In spite of the paucity of information about how the proposal will operate, many people, including environmental groups, reacted enthusiastically. This was surprising and premature as Snowy 2.0 will represent a massive load on the system, equivalent to a large aluminium smelter. This is because Snowy 2.0 will probably use about 30 per cent more electricity pumping water up a hill than it generates letting it flow back down a hill.

In announcing Snowy 2.0 it was stated that water will be pumped up the hill using surplus renewable supply. However it will be many, many years before that is true. In the meantime, the largest beneficiary of Snowy 2.0 will be base load coal-fired generation. The truth is that Snowy 2.0 breathes new life into coal. While this will be welcomed by the Coalition, the thought that such a nation-building project would extend the life of coal will be an anathema to many.

The battery in South Australia is a different case, because the state has no coal plants with life to extend. What South Australia does have is abundant wind and solar power courtesy the Commonwealth's Renewable Energy Target, not any policy of the South Australian government. Importantly, batteries deliver to the system almost as much power as they take in, unlike Snowy 2.0.

The Prime Minister said that we needed the expansion of Snowy to fill the "holes" caused by intermittent supply from renewables; renewables that are are paid for under the RET. This concern about the holes created by renewables raises an extremely important question. If the Prime Minister knew that intermittent power from renewables created "holes" then why didn't his government have a plan in place to avoid these known problems? Or has the energy security issues thrown up by renewable supply taken governments by surprise?

Renewable integration challenge

To answer this question, you need only look back at the Warburton review into the RET which reported its findings only a couple of years ago in August 2014. Warburton reported that the Australian Energy Markets Operator (AEMO) assured him the NEM design was well placed to deal with challenges of integrating renewables. Warburton quoted AEMO as saying that they consider it "technically feasible to integrate the renewable energy likely to emerge from the existing RET settings while maintaining the security of the power system" even though AEMO recognised that there would be greater challenges in South Australia given the high penetration of wind from the Commonwealth's funding of wind in that state.

In spite of these reassurances, Warburton went on to recommend AEMO consider making better use of their powers to ensure these security issues are managed with more prudence, and to consider new arrangements to encourage greater provision of system security services. Warburton reported that AEMO was continuing to study these issues and intended to release further reports.

In May 2016 the South Australia Premier urged the federal government to take national leadership at an Emissions Reduction Summit to improve the adaptability and resilience of the electricity market, but this fell on deaf ears.


Following the state-wide blackout in South Australia in September 2016 the federal government was quick to blame South Australia for its embrace of the wind resulting from the Commonwealth's own scheme. Instead of working to solve the very problems Warburton and the SA Premier had earlier highlighted, the Prime Minister and federal Energy Minister launched a relentless and dishonest campaign against a state government in the midst of a crisis.

Faced with no prospect of national leadership on this issue, South Australia has developed, over months rather than overnight, a carefully thought out plan to deal with the problems of accommodating modern renewable technology into its power system. By necessity the South Australian plan is constrained. It requires no changes in the national electricity market and will only cut across the interests of the market at times when they would exercise extreme market power, which is what consumers expect.

It's in the federal government's gift to solve the problems of the market. The key problem is that investors have abandoned the market because of the extreme political risks, risks that have been amplified by a federal government waking up one morning and conceiving of a half-baked Snowy 2.0 project.

Danny Price is managing director of Frontier Economics, and is an adviser to the South Australian government.