New advice provided by Snowy Hydro has revealed the energy project would cost six times the amount it was originally budgeted for, with it now expected to be completed in December 2028.
The project, announced by former coalition prime minister Malcolm Turnbull in 2017, is expected to play a key role in Australia's clean energy transition.
But high construction costs and other challenges have seen the project blow out from its original completion date of 2021 and a $2 billion budget.
Snowy Hydro chief executive Dennis Barnes said a reset of the project would allow it to be sustainable going forward.
"Snowy 2.0 is being engineered to deliver clean and reliable storage and electricity generation for Australians for the next 150 years," he said.
"It is a truly transformative national project that is generating jobs and significant investment in regional areas.
"It will deliver benefits immediately following its completion and will continue to do so for many future generations of Australians."
Snowy Hydro said as of June 2023, $4.3 billion had been spent on the project, with 80 per cent being reinvested back to the economy.
It's now expected the first power from Snowy Hydro 2.0 will be delivered in the second half of 2027, while all power will be operational by December 2028.
The cost blowout for the energy project has been blamed on "design immaturity" at the final investment decision stage, as well as geographical challenges such as softer ground hampering tunnel boring machines.
In a statement, Energy Minister Chris Bowen said Snowy 2.0 was experiencing challenges seen by other major projects.
"Like other major energy and infrastructure projects around the world, Snowy 2.0 faces inflationary and supply chain pressures post COVID-19," he said.
"Snowy 2.0 is one of the most complex engineering projects in the world, and is subject to the same challenges as all major construction projects."
Mr Bowen said part of the reset of Snowy Hydro would see financial benefits put in place for contractors to deliver their services on time and budget, while penalties would also apply for not meeting targets.
"Crucially, Snowy Hydro has advised government that if this contractual change is not made, it would lead to further cost escalation and delays," he said.
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