Power giants fear green scheme will shut out crucial projects

Pumped hydro projects are at risk of missing out on critical funding contracts being offered under the federal government’s plan to hasten the green energy rollout, despite warnings the technology could be key to keeping the lights on once more coal generators retire.

The important role of pumped hydro – a technology that pumps water uphill to a higher reservoir, then releases it downhill to spin turbines – has come into sharper focus as Australia’s shift away from coal gathers speed, because of the need to store excess renewable energy and dispatch it at times of low wind and sunlight.

However, some of the nation’s largest electricity companies are raising concerns that pumped hydro will likely be precluded from participating in the Commonwealth-funded capacity investment scheme, the Albanese government’s signature policy to underwrite the financing of enough large renewable generation and storage to help double the share of clean power in the grid by 2030.

With a tender process just weeks away, executives from AGL, Alinta and EnergyAustralia say an eligibility requirement for projects to be online by 2030 will be too tight a timeline for developers pursuing pumped hydro.

“We expect the capacity investment scheme may be insufficient to support pumped hydro storage given higher capital intensity, early development risk and lead times,” EnergyAustralia head of regulatory affairs Lawrence Irlam said.

AGL, which runs hydroelectric schemes in Victoria and is pursuing a pumped hydro project in NSW, is urging the government to consider a longer timeline for project delivery, such as out to 2035, to “enable the inclusion of a wider range of technologies to compete for government support”.

With at least half of the 14 remaining coal-fired power plants on the eastern seaboard expected to shut down between now and 2035, energy officials are worried about the lagging rollout of enough new wind and solar farms, thousands of kilometres of new transmission lines to link up new renewable energy zones, and “firming” assets, such as big batteries, fast-start gas plants and pumped hydro.

Increasing Australia’s pumped hydro capacity is seen as particularly important to help compensate for the looming coal plant closures because the technology can be called on to supply energy for many hours or even days at a time, whereas grid-scale batteries are limited to two to four hours.

The federal government’s under-construction Snowy 2.0 pumped hydro project in NSW, the biggest renewable energy project in the country, is designed to last for up to a week.

However, building pumped hydro projects can be difficult, and can often take years. Because they require significant height differentials over short distances, suitable geographic sites – such as steep mountain ranges, which are often in heavily bushed, remote and complex terrain – can be hard to secure. They also present significant challenges and costs in terms of construction and connectivity to the grid.

Snowy 2.0, for example, has faced billions of dollars in budget blowouts and years of delays. Originally planned to be operational by 2024, it is now not expected to be completed until 2028.

With typical lead times of more than five years for pumped hydro projects, power supplier Alinta Energy said the scheme did not “leave any leeway” in the tender process, regulatory approvals, supply chain issues, or for unforeseen issues such as those experienced by Snowy 2.0.

“Whilst the timeframe may align with the current setting of the Australian government’s financial budget caps, it also poses a risk of limiting the capacity investment scheme to only promoting short-term storage,” said Graeme Hamilton, Alinta’s head of government and regulatory affairs.

“This is inefficient and will ultimately impose additional long-term costs on the consumers and potentially fail to achieve the reliability levels required for a stable grid.”

The Albanese government says the capacity investment scheme is based on independent expert advice to deliver an increase in green energy’s share of the grid to 82 per cent by 2030 and ensure Australians “have the power we need when we need it”.

A spokesperson for Energy Minister Chris Bowen said the scheme was open to long-duration storage, including pumped hydro. The government is also investing directly in pumped hydro through Snowy 2.0 and the Marinus Link project in Tasmania.

“Our practical plan will ensure an extra 32 gigawatts of cheap, clean, reliable renewables to fill the gap from expected coal closures over the next decade,” the spokesperson said.

The electricity industry has widely supported the rationale behind the Albanese government’s ambitious underwriting scheme and its aim of accelerating the deployment of new projects, particularly following a worrying 80 per cent drop in financial commitments in grid-scale projects from $6.5 billion in 2022 to $1.5 billion in 2023.

The government will be running competitive tenders and agree to “floor” and “ceiling” revenue for successful projects, which will provide minimum returns guaranteed by the government and a cap on what they can earn in a given year. If the ceiling is exceeded, a share will be returned to the government.

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