised quango.

Any subsidies should include co-investment in the renovation of the coal plants, so they operate reliably until their extended timelines end.

They will lose more and more money as their capacity utilisation falls over time, notably because they cannot operate below 50-60% output, so the modelled loss for this power insurance becomes significant.

It takes 2.5 hours to ramp up Yallourn, so it will only be useful during deep energy drought events. It’s too slow for short droughts or demand spikes.

If we assume that VIC batteries set the price for 80% of the time by 2030, which is a high probability given the current battery pipeline more than doubles capacity, then…

That’s what you’d have to pay as a taxpayer to keep two Yallourn units open for five years for the rare weather shock event, plus we’d probably be gouged for the refurbishment of the two units, so the bill is roughly $500m over five years plus the opportunity cost of crowding out some renewable investment, so you’re cannibalising for energy security.

This is your Chinese coal-fired firming power case, only using clapped-out units.

Given that we could build a new 600MW gas peaker for $1bn at Yallourn within five years, which would run for thirty years and is close to gas pipelines (unlike Kurri Kurri), keeping Yallourn open as firming insurance makes no sense.

We need cheaper, more abundant gas to incentivise more gas peakers far more than we need to keep half-dead coal units on life support.

Even more, we need commitment to a plan.

We could have had the cheapest and fastest energy transition of any nation.

Now politicisation has us facing unreliability, a shortage of new technologies, a clapped-out system of old technologies, no access to our own power fuels, plus an electorate revolting against connectivity, all at once.

Into this vacuum, arbitrary decisions, such as punting on non-existent SMRs or unknown gas reserves, or using coal as peaking power, become de rigueur.

Each new random idea displaces the last as we move further from the basic tenets we started with – a carbon price and cheap gas – which would have made the transition reliable and cheap.

Australia has long been inept at most things beyond digging holes and making houses expensive, but this schmozzle is the worst of all.