News

Good business makes good business: The Case for Snowy 2.0

10/01/2018

The National Electricity Market (NEM) has long been an outstanding example of Australia’s microeconomic reform. It brought much needed competition to an industry once dominated by inefficient, state-run enterprises.

Snowy Hydro has been at the heart of this market, with volatility being the key driver of value for our business.

Our unique portfolio of fast start generation assets and large storages allows us to generate at times of peak demand, provide cap contracts insuring retailers against price volatility, and “time-shift” surplus, low price energy to high price/demand periods. We also underpin system security through synchronous generation and strong inertia capability.

Snowy 2.0 is an expansion of what we already do. It is not new or unique. The concept of expanding our pumped storage capability has been around since the 1960s. The growth of baseload power negated its viability, but the economics are changing rapidly.

As intermittent renewables grow, the market will experience greater volatility and uncertainty. The Australian Energy Market Operator confirms this trend as we move to a lower emissions future.

Snowy Hydro has witnessed this first hand, with increased demand for cap contracts in recent times. As it’s often said, when the wind doesn’t blow or sun doesn’t shine, how you fill the gaps forms the cornerstone of a secure, reliable and affordable NEM. In fact, filling in gaps has always been a key role of Snowy Hydro. As renewables increase, the need for our services will increase exponentially.

All independent analyses show that large scale storage is paramount to a lower emissions future. Snowy 2.0 will deliver 350,000MWh of storage to consumers at lowest cost. In fact, the project’s economics blow the alternatives out of the water. If Snowy 2.0 wasn’t built, the alternative would be a combination of batteries and open-cycle gas plants, costing at least twice as much and resulting in higher prices for consumers.

Some commentators have mistakenly sought to model Snowy 2.0 on today’s NEM, rather than the NEM we see coming. The future NEM, dominated by renewables, will require significant flexible peaking generation and storage. Snowy 2.0 will come online from 2024 at precisely the right time to fill the gaps and stabilise the market.

Snowy Hydro is already the leading provider of cap contracts. Increased market volatility, together with Snowy 2.0’s unrivalled storage capability, will allow us to expand our product offerings. These include insurance ‘floors’ and ‘collars’ (providing price certainty for wind and solar) and seasonal ‘energy exchange’ products. This will enhance long term energy security.

Snowy Hydro’s ability to provide ancillary services, critical for system security, will also increase to meet the demands of the future NEM.

As for claims that the economics don’t stack up – I refute them categorically. Snowy 2.0 can be funded off our balance sheet, while delivering a healthy internal rate of return of 8%.

While historically we have not often used our pumping capability, we’re progressively pumping more and will be at capacity when Snowy 2.0 comes online. In fact, our analysis shows that future storage demand will surpass Snowy 2.0’s capacity from 2031, when we can again deliver by expanding the Scheme using the same reservoirs as Snowy 2.0, to benefit future generations.

The scale, complexity and challenging geology of Snowy 2.0 requires a significant investment. Like any major infrastructure project, it is not without risk. To mitigate these risks, we have handpicked a team of world experts as partners on the feasibility study and beyond as we finalise the project’s precise technical requirements.

Finally, to suggest Snowy Hydro isn’t paying for transmission is misleading. The capital costs for Snowy 2.0 provide for the cost of the project’s transmission connection, that is, the lines connecting our assets to the wider shared network. The shared transmission network is common infrastructure used by all generators, with Snowy Hydro being only one and in fact the most infrequent user today, given we only generate at peak times.

The transmission network was built decades ago around coal, and the ideal zones for renewables are not in the same locations. The shared network needs a major upgrade to cater for renewables growth as new projects – again one of which is Snowy 2.0 – come online. The suggestion that Snowy Hydro pay for the entirety of these upgrades is misplaced.

At Snowy Hydro, our financial track record speaks for itself. We conduct rigorous forensic analysis of all investment opportunities and apply stringent hurdles to ensure the best outcomes for our shareholders. Our independent Board exercises the highest levels of scrutiny in assessing investment decisions.

