Economics Assessments

Economic Assessment

The economic assessment includes an analysis into the net economic impact caused by the construction of the Snowy 2.0 project, within two geographical scales: (1) within New South Wales (NSW) and the National Electricity Market (NEM) and (2) within the more local Snowy Monaro Regional and Snowy Valley LGAs. The consulting firm Cadence Economics was employed to undertake the economy-wide impacts of the Snowy 2.0 hydro expansion scheme.

Analysis

To assess the economic impacts within NSW and the NEM, a CEGEM, Cadence Economics computable general equilibrium model was applied. CEGEM is a recursive dynamic model that solves year-on-year over a specified timeframe. The model is then used to project the relationship between variables under different scenarios. The results in this level compare two possible scenarios:

Projection to 2050/2051 without the Snowy 2.0 investment
Projection to 2050/51 with the Snowy 2.0 investment

The difference in the economic indicators between these two scenarios is what is projected as the economic impacts of the Snowy 2.0 project.

To assess the impact within the Snowy Monaro Regional and Snowy Valley LGAs regions, an Input-Output analysis was applied. This analysis includes two steps:

Construction of an appropriate IO table (regional transaction table) that can be used to identify the economic structure of the region and multipliers for each sector of the economy.
Identification of the initial impact or stimulus of the project in a form that is compatible with the IO equations so that the IO multipliers and flow-on effects can then be estimated.

Investment

Graph depicts the change in the investment profile from 2019 to 2048

The investment profile is depicted in the figure above. It represents the difference in the NEM investment between the two scenarios (i.e. with and without Snowy 2.0). The figure illustrates that there is an increase in the investment directly attributable to the construction of Snowy 2.0, from 2019/20 to 2025/26.

Subsequently, from 2026/27 onwards there is a net present value reduction in NEM investment to maintain comparable reliability standards of $614 million.

The development of Snowy 2.0 requires a capital investment value of $4,609 million. This capital investment value is allocated into two components, $790 million for electrical and mechanical equipment and $3,819 million allocated to civil excavation and construction.

Economic Impacts

Within New South Wales and the National Electricity Market

Gross state product (a measurement of the state’s output): NSW/ACT’s impact projected to be $2,692 million in terms of net present value, with an aggregate impact of $4,176 million on the NEM region.
Gross state income (another measurement of the state’s output): NSW/ACT’s is projected to increase by $1,608 million in terms of net present value, with an aggregate NEM impact of $2,982 million.
Once the Snowy 2.0 capacity enters the market, reduced fuel requirements in the NEM are projected to have a peak saving of $733 million in 2047/48, and with a net present value of $2,164 million. The reduction in system expenditure on fossil fuel is considered to be a significant driver to attain this economic benefit.
The model further projects that due to the Snowy 2.0 project, the electricity prices in the NEM will fall on average.
The changes in prices drive only modest savings across the NEM, reducing the value of electricity purchases by $2.37 million in net present value. The combined NSW and Australian Capital Territory region is projected to have the largest saving of $1.39 million, while the value of electricity purchased in Queensland is projected to increase by $0.17 million.

Within Snowy Monaro Regional and Snowy Valley LGAs

There is a projected increase in economic activity mainly from direct employment and capture in the region of additional wage expenditure.
Output for the regional economy is estimated at $8 Billion. Value-added for the regional economy is estimated at $2 Billion, comprising $975 Million to households as wages and salaries and $991 Million in OVA.
The economic impact of the average annual additional wage expenditure in the regional economy is projected to be: (1) $11.60 Million in annual direct and indirect regional output, (2) $6.76 Million in annual direct and indirect value-added, (and 3) $2.58 Million in annual direct and indirect income.

Employment

Economy-wide employment is NSW/ACT is projected to increase by 451 full-time equivalent workers in 2020/21.
Average employment in the NEM over the entire modeling period is projected to increase by 324 full-time equivalent positions.
There is projected to be 52 and an additional 39 annual average jobs from the local labour market, giving an average annual regional employment of 91 local workers
The total employment in the regional economy was 15,416 jobs.

Critique

The assessment of the impacts in NSW and the NEM included the use of a model, and models of this nature have limitations. The limitation I want to focus on is, as stated in the report, the model does not take into consideration the changes in greenhouses gas emissions as a result of the construction and ongoing operations of the Snowy 2.0, nor any interaction between Snowy 2.0 and any state territory. This is a flaw in their assessment, suggesting that the positive economic impacts established may be an overestimation.

Moreover, there are also limitations in using the Input-output analysis in assessing regional impacts. The impacts way be underestimated due to the fact that the Input-output analysis assumes that the regional economy will not have price changes as it assumes that there will be access to sufficient labour and capital resources.

Furthermore, the capital investment value is an underestimation. While the report outlines clearly the allocation of the capital investment value to two components, (1) equipment and (2) the excavation and construction activities, the costs of other many components are left out. For instance, the capital investment value of $4,609 million does not include the costs allocated for the exploratory works (i.e. investigation into ground conditions), segment factory, SHL, advisors, funding, approvals, GST, land acquisition, and escalation costs. Therefore, the final economic cost of the Snowy 2.0 development project is likely to be much higher.