Snowy Hydro's Economic Reality Check
A detailed financial analysis of the Snowy 2.0 project has revealed stark economic challenges that make the proposed power supply to the Tomago aluminium smelter fundamentally unworkable. According to energy experts, the massive pumped hydro scheme will generate electricity at costs more than four times what the smelter can afford to pay.
The Numbers Don't Add Up
Snowy 2.0's current capital cost review is expected to push the total project budget beyond $20 billion once necessary transmission capacity is included. Based on the project's own modelling, it will generate at most 5300GWh annually, but with significant operational limitations.
The project faces substantial efficiency challenges, with round-trip efficiency estimated at less than 70% due to friction losses from pumping water through extensive underground tunnels. This fundamentally limits its sustainable generation duty-cycle to no more than 10 hours each day.
Financial calculations using the current 10-year Australian Government Bond rate of 4.5% show annual financing costs of approximately $900 million, equating to about 17 cents per kWh before other operational expenses.
Tomago's Power Requirements vs Reality
The Tomago aluminium smelter presents a fundamental mismatch with Snowy 2.0's capabilities. The industrial facility requires continuous power 24 hours a day, seven days a week, meaning at least 60% of its energy needs would still need to be sourced from other providers even if Snowy 2.0 operated at maximum capacity.
Tomago management has publicly stated the smelter becomes unviable above 7 cents per kWh, creating an impossible economic gap when compared to Snowy 2.0's projected costs.
The total cost calculation becomes even more challenging when including the expense of power Snowy 2.0 must purchase to pump water uphill. While excess renewable power has historically been curtailed, the emergence of home and utility-scale batteries is creating competition for this resource, likely establishing a floor price of at least 6 cents per kWh.
When accounting for round-trip and transmission losses, this adds at least 11 cents to each kWh delivered. The optimistic minimum cost of Snowy 2.0 power, ignoring depreciation, maintenance, margins and risk, would likely be 28 cents per kWh.
Broader Energy Policy Implications
The economic challenges facing Snowy 2.0 reflect larger debates about Australia's energy transition. Critics argue that no amount of political wishful thinking can bridge the substantial cost gap between what major industrial users can pay and what new renewable projects are delivering.
The analysis comes as Australia grapples with balancing climate commitments with maintaining industrial capacity and affordable energy for both domestic and commercial users.
As one energy analyst noted, the fundamental economics make Snowy 2.0's proposed role in powering major industrial facilities like Tomago commercially unviable without substantial government intervention or technological breakthroughs that dramatically reduce costs.