Our feasibility study demonstrated the sound economics of Snowy 2.0. As we move towards a final investment decision late this year, our discipline will not waver. Our shareholders, and the energy industry, would expect nothing less.

News

Snowy 2.0 Feasibility Study Delivered

20/12/2017

Snowy Hydro’s independent Board of Directors has approved the Snowy 2.0 feasibility study, and for further work to be undertaken for the project to progress to a final investment decision in 2018.

The feasibility study released today confirms that the Snowy 2.0 pumped hydro expansion project is both technically and financially feasible. The comprehensive study provides a base case design and a strong investment case that exceeds Snowy Hydro’s stringent investment hurdles, with significant input from leading experts in economics, engineering and geology.

Snowy Hydro’s CEO, Paul Broad, said that progressing Snowy 2.0 was a strategic business decision and the projected return on investment would enable the company to fund the project.

“Snowy Hydro already plays a critical role in keeping the lights on but Snowy 2.0 would supercharge our existing capabilities by adding an additional 2,000 megawatts of dispatchable generation and 350,000 megawatt hours of large-scale storage.

“Snowy 2.0 will underpin the security and reliability of the National Electricity Market (NEM) as we transition to a low emissions future, at least cost to consumers.

“As coal-fired generation retires and renewables continue to grow, Snowy 2.0’s scale and central location will provide secure and reliable energy generation and the necessary large-scale storage to prevent blackouts and lower future energy prices.

“Snowy 2.0 is a strategic long-term investment in the NEM that will firm up future wind and solar generation. Intermittent renewables underpinned by Snowy 2.0 is a combination that could replace baseload generation when coal-fired power stations retire,” Mr Broad said.

The feasibility study outlines:

A strong investment case for the project and funding strategies.
A base case technical design, to be further refined as the project moves to final investment decision.
The independent estimation of costs between $3.8 – $4.5 billion, which takes into account the need for extensive reinforcement of the project’s structures due to the challenging geological conditions that were uncovered during the geotechnical drilling program.
If Snowy 2.0 is not built, the NEM would need a combination of batteries and gas peaking stations to meet future energy needs. This would cost at least twice as much as Snowy 2.0.
A project schedule that will see the first power generated from Snowy 2.0 in late 2024, in time to meet market needs.

“Completing this study is a significant and exciting milestone for us but it’s only just the beginning. The sheer size of Snowy 2.0 makes it a complex and significant project that will put the Snowy Mountains back in the global spotlight,” Mr Broad said.

Between now and final investment decision, Snowy Hydro will undertake further work including additional geotechnical drilling, issuing project tenders, finalising funding for the project and working through well established and rigorous environmental and planning approval processes.

The project will also boost economic activity across the Snowy Mountains from employment opportunities across the supply chain and in supporting services.

Snowy Hydro would like to acknowledge the work of our lead study engineer SMEC Australia and the Australian Renewable Energy Agency for their contributions to the study.

The feasibility study and more information on the project can be found on our website here.

To watch a video on the project click here.

News

SA Solar Investment

01/02/2017

Snowy Hydro Limited will invest in a battery ready 100 megawatt solar facility in Tailem Bend in South Australia to boost its generation capacity and grow its electricity retail business – Lumo Energy.

By entering into a long-term agreement with experienced renewable energy investor and developer Equis, Snowy Hydro will be able to access 100 megawatts of renewable solar generation on completion of the solar farm in 2018, with the ability to install up to 100 megawatts of large-scale battery storage on the Tailem Bend site.

“This is an exciting opportunity for Snowy Hydro to source renewable generation in South Australia to complement our existing capacity,” Snowy Hydro CEO and Managing Director Paul Broad said.

“The solar farm represents a significant, strategic investment in South Australia by Snowy Hydro and demonstrates our commitment to growing both our generation business and our Lumo Energy business, which services around 50,000 electricity customers in the State.

