Australia's Snowy Hydro project cost blows out to estimated $18 billion

SYDNEY, Oct 23 (Reuters) - Australia's Snowy Hydro hydropower expansion project could cost as much as A$25 billion ($18 billion), around 12 times its original estimate, and it may not be completed until the end of the decade, a review published on Friday has found.

The cost blowout is the latest setback for the country's biggest renewable energy project, which is designed to add 2,000 megawatts of generation capacity to help replace coal-fired power.

Snowy Hydro 2.0 had an initial budget of A$2 billion when announced in 2017. Four years after construction began in 2019, the cost was raised to A$12 billion with a 2028 completion date.

The review published on Friday by government-owned Snowy Hydro said the project would now cost at least A$22.2 billion, with a contingency allowance taking the potential total to A$25 billion.

The project was also expected to begin operating in late 2029, with machine tunnelling now 65% complete, according to the review.

Snowy 2.0 is an expansion of an existing hydropower scheme in the state of New South Wales and is being built by a consortium led by Italy's Webuild SpA.

The installation will pump water uphill into a dam when there is cheap power and release it downhill to generate power when prices are high, shoring up the national grid as Australia's power supply becomes more dependent on intermittent renewable energy.

Construction, though, has been plagued by a series of setbacks, including a ground collapse during tunnelling and issues with contractors, pushing the price tag higher and the completion date further out.

Energy Minister Chris Bowen and Finance Minister Katy Gallagher said in a joint statement the project was facing higher costs and "significant geological challenges", but that the government was committed to completing it.

"Abandoning the project would undermine grid reliability, scrap 5,000 jobs and lead to higher bills," they said in the statement.

"Once complete, the pumped hydro expansion of the Snowy Scheme will provide more than half of the total energy storage the grid needs by 2050."

($1 = 1.4245 Australian dollars)

(Reporting by Christine Chen in Sydney; Editing by Tom Hogue)