Australia / Press Releases
Government Indecision Over Snowy 2.0 To Cause Supply Shortage

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by Jason Aravanis
Mar 14 2019

Late last month, Prime Minister Scott Morrison announced a $1.4 billion investment in the Snowy 2.0 Scheme, as well as $56.0 million for the “Battery of the Nation” Marinus Link interconnector in Tasmania. Industry research from IBISWorld suggests that these projects are incompatible with current market dynamics and federal policy.

The contradictory and uncertain funding decisions of the Federal Government suggest both Snowy 2.0 and the Marinus Link may be more problematic than they first appear. “Under current market conditions, both Snowy 2.0 and the Marinus Link are likely to be unviable unless a large share of coal-fired generation capacity is decommissioned,” said IBISWorld Senior Industry Analyst, Jason Aravanis.

“Funding these projects while promoting the underwriting of new coal-fired power stations sends mixed signals to private investors. These funding decisions are likely to undermine private investment, and will need to be rectified if Australia is to avoid price hikes and a significant supply shortage after the closure of the Liddell power station in 2022.”


The Snowy 2.0 announcement and its implications

The Snowy 2.0 scheme is an expansion plan for the existing Snowy Mountains Scheme, which was completed in 1974. The Snowy 2.0 plan involves expanding generation capacity by 2,000MW and increasing hydro storage capacity by 175 hours, supplementing other power sources when needed. IBISWorld expects the project will cost between $3.8 and $4.5 billion, and generate first power by 2024-25.

A record volume of generation capacity has been developed in the Solar Electricity Generation and Wind and Other Electricity Generation industries over the past five years. IBISWorld expects total generation from these industries to increase at an annualised 9.1% over the five years through 2018-19 to reach 21.3 TWh. However, these industries are still unable to meet Australia’s energy demands alone.

“As wind and solar power is intermittent, the Snowy 2.0 scheme presents a way to firm up renewable generation by storing energy for use when it is needed. IBISWorld expects that this more stable power source will lower the volatility of wholesale electricity prices, and lower prices overall by increasing power supply during peak periods,” said Mr Aravanis.

“However, the Snowy 2.0 project presents several major challenges for the National Electricity Market. A key issue for the project is its timing. The project is expected to come online in 2024-25 at the earliest, to support the market as coal-fired power stations are decommissioned. However, AGL’s Liddell coal-fired power station is expected to shut down in 2022. As a result, there will likely be a significant supply gap in 2023-24 unless private investors quickly develop energy storage projects.”

Several major players in the Hydro-Electricity Generation industry have also announced their own projects. However, according to IBISWorld competitive pressure from the Snowy 2.0 scheme may prevent these projects from being developed.

“Private investors are concerned that Snowy 2.0 will prove uneconomic once it is developed, forcing it to rely on operating subsidies from its owner, the Federal Government. As Snowy Hydro Limited would be able to operate at a loss while competing against private firms, this would render the commercial projects of the private sector unviable. Although Snowy Hydro Limited asserts that the project is commercially viable, its business case has not been released and industry stakeholders remain wary,” said Mr Aravanis.

As the electricity generation market changes, IBISWorld expects that new transmission lines will be required to connect generation projects, renewable zones, and storage projects like Snowy 2.0 to demand centres. This investment is likely to boost the Electricity Transmission industry.

“The Snowy 2.0 project will have to pay for the lines that connect Snowy 2.0 to the grid, which is likely to exert additional pressure on the commercial viability of the project,” said Mr Aravanis.


Marinus funding indicates a fundamental change in policy direction

The Marinus Link, also known as the Battery of the Nation project, would create 1,200 MW of capacity links between Tasmania and mainland Australia. This would unlock the vast and cheap hydro and wind electricity generation assets of Tasmania. IBISWorld expects the project to cost between $1.9 and $3.1 billion. The construction timeline for the project is uncertain, as the viability of the project depends on fundamental changes to energy and climate policies at the federal level.

“The viability of the Marinus Link hinges on the Federal Government’s decisions regarding the underwriting of coal-fired generation. According to the project’s feasibility study, the Marinus Link will only be viable if 7,000 MW of coal fired generation capacity is retired by 2030. This is equivalent to all coal power stations in Victoria, plus a quarter of that in New South Wales,” said Mr Aravanis.

“The project also requires the federal renewable energy target to be increased to 52% by 2030, well above the 26% target currently supported by the government. If the Federal Government plans on developing the Marinus Link, it will require a fundamental change in policy.”


Outlook for the electricity sector

According to IBISWorld, the outlook for the electricity sector in Australia remains uncertain.

“At a time when investment in the next generation of electricity infrastructure is required, having a clear policy and regulatory framework is crucial. The Federal Government’s contradictory project funding decisions are likely to undermine private investment, and will need to be rectified if Australia is to avoid a significant supply shortage after the closure of the Liddell power station in 2022,” said Mr Aravanis.

“Electricity prices may rise significantly unless private firms, governments, and regulators can arrange a comprehensive investment plan for the next generation of energy infrastructure."


IBISWorld Industry Reports mentioned in this release:

Solar Electricity Generation

Wind and Other Electricity Generation

Hydro-Electricity Generation

Electricity Transmission


For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:

Kim Do

Strategic Media Advisor – IBISWorld Pty Ltd
Tel: (03) 9906 3641 Mobile: 0422 773 995