“We are pleased to be working with Equis to deliver more renewable energy to South Australia, backed by reliable fast-start thermal capacity. Importantly, this unique generation facility at Tailem Bend is also ‘battery ready’ with the ability to install up to 100 megawatts of large-scale battery storage on the site.”

David Russell, CEO of Equis, said: “As Asia’s largest renewable energy developer and investor, the Tailem Bend solar project represents an exciting expansion into Australia for Equis and an unique opportunity to leverage our development and construction expertise to deliver large scale, reliable renewable energy for Australian consumers.

“We are delighted to partner Snowy Hydro on the Tailem Bend solar project to build one of Australia’s lowest cost solar generation projects with a unique “battery-storage ready” design, further enhancing the project’s long term attractiveness as a stable, low cost source of power.”

Snowy Hydro currently owns and operates 5500 megawatts of generation capacity across Australia, including the iconic 4100 megawatt Snowy Hydro-electric Scheme in the Snowy Mountains region of NSW.

The Tailem Bend project will mean Snowy Hydro has access to 264 megawatts of generation capacity in South Australia. The company already operates 136 megawatts of thermal capacity at Port Stanvac and Angaston and will add a further 28 megawatts of diesel generation at the Tailem Bend site from 2017.

“We combine the power of the mighty Snowy Scheme with gas and diesel fired peaking generators to deliver a flexible and reliable mix of energy to our growing customer base every day,” Mr Broad said.

“We have been keeping the lights on in NSW and Victoria since construction days in the 1950s and are one of the most experienced and diverse companies operating in the National Electricity Market.

“Through our award winning retail companies – Red Energy and Lumo Energy – Snowy Hydro services more than one million gas and electricity customer accounts. We pride ourselves on superior customer service and look forward to growing our Lumo Energy retail customer base in South Australia.”

News

Keeping the lights on

22/12/2016

CEO, Paul Broad, weighs in on the recent blackouts in South Australia and the implications for the National Electricity Market…

Australia has been blessed with relatively cheap energy and we have grown as a nation as a result of it. A key part of that growth has been having enormous renewable resources such as Snowy and Hydro Tasmania, which have played an integral part in keeping the lights on with our reliable, fast-start responsiveness to the market. Equally so, in Snowy’s case, we provide more than 32 per cent of all renewable energy that is produced in this country. This clean, efficient and renewable energy continues to help light up homes and businesses in the Eastern states including South Australia and Tasmania.

The Snowy Scheme was visionary in its day and is an important part of our nation’s history. It was an amazing engineering success to make true the vision to collect and move water east to west and into the growing food bowl of Australia and to pay for it through electricity generation. This is still the vision we have today, but we have evolved over the years through innovation and diversification, and have gone beyond what our founding fathers had envisaged.

The modern Snowy Hydro operates a complex, integrated end to end energy business, which we are immensely proud of.

We continue to be the proud custodians of water that is collectively owned by the people of NSW and Victoria, and manage it under a strict Water Licence regime. Water in the Scheme plays a critical role as it not only underwrites the production of agricultural products worth around $3 billion each year, but through the Water Licence it also assists with counteracting the effects of severe droughts and improving productivity in the Murray Darling Basin. We are the leading provider of peak, renewable energy in the country. We also provide price risk management products for wholesale customers in the NEM and through Red Energy and Lumo, we deliver electricity and gas to homes and businesses. Finally, our ability to utilise the Scheme’s large, reliable, flexible and fast-start capability to our advantage also means that we play a critical role in keeping the lights on and are best placed to provide black start capability. It is disappointing that some regulators do not see it that way, given we are not currently part of AEMO’s contracted black-start arrangements, despite previously providing the service for many years and dedicating resources to respond quickly and safely.

