Snowy 2.0 in ‘reset’ as cost blowout sees budget top £6bn

Australia’s Snowy 2.0 hydroelectricity scheme has undergone a ‘reset’ of its contract model and scope after updated figures revealed it will cost six times more than originally planned.

Snowy 2.0 in New South Wales is being built by Future Generation (FGJV) – a joint venture between Webuild, Australian firm Clough and an American subsidiary of Webuild called Lane Construction for project promoter Snowy Hydro. The scheme will link the higher Tantangara Reservoir with the lower Talbingo Reservoir via tunnels through the Snowy Mountains  and involves a hydroelectric power station 800m underground between the two reservoirs, generating green energy as water passes turbines in the tunnels and sending it to the grid.

Snowy Hydro confirmed on 31 August that the scheme is now expected to top AUS$12bn (£6bn). It said design challenges and difficult ground conditions, along with global geopolitical and economic challenges, were among the factors causing the dramatic cost hike.

A statement from the promoter said the cost revision reflected numerous delays and impacts including “design immaturity at final investment decision, with a number of design elements requiring more time to complete due to their technically complex nature”. This meant that the final design for the scheme was now more expensive to construct.

It also cited the impact of variable site and geological conditions, with the most impactful being the soft ground delaying tunnel boring machine (TBM) Florence’s progress at Tantangara.

Other cost drivers included the compound effect of “extraordinary factors” and “major disruption” caused by the Covid-19 pandemic. These included critical shortages of skilled labour exacerbated by quarantine and movement restrictions during the crisis, along with ongoing disruption to global shipping and supply chains, conflict and natural disasters, which delayed access to key materials.

“Significant inflation in costs of key construction materials and inputs” and inflation in labour costs were also cited.

In light of the cost hikes, the scheme's fixed-price Engineering, procurement, and construction (EPC) contract - a type of contract used to undertake construction works by the private sector on large-scale and complex infrastructure schemes, has now been deemed not “fit for purpose”. The EPC was originally executed by Snowy Hydro and Future Generation Joint Venture (FGJV) following final investment decision. However, it is understood Snowy Hydro and FGJV are finalising an amendment to contract. The amendment will entail an incentivised target cost contract model, designed to enable closer collaboration, stronger oversight and alignment of interests between Snowy Hydro and FGJV.  Snowy will also settle all outstanding claims with FGJV.

The reset also entails delivery of an additional 200 MW or 10% capacity, bringing the scheme’s total capacity to 2,200 MW.  Snowy Hydro said the value of Snowy 2.0 to Australia’s national electricity market had increased materially since the final investment decision in December 2018. It said the scheme is expected to provide 350,000 MWh of energy storage for 150 years.

Snowy Hydro confirmed construction is now approximately 40% complete and “solid progress continues to be made”, including excavation of the main access and emergency cable and ventilation tunnels is now complete totalling 6km of tunnelling. Excavation on the 6km tailrace tunnel has commenced and tunnelling on the 1.45km inclined pressure shaft will commence shortly.

Work on the underground power station is also underway, with access available from both ends and excavation and support of cavern crowns underway.

Excavation at the Talbingo intake, where water will enter during pumping and exit during generation, is halfway complete, with 310,000m3 of earth excavated. The first stage of earthworks at the Tantangara intake are complete, involving the movement of 205,000m3 of earth. Manufacturing of the six pump turbines has commenced, the first major mechanical component has been shipped and has been transported to site.

Meanwhile, excavation of the headrace tunnel by TBM Florence is now ready to be continued, subject to the receipt of necessary regulatory approvals. This follows an update released in July confirming TBMs were poised to complete key tailrace and headrace tunnelling works on the scheme. 

Snowy Hydro CEO Dennis Barnes said the project remained “viable” adding that the reset would enable its commercially sustainable and successful delivery.

“Snowy 2.0 is being engineered to deliver clean and reliable storage and electricity generation for Australians for the next 150 years. It is a truly transformative national project that is generating jobs and significant investment in regional areas; it will deliver benefits immediately following its completion and will continue to do so for many future generations of Australians.

“Snowy 2.0 involves billions of dollars of investment, with approximately 80% going into Australian jobs, goods, services and skills. We are building the skills of local workers that can later be used elsewhere to assist in Australia’s ongoing energy transition.”

The target date for commercial operation of all units is December 2028 with first power to be delivered in the second half of 2027, although previous estimates have seen the completion date revised to as late as December 2029.


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