Nine months ago Snowy Hydro, the electricity generator and retailer owned by the Commonwealth, Victoria and NSW governments, announced that it would be carrying out a feasibility study into a massive expansion of the Snowy hydro generation system to add 2000 megawatts of pumped hydro generation capacity. Snowy Hydro's announcement of the feasibility study followed an earlier announcement from the Prime Minister that Snowy 2.0 was expected to cost $2 billion.

The feasibility study was published shortly before Christmas and the final investment decision is expected by the end of 2018. All economic analysis has been excluded from the public version of the feasibility study. But the publicly available version does report the "base cost" of Snowy 2.0 (to Snowy Hydro) is likely to be in the range from $3.8 billion to $4.5 billion. This "base cost" excludes land and developments costs, funding and financing costs, GST, project management or hedging costs. And the feasibility study warns that there are risks, opportunities and contingency amounts that significantly affect this range.

In addition to the costs that Snowy Hydro incurs, Snowy 2.0 will be the largest point connection in the National Electricity Market's history and will require massive transmission expansion along the Great Dividing Range. TransGrid in NSW provided early estimates of transmission costs in NSW related to Snowy 2.0 of $0.6 billion to $1.4 billion. Estimates of the requirement in Victoria are not yet known but are likely to be even higher because the necessary upgrade to Victoria will be even larger.

The Snowy scheme has the Prime Minister's eye. Alex Ellinghausen

So, in round numbers, a conservative estimate of the total capital outlay attributable to Snowy Hydro 2.0 will be at least $8 billion, four times more than the prime minister suggested when announcing this project. It would be surprising if the estimate at the time of the final investment decision is any lower than this, and the actual build cost will surely be yet higher, quite possibly significantly so.

Will it nonetheless be money well spent? This is very unlikely. Pumped hydro is an inefficient storage technology. Australia already has significant pumped hydro capacity – 900 megawatts (MW) at Tumut 3 in Snowy and 500 MW at Wivenhoe in Queensland. Both are rarely used because they are inefficient.