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Snowy Hydro CEO sees room for all storage projects

Snowy Hydro CEO sees room for all storage projects

By Angela Macdonald-Smith

Snowy Hydro chief executive Paul Broad has declared that the controversial Snowy 2.0 pumped hydro proposal would support other renewable energy ventures rather than stifle them as the hydropower producer released further economic justification for the mega-project.

Mr Broad said Snowy welcomes the several other smaller hydro storage projects that have surfaced in recent months, pointing out that modelling still showed the need for Snowy 2.0, as well as potentially two further stages of expansion.

With some 4000 megawatts of wind and solar power projects in construction, the need for storage to smooth out capacity will only grow, he said.

"If this renewables market keeps unfolding the way it is, you'll need the 2.0 and then 3.0 and 4.0," Mr Broad said.

"We think this whole market is unfolding so rapidly that probably in the next year or two we will go past the tipping point."

Snowy said the project economics "do not rely on crowding out our competitors or making other power producers uneconomic" but in fact the opposite, given 2.0 would buy energy from the new renewables plants when the market is in surplus.

Snowy 2.0, announced by Prime Minister Malcolm Turnbull last year, will involve building some 27 kilometres of tunnels to connect two existing dams in the Snowy Mountains hydroelectric scheme. Pumping water uphill when electricity is cheap will enable up to 2000 megawatts of power to be generated at an underground power plant when it is released downhill when prices are high.

With 350,000 megawatt-hours of storage capacity, the giant battery can back up intermittent wind and solar generation on demand. Targeted for start-up in 2025, it could power 500,000 homes for a week.

Other battery and pumped hydro projects will have much smaller storage, meaning they won't be able to offer the same range of products, said chief financial officer Gordon Wymer.

The material released by Snowy shows that about 40 per cent of revenue from 2.0 will come from storage, where the company will buy energy - some 4 terawatt-hours a year - at low prices and sell about 3 TWh a year at higher prices. Modelling shows that the impact when Snowy 2.0 starts up in 2025 will be both a reduction and flattening in peak power prices in NSW, and a slight lifting and flattening of off-peak prices.

Snowy put the cost of storage from 2.0 at $25-$35/MWh compared to $195-$254/MWh for batteries.

Another 40 per cent of revenues would come from "capacity" products, insurance-type contracts sold to electricity retailers to protect them from price spikes. Smaller storage plants or batteries can't compete in that market, Mr Wymer said.

The final 20 per cent of revenues would be provided from ancillary services such as grid support, increasingly needed as coal plants close down.

"We're not negative about any of these other projects, they may all be economic, but they will have a different market segment they are fighting for and they are not going to have the multiple product streams that we do," Mr Wymer said.

A final investment decision for Snowy 2.0, which is budgeted at $3.8 billion-$4.5 billion, is targeted for late 2018. Investment in transmission to NSW and Victoria could add another $2 billion.

Snowy, fully owned by the federal government after the recent $6.2 billion deal to buy out the NSW and Victorian governments, also revealed expected rate of returns on a sliding scale depending on the final cost. Returns are put at 9.1 per cent at a cost of $3.75 billion, declining to 8.2 per cent at $4.5 billion. Returns of more than 8 per cent are "strong for this type of project," it said.

Financial Review

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