On the recent statewide blackout in South Australia, I cannot help but reflect that if South Australia was fully interconnected with NSW, then the lights would have never gone out. The NEM has delivered very robust and efficient outcomes and, if left to its own devices, can deliver affordable energy to consumers drawing on the most efficient and effective means of generation to meet demand. But regulatory intervention and second best policy choices can often create problems, as they are now, by creating distortions in the market for which end-users ultimately pay the price. This is not the time to be picking winners or imposing solutions, but rather a time to trust the market to do what it does best. A more sensible approach could ensure we maintain a secure, reliable, affordable energy system while at the same time reducing emissions through a market based mechanism.

At Snowy we recognised that the uncertainty put into the NEM by knee-jerk reactions will be a challenge for the future and that Snowy will play integral role in filling in the gaps when the wind is not blowing and the sun is not shining, particularly in NSW. In the wake of South Australia, we are urging governments and regulators to ensure that there are proven, reliable ‘black-start’ arrangements in place across the country to both keep the lights on and to ensure they are turned back on quickly in the event that things go wrong.

Snowy has always played a critical role in keeping the lights on, from our earliest days. Our contribution to the nation since construction began in 1949 was formally recognised in October when the Commonwealth Government added the Snowy Scheme to the National Heritage List. The addition to the National Heritage List is recognition of our important place in Australia’s history and the contribution we have made to the social and economic fabric of the country. It’s an important nod to our past and helps new generations to appreciate the sacrifice and skill of the many thousands of Australians and new arrivals who helped build the Snowy Scheme. Importantly, the listing does not impact on our important operations nor on our ability to operate, modernise and upgrade the Scheme for the benefit of future generations.

As 2016 draws to a close, at Snowy Hydro we have had another successful year across both our retail and generation businesses. This time last year we were reflecting on the contribution made by the expansion of our retail energy business (with the acquisition of Lumo and Direct Connect) and the addition of the gas fired power station at Colongra to our generation portfolio. Those acquisitions (in late 2014 and early 2015) have paid off through their contribution to our financial performance and management of our exposure to transmission risk, should our Snowy Scheme assets become constrained if lines went down into Sydney or Victoria. 2016 has also been about consolidation and growth. For the first time in the company’s history we made more than $2 billion in revenue, we recorded more than $500 million pre-tax profit and hit the significant milestone of more than one million retail customers.

Finally, as always, I would like to thank you for your support for Snowy Hydro this year. We look forward to sharing more news about our business in 2017. On behalf of everyone who works for Snowy Hydro, I wish you a safe, prosperous and happy festive season.

News

Snowy Hydro scores two Australian Business Awards

22/08/2016

Snowy Hydro Limited has been recognised as an ABA100 Winner in The Australian Business Awards 2016 in two categories – Community Contribution and Communication Excellence. This is the sixth time Snowy Hydro has been recognised by the Australian Business Awards for their outstanding Community Partnerships Program.

Managing Director & CEO of Snowy Hydro, Paul Broad says the award affirms their commitment to taking care of the communities in which they operate and setting the standard as a trusted corporate citizen. The Community Contribution award recognises Snowy Hydro’s achievements in successfully implementing a program that is not only innovative, but as industry leaders push the wider business community towards excellence. The Community Partnerships Program targets investment where it will have a positive impact and generate long-term benefits for the communities of the Snowy Mountains region. The program includes support for the Snowy Hydro SouthCare Rescue Helicopter, Cooma Universities Centre, Young Driver Training as well as local festivals and events.

“We don’t just support charities and not-for-profits; we build partnerships with organisations that are dedicated to supporting better outcomes for the people who live and work in the Snowy Mountains region. The vitality and economic viability of these communities is critically important to Snowy Hydro as these are the towns where our staff and their families live and work.”

In addition, Snowy Hydro was also recognised as an ABA100 Winner in the Communications Excellence category for our Snowy Hydro NEWS quarterly community newsletter.

Over the past decade Snowy Hydro has been dedicated to significantly improving communication with the communities it operates in to build relationships, help people understand its business operations and obligations and improve community engagement.

“Through this newsletter Snowy Hydro has seen a measurable improvement in communication, engagement, perceptions and business understanding in our communities. Being awarded the Australian Business Award for Communication Excellence signals that this communication tool is not only successful, but our number one communication tool with our local communities.
“For over a decade, The Australian Business Awards have recognised organisations that prioritise innovation and technology as drivers of local and international markets,” Australian Business Awards Program Director, Ms Tara Johnston, said.

“The ABA100 Winners have demonstrated a commitment to technologically transformative innovation through business initiatives that have propelled them to success in a highly competitive business environment. These organisations not only position themselves as industry leaders, but also push the wider business community towards excellence.

“Those organisations that can continue to evolve alongside ever changing business models will secure their longevity, continually contributing to the marketplace by disrupting the status quo in a positive way,” Ms Johnston added.

Each year the ABA100 Winners are recognised through a variety of different award categories that demonstrate transformative business and product innovation. Corporate, government and non-government organisations are recognised for their ability to drive innovation through the application of technical expertise in the management of industry leading initiatives, and for the research and development of high-performing products and services.

Initiatives are evaluated based on their transformative capacities via a detailed analysis of the method, execution, performance and outcomes of their initiative. A focus is placed on initiatives that have a demonstrable transformative effect both internally within the business and externally in the wider business community.

For more information on The Australian Business Awards and the 2016 ABA100 Winners go to www.australianbusinessawards.com.au.

News

Snowy Hydro Appoints Chief Operating Officer

02/02/2016

Longstanding Snowy Hydro Limited executive, Roger Whitby, has been appointed Chief Operating Officer and mining executive John McGagh will join Snowy Hydro as the company’s inaugural Chief Digital Officer.

The Executive team appointments are in response to the retirements of current COO Ken Lister and Executive Officer, Information and Control Systems, Ian Cooke, who have both dedicated decades of their lives to Snowy Hydro.

Currently Executive Officer – Trading, Roger Whitby has extensive engineering and trading experience, marrying market experience with technical expertise and in-depth knowledge of Snowy Hydro’s unique operations.

“Roger is one of Snowy Hydro’s most accomplished Executives,” CEO Paul Broad said.

“His appointment as COO will bring together Snowy Hydro’s trading, water, environment and operations team to form a seamless link between the water under our management, our portfolio of generation assets and the National Electricity Market.

“Roger will oversee not only the operation, maintenance and capability of the iconic 4100 megawatt Snowy Scheme assets but also our three gas fired power stations – Laverton North (320MW) and Valley Power (300 MW) in Victoria and Colongra (667MW) in New South Wales – as well as our diesel peak generators in South Australia.

“The nature and geographical location of our portfolio of assets gives Snowy Hydro its competitive edge and I am confident in Roger’s ability to drive further improvements in our asset capability, responsiveness and reliability.”

Commencing in March 2016, experienced mining executive John McGagh will join the Snowy Hydro Executive team in the position of Chief Digital Officer. John has spent the past 30 years in a range of roles at Rio Tinto, the most recent of which was as Head of Innovation.

“He comes to Snowy with a global track record in technology and has been at the forefront of innovation in the mining sector particularly in big data and robotics,” Mr Broad said.

“John is a change agent and has runs on the board in terms of improving business performance with technology and innovation by building partnerships with the private sector and academia.

“I am excited to hear John’s vision and ambitions for our systems, processes and assets and how we can get more out of our business by further embracing change, automation and technology. John’s leadership and strategic skills will also be a welcome addition to the Snowy Hydro executive team.

“I pay tribute to both Ken Lister and Ian Cooke who have dedicated their lives and careers to Snowy Hydro, our iconic assets and our people. Along with Roger, Ken and Ian were part of the team that brought together the trading and generation companies to form Snowy Hydro Limited in the early 2000s.

“Ken and Ian are both recognised leaders in the Snowy Mountains community and I have no doubt they will continue to be strong contributors in the Cooma region.”