Snowy Hydro has been valued at $A3 billion and is set to be sold to the public via a prospectus due next month.

Snowy Hydro chief executive Terry Charlton has aggressive plans to grow the business.

He needs $450 million over the next five years just to maintain and upgrade the existing hydropower business. He also wants to spend a further $1 billion on new gas- fired, peak-load generation facilities.

The New South Wales government, which is the majority shareholder, needs these facilities but cannot afford to fund them. Once it made the decision to privatise the company, the minority shareholders – the Victorian and federal governments – had little choice but to follow.

Last month, the three governments hired Macquarie Bank, UBS AG and Goldman Sachs JBWere to sell the shares, and have been discussing a limit with advisers and joint lead managers.

Dow Jones Newswires reported a source “with knowledge of the talks” as saying that a final decision was close.

The company’s Snowy Mountains Hydro-electric Scheme generates electricity and controls the Snowy River’s flow into Victoria by diverting water to the Murray and Murrumbidgee Rivers for irrigation.

Rather than selling Snowy Hydro as a traditional infrastructure yield play, the company is being promoted for its potential growth in an increasingly hungry and volatile energy market.

Snowy Hydro can turn its massive generators on very quickly, going from idle to full power in five seconds.

It makes most of its profit by playing the volatile national electricity market and selling hedging products to electricity retailers to protect against huge spikes during peak power periods.

Electricity prices can rise from an average of $40 a megawatt hour to up to $10,000 a megawatt hour during extreme peak times, and Snowy Hydro has agreements with retailers to sell power at prices at the lower end of the scale when the market peaks.

When prices spike, usually in the evenings, Snowy can increase production and sell more electricity into spot markets while still supplying its agreed contracts.

At times of low demand, the company buys at lower spot market prices to supply electricity into its forward contracts.

Snowy Hydro’s potential growth is based on forecasts of increased volatility in the spot market as Australia’s use of air conditioners increases.