Economic justification of the Snowy scheme

The Australian Snowy Mountains Hydro-Electric scheme was constructed in 1949–1973. Its major goal was to augment the nation's universally approved irrigation resources. The entirety, as well as all kinds of detail, was designed by “Kelvin's Law”, the best cost–benefit technique then availa...

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Bibliographic Details
Published in:Energy policy 2001-09, Vol.29 (11), p.927-937
Main Author: Lunney, H.W.M
Format: Article
Language:English
Subjects:
Applied sciences
Australia
Cost benefit analysis
Earth sciences
Earth, ocean, space
Economic data
Economic justification
Economic models
Electric energy
Energy
Energy economics
Energy market
Energy policy
Exact sciences and technology
General, economic and professional studies
Hydroelectric plants
Hydroelectric power
Hydroelectric power plants
Hydrology
Hydrology. Hydrogeology
Inflation
Irrigation
Natural energy
Political systems
Snowy Mountains
Studies
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Summary:The Australian Snowy Mountains Hydro-Electric scheme was constructed in 1949–1973. Its major goal was to augment the nation's universally approved irrigation resources. The entirety, as well as all kinds of detail, was designed by “Kelvin's Law”, the best cost–benefit technique then available. Economic triumph appeared certain. Later, three major studies of economic doubt emerged (i) by Rose (ii) by Davidson using a critical discount rate of 7% (iii) by McColl. The solution to these doubts, after the experience of 50 years of the Snowy Scheme, is offered. There are two major factors. First, the installations show a longer life than nominally accepted, much longer than the 70 years set for repayment. Second, the art of cost–benefit analysis did not at the time incorporate inflation, so the critics were unable to take it into account. The inflation rate in 1949–1999, not large but monotonically increasing, is 5.8%. Thus Davidson's 7%, which is also the rate of Snowy repayment to government, becomes a “real” rate of 1.2%. Using these concepts, the Snowy becomes, ex-post, a brilliant investment. Yet even this is considered besides the point. A “teleological principle” is advanced, beside the conventional cost-benefit, that “if the political purposes of the originators are achieved, and at the same time there is some arrangement for repayment”, the scheme is justified. It is shown that, for the Snowy, this is so.
ISSN:0301-4215
1873-6777
DOI:10.1016/S0301-4215(01)00019-2