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Snowy Hydro says multibillion-dollar energy project doesn't need cost-benefit test

Snowy Hydro says multibillion-dollar energy project doesn't need cost-benefit test

The economic viability of a multibillion-dollar infrastructure project supporting the Snowy 2.0 expansion should not be publicly tested because the project is nationally significant and the analysis might cause delays, Snowy Hydro says.

Energy market experts have criticised the proposal, saying it would prevent vital scrutiny of the project and risks repeating the over-investment in "poles and wires" infrastructure that led to spiralling electricity prices.

The Snowy Hydro expansion was a signature project of former prime minister Malcolm Turnbull, pictured here touring the facility.

The massive expansion of the iconic Snowy Hydro scheme was announced in April last year by then-prime minister Malcolm Turnbull, who made it his signature project. It promises to make east coast energy supplies more reliable and affordable.

Snowy 2.0 would pump water uphill into dams and release it at times of high electricity demand, acting as a giant battery and backing up intermittent energy produced by wind and solar.

The scheme was conservatively priced at $2 billion. However the cost of upgrades to transmission lines and other infrastructure, required to deliver the extra capacity into Melbourne and Sydney, is expected to reach an estimated $2 billion or more, doubling the project’s cost.

Network businesses recover the cost of such upgrades from electricity consumers through higher prices.

In recent years, the businesses have been accused of "gold plating" or over-investing in network infrastructure to maximise profits. The Australian Competition and Consumer Commission says network charges have been the single biggest factor in rising household electricity bills over the past decade.

Snowy Hydro says its transmission work will involve a link between Tumut, Wagga Wagga and Bannaby in NSW and a strengthened connection between NSW and Victoria.

The Australian Energy Market Operator assesses such projects through the so-called regulatory investment test - identifying which transmission option offers the greatest economic benefits to market players, including consumers.

In a submission to the Australian Energy Market Commission, Snowy Hydro says its transmission projects "should not be subject to the [test]".

Instead, regulatory rules should be rewritten so that "nationally significant and strategic" projects such as theirs are approved differently - requiring only that a transmission network business "competitively source the most efficient means to deliver the project".

Snowy Hydro said regulatory investment tests can take more than 18 months and risk being delayed through the disputes process.

In a statement to Fairfax Media, the Commonwealth-owned Snowy Hydro said the test was ill-suited to a market transitioning to renewables and "does not currently take into account ... factors such as competition, market benefits and reliability benefits, which all help lower prices for consumers".

"We support any proposed transmission developments undergoing a rigorous test but it needs to be a holistic economic assessment to ensure the least cost options for consumers," it said.

Energy Minister Angus Taylor did not say if the government supported Snowy Hydro's proposal but said it was committed to lower energy prices.

Energy Minister Angus Taylor did not say if he supported Snowy’s proposal, but told Fairfax Media "we must ensure that transmission does not drive up the cost of electricity to consumers".

Respected energy economist Bruce Mountain, a consultant who has advised government departments and regulators, said there was "just no way" Snowy 2.0 should be allowed to avoid the regulatory investment test.

"We’ve been through a massive mistake in network investment over the last decade through taking this sort of view that it’s all urgent, it has to be done, it always makes sense ... and we are now falling into the same trap," he said.

Associate Professor Mountain said the test was a public process that considered alternative transmission, generation and storage options, and may reveal cheaper options to Snowy 2.0.

“Snowy ought to be subject to exactly the same scrutiny as anyone else planning a major investment,” he said.

Grattan Institute energy program director Tony Wood said the test took time to complete but was "there for good reason".

"If such an exemption was to be granted [to Snowy 2.0], how does the consumer get protected?" he said, adding that should the expansion not prove as profitable as anticipated, "then the cost of it is worn by the consumer".

Mr Wood said the government had not adequately assessed alternative options before announcing Snowy 2.0. If the project was made exempt from the investment test, full financial details of the project, including the transmission costs, should be released so the public could "decide whether that is justified or not", he said.

Sydney Morning Herald

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