The expansion of the Snowy Hydro pumped storage project, commonly referred to as Snowy 2.0, is facing a significant cost escalation that could reach up to $40 billion, according to information reviewed by the federal government. The cost blowout stems from a detailed review commissioned by Snowy Hydro and conducted by the major contractor Webuild, which was delivered in June. Government ministers, including Energy Minister Chris Bowen and Finance Minister Katy Gallagher, have been analyzing the findings for several weeks in preparation for a potential announcement.
Estimates from industry insiders place the total expense of the Snowy 2.0 project in the range of $20 billion to $26 billion; however, when transmission infrastructure costs are included, the figure could exceed $40 billion. Sources suggest the final disclosed estimate is likely to be closer to the upper end of this spectrum.
Snowy Hydro, a government-owned utility, has reportedly exercised considerable caution in assessing the contractor’s review, given concerns over accuracy and transparency. Inspectors conducted a thorough line-by-line cost analysis to verify that Webuild has not underestimated the projected expenses.
Earlier in 2023, the project underwent a major contractual overhaul following an internal cost review. Webuild’s contract was adjusted to an incentivized target cost model, involving cost-plus-margin payments with provisions for bonus incentives if targets are met and penalties if costs exceed specified thresholds. Despite these measures, a scathing report released in June by the Australian National Audit Office criticized Snowy Hydro’s management for previously underestimating the final project costs.
The cost controversy has drawn political attention. Former energy minister Dan Tehan accused the government of withholding information about the financial overruns, calling the management of Snowy 2.0 “disastrous” and demanding greater transparency.
Alongside the cost issues, project progress has been hampered by technical setbacks. Snowy Hydro CEO Dennis Barnes is set to face Senate estimates hearings on October 26 in Canberra, where he is expected to address these challenges. Notably, one of two key tunnel boring machines, named Florence, has experienced repeated stoppages, with the most recent outage attributed to repairs for cracking at the machine’s head deep underground. Florence’s return to service had been scheduled for October, but the success of the repairs remains unclear.
The second tunnel boring machine, Monica, resumed operations recently after maintenance downtime and is nearing a critical geological fault zone spanning approximately 800 meters under the Snowy Mountains. Despite being custom-designed by Webuild for this task, Barnes acknowledged last month that there is no certainty Monica will successfully navigate the difficult fault material.
Concerns over the contractor’s performance remain significant. Reports indicate that Snowy Hydro has considered replacing Webuild several times since the project’s inception nearly a decade ago, with such deliberations occurring most recently.
The impending release of the updated cost review and scheduled Senate hearings mark a pivotal moment for Snowy Hydro, with the government and stakeholders closely watching the project’s financial and technical trajectory.