The ambitious expansion of the Snowy Hydro Scheme will proceed but it will cost more than twice as much.
The Prime Minister Malcolm Turnbull however said the project was viable and important.
“Snowy Hydro 2.0 is a nation-building project,” Mr Turnbull said in a statement. “It will not only deliver a more affordable and reliable energy system but will also generate jobs and grow our economy.”
A feasibility study approved by the Snowy Hydro board gives an independent estimation of costs at somewhere around $3.8 to $4.5 billion, well above the tentative price tag of $2 billion.
The extra costs take into account the requirement for extensive reinforcement of the project’s structures given the geological conditions uncovered during the geotechnical drilling program.
The bill does not include the estimated $2 billion for upgrading transmissions lines from the mountains into Sydney and Melbourne.
The feasibility study says that if Snowy 2.0 is not built, the National Electricity Market (NEM) would need a combination of batteries and gas peaking stations to meet future energy needs, and that would cost at least twice as much as Snowy 2.0.
The project links two major dams in the Snowy Mountains with 27 kilometres of tunnels.
Snowy Hydro’s CEO, Paul Broad, said the projected return on investment would enable the company to fund the project.
This means it would not be funded by taxpayers out of the Budget.
“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.