Is Snowy Hydro 2.0 a waste of taxpayer money?

Ross Greenwood speaks to Frontier Economics Danny Price who says the government’s announcement of spending more than a billion dollars on the Snowy Hydro 2.0 scheme is a “waste of taxpayer money”

Ross Greenwood:  Welcome back to Money News right around the country. Well, as expected, the government today announced that they will commit at least $1.4 billion to the Snowy Hydro 2.0 expansion. Now, this particular expansion, I just did a few bit, a little bit of the maths, will potentially increase electricity generation from the hydro-electric scheme by 2000 megawatts. Now, consider, say for example, right now the plight on the Lidell power station in the Hunter Valley, which has four, 500 megawatt generators so 2000 megawatts, but it’s righted right now because it is an ageing power station to just 1680 megawatts, and of course, it will be closing in 2022.

The second part about this also is clearly, if you have an ability to move the water uphill through the pipes of the Snowy Hydro scheme, while electricity is very cheap, in other words, what is not being used terribly much in the middle of the night bit like you’d have used drilled hot water service and heated up your water in the middle of the night, push it uphill and then have it sitting there for the peak times when they can let it go instantaneously and generate electricity.

That is where the mathematics of this lies, but you wonder whether this is a part of Australia’s energy solution or whether we’re just filling gaps right now. Somebody who’s always terrific about this because he is so pragmatic about it, is Danny Price from Frontier Economics, is on the line right now. Many thanks for your time Danny.

Interview with: Danny Price, Frontier Economics

Danny Price: Pleasure.

Ross Greenwood:  Okay, life is hard for people. The Snowy Hydro is effectively owned by the federal government, and any expansion in the Snowy Hydro basically had to be funded by the government anyway, even though it’s saying that Snowy Hydro itself, will raise additional funds, I presume through borrowings, but the government is the major shareholder, it is the shareholder, it bought out the states, it’s the one that has to basically carry the candy.

Danny Price: Yes, it’s completely government owned now, was government before but it was owned primarily by Victoria and New South Wales. The federal government use tax payers funds to, for New South Wales and Victoria is about $6 billion, and now today the government has announced that they’re putting another 1.4 billion into it. On top of that, they’ll be more cost of the actual debt plus, if you– You must add also the network cost to be able to get the power out of the Snowy mountains, there’s no point of building a power station unless you can get it out, which means that the tax payers probably in the whole are nearly been worth more than $10 billion for 2000 megawatts, that makes it a very expensive serenely into power station.

Ross Greenwood:  What were the options that they had Danny to try and get at least reliable instant power, because the other options where you wouldn’t have imagined a federal government of any persuasion these days was going to fund a coal fired power station, for example, even though many people might be willing them to do so, the question is, how they could have spent this money better?

Danny Price: By way of comparison, just with current technology at current cost, we’re doing projects now which are a combination of wind plus very fast start, shut down gas turbine at about $75 per megawatt hour which is incredibly cheap. Snowy, if you include all the cost, don’t do what the Prime Minister did today and then get [unintelligible 00:03:42] today and just to get most of the cost, if you include all of the cost, it’s about $250 a megawatt hour, which is at least $250 megawatt hour compared to the same dispatchable power at $75 per megawatt hour.

Remember what it’s doing, you described it exactly right, that it is time trial, we all arrive at nine. One another big problem is that, the coal fired generators are becoming less economic for two reasons. One, is that the they can’t compete on outputs against the renewables because they are subsidized and they’ve got a very low margin of our operating costs, very low operating costs. Those coal fired generators are shutting. What the Snowy 2.0 will do, it causes, put a massive load on the system, it’s like putting two of the biggest smelters in Australia.

I’m doubling that again and putting that load on the system which will obviously be good for the coal fired generators. You’ll use a lot of emissions to get that water up the hill to be able to run it down the hill later on when the price is high. It can’t be presented as an environmental policy at all.

Ross Greenwood:  That’s right. In other words basically you’ve got to burn more coal and make the coal fired power stations work in their off peak periods when they might be otherwise, sort of idling along. You’ve actually got to be cranking them up to get the water to be pumped up the hill to make certain it’s available when the price is higher so that you can let it get it back down the hill?

Danny Price: Yes, that’s right. The way Coal fired generators are designed to operate is that you turn them on, and then you turn them off about 30 years later, they like to operate more or less continuously. What’s happening now with all the renewables that are going into the market, they come on and off like sun, I thinks that’s solar, in the middle of the day it produces a lot of power and at night, obviously nothing. As more and more solar goes into the system, there’s so much solar in the next three to four years, that the Coal fired generators can’t stay on in the middle of the day, they’ll have to shut down in the middle of the day and that creates a very big problem for these Coal fired generators that’s just not designed to do that, they’re designed to run all the time.

What this will do of course, is breath new life into coal because they won’t have to shut down in the middle of the day because it’s not what people expect for the economy, this is changing so dramatically in the middle of the day we could find the very lowest prices and so we could see Snowy pumping in the middle of the day when the prices are lower but that will actually cause the Coal fired generators to run more continuously.

Ross Greenwood:  According to you Danny right now, you don’t think this is a good use of the taxpayers money, do you?

Danny Price: I think it’s a shocker, I think it’s just the worst idea. I heard the minister saying today how compelling the economics is, energy economics is my life and I’m telling you it is just not economic, we shouldn’t be doing it, its’ a shocking waste to taxpayer’s money.

Ross Greenwood:  Okay, as compared with that with the second best link inter-connector, is that better economics for Australia?

Danny Price: I’ve said this for years, that interconnection makes a lot of sense because if we’re heading towards– Because this government’s on a trip to Paris, good or bad, we had signed up to Paris. That means that by about 2050, we have to emit zero emissions. We can’t do that with thermal fossil fuel power generators, we have to have more renewables, we have to take advantage of our vast geography and diversity of weather. That means that we are going to have to be moving power across the country, and the only way you can do that is through transmission, high voltage transmission.

The transmission companies have to make an economic case, there’s no point saying, “Oh, it’s a good idea, therefore, taxpayers should pay.” I think the taxpayers are going to get hit up with all of these crazy projects that politicians like, but that may not be economic, it’s really important that tax payers hold politicians to account for the economics of these projects and just don’t believe ministers who like that, the right thing for them.

Ross Greenwood:  I’ll tell you what, Danny Price, it’s always good to have you in the program, because he actually talks so much sense, and as I say, he’s got an open mind about every one of those forms of technology, but he’s a realist when it actually comes to the price in the economic case, and Danny, I appreciate your time this evening.

Danny Price: Thank you.

Image source: 2GB

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