UPDATE 2-Australia's Snowy Hydro denies CEO quit over expansion cost-blowouts

(Adds Energy Minister statement)

By Sonali Paul

MELBOURNE, Aug 26 (Reuters) - The chairman of government-owned Snowy Hydro dismissed as "fiction" on Friday a media report that the massive Snowy 2.0 expansion project for Australia's biggest hydropower scheme was facing a cost blowout of A$2.2 billion ($1.5 billion).

"That's all a work of fiction," David Knox, the chairman, told Reuters, after the company said its chief executive, Paul Broad, who has spearheaded the massive project, had quit after nearly a decade in the job.

Reports about cost blowouts and delays have figured in the Australian and Australian Financial Review newspapers over the past two months, but Knox said it was too early to talk about costs and timing.

He said Broad was not