When will Australians understand that most often it’s not market failure or timidity in the private sector that drives governments to accept unknown returns from risky “nation-building” projects but a popular, patronising perception that voters are beguiled by ministerial grandstanding? That political advantage lies in the announcement of projects, not in their delivery?
Source: Maurice Newman for News Corp
NBN, Snowy 2.0 — late and over budget, as always
Just as well. As Malcolm Turnbull once explained: “The history of mega projects is such that, no matter how sophisticated the technology or how great our advances in accounting practices, we have essentially not gotten any better at avoiding serious cost overruns.”
What the former prime minister really meant to say was: “We learn nothing from our mistakes. So let’s be philosophical. Once the project is under way, someone else can worry about the inevitable cost overruns.”
What better example than the National Broadband Network, which was touted to cost no more than $26bn? Taxpayers are looking at double that. But, then, this folly was conceived on the back of a coaster, with no cost-benefit study. Indeed, the responsible minister at the time, Stephen Conroy, said a cost-benefit analysis would be a “waste of time”.
Rather than killing this white elephant, the incoming communications minister — Turnbull — compounded the folly by connecting the fibre to copper wire.
Now, before the rollout is complete, technology is available that requires no trenches and is five times faster than NBN’s maximum. It leaves Australia with a costly state monopoly, providing an obsolete service ranked 62nd globally for internet speed.
When looking for white elephants, desalination plants come to mind. Panicked by global warming propagandists, Victoria’s facility, originally estimated at $5.1bn, may end up costing about $24bn. It’s much the same for the other states where taxpayers and consumers have paid billions of dollars for plants not to deliver unwanted water.
Finally, after a decade and with dam levels falling, the Sydney plant has started in earnest. Consumers, already paying $90 annually for no water, will have to find another $30 a year for the 15 per cent of their needs the plant will supply. Dams may not be as politically exciting as desalination plants but they are cheaper and more energy efficient.
Australia’s latest mega-project is Turnbull’s Snowy Hydro 2.0 pumped storage scheme. Announced in 2017, Turnbull claimed it would be an “electricity game changer”. He said “it will increase the generation of the Snowy Hydro scheme by 50 per cent, adding 2000 megawatts of renewable energy to the National Electricity Market”. The only reference to cost was a preliminary estimate of $2bn.
The project was scheduled for completion in 2021. True to his word about cost overruns, two years after the initial announcement contracts have been let for $5.1bn. Excluded are project management expenses, which can add another 20 per cent. Exceedingly long tunnelling and complex engineering make further blowouts almost certain. Completion is now expected in 2027.
New transmission lines critical to the project also are missing from the estimates, as is the significant premium inherent in the $6bn purchase price paid to NSW and Victoria for their Snowy interests. Perhaps that premium hides a silent agreement requiring the states to meet the project’s “grid augmentation” costs? But, whoever pays for the transmission lines, they are still a cost of the project. When all is finally accounted for, it would not surprise if the total cost exceeds $10bn, five times the original figure.
A comprehensive report prepared by the National Parks Association of NSW is highly critical of the Snowy plan. No wonder.
Notwithstanding the project is wholly within a national park, construction began before an environmental-impact statement had been exhibited. Indeed, Snowy 2.0 will encompass a third of Kosciuszko National Park and will wreak significant environmental damage. Yet the only compensation the park operators will receive is a derisory lease fee of $1.6m a year.
The concept of pumping water uphill using cheaper off-peak electricity, then generating hydro-electric power during peak hours when energy prices are more expensive, makes sense. The storage operator profits by maximising the difference between the two prices. However, it’s an expensive process, consuming more energy than it produces. Experts estimate Snowy 2.0 will consume/lose about 30 per cent of the electricity generated.
Its potential capacity is 11 per cent greater than the existing Tumut 3 pumped storage facility which, between 2009 and last year, operated on average only 12 days a year. If one or both facilities run close to capacity they risk cannibalising each other, not to mention other renewable projects.
Predictably, Turnbull’s announcement was long on vision and short on detail. He laid out his ideological ambition to achieve a 100 per cent renewable energy grid forgetting that, for the first decade at least, Snowy 2.0 will depend mostly on fossil fuel generators for off-peak pumping.
Stripped of the hype, Turnbull’s plan appears to be just another costly political thought bubble. What business case there is, despite “great advances in accounting practices”, is unconvincing. For instance, we don’t know whether long-term contracts exist to lock in revenue. Obviously, without such contracts, increased use of hydro capacity will almost certainly narrow the critical operational spread between wholesale peak and off-peak prices.
Moreover, the viability of both is contingent on dependable supplies of water.
Based on the history of Tumut 3 and in the absence of enforceable long-term power contracts, the likelihood of one or both hydro schemes breaking even seems highly improbable. Taxpayers or consumers will fund the difference.
So, once again, we inherit a “trust me” project knowing, however dubious the economic credentials, political vanity will ensure its survival.
And we wonder why living standards are falling and jobs are leaving for overseas?