US$4.8 billion sale of Snowy Hydro stakes paves way for 2000 MW Snowy 2.0

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The federal government of Australia has announced that it will acquire the stakes of the governments of New South Wales and Victoria in Snowy Hydro Limited, the owner and operator of more than 5500 MW of multi-fuel generation capacity across New South Wales, Victoria and South Australia, including the 4100 MW Snowy Mountains Scheme - a hydropower project that produces around 32% of all renewable energy available to the eastern mainland grid of Australia. 

The acquisition will add the 58% stake currently owned by the government of New South Wales and the 29% stake owned by the government of Victoria to the federal government's existing 13% stake, making the federal government the sole shareholder of the company. 

The three governments have agreed a market value of Snowy Hydro Limited of AUD7.8 billion (US$6.1 billion). After allowing for the company’s debt as of 31 December 2017, the governments of New South Wales and Victoria will receive in exchange for their stakes AUD4.15 billion (US$3.22 billion) and AUD2.08 billion (US$1.61 billion) respectively.

The acquisition is expected to be included in the 2018 Federal Budget in May, with the government issuing Commonwealth bonds to buy the stakes. This will bring to a close negotiations which commenced in May 2017, after the 2017 Federal Budget.

The state governments are obligated to spend the money on infrastructure projects, though the federal government will not place any conditions on the specific projects funded. The head of the NSW government, Premier Gladys Berejiklian, has vowed to use the proceeds to finance regional and rural projects, rather than in the state's urban centres, which include Sydney.

Crucially, the deal means that the federal government will not have to negotiate with minor shareholders over the expansion of the Snowy Mountains Scheme, which aims to add 2000 MW of generation capacity to the project. As reported on this platform, the government backed an accelerated feasibility study of Snowy 2.0, as it is known, in August last year, which was approved by the company's independent Board of Directors in January.  

The study concluded that the ambitious expansion is both technically and financially feasible, based on an independent cost estimation of between AUD3.8-4.5 billion (US$2.95-3.5 billion).

The federal government is hoping that the acquisition will catalyse a final investment decision on the project. 

The deal is subject to the Victorian parliament confirming the sale and the Australian parliament passing an appropriation bill.

As well as the Snowy Mountains Scheme, Snowy Hydro Limited owns three operational gas-fired power stations in New South Wales and Victoria, and three operational diesel-fired power stations in South Australia, which were acquired from Infratil in October 2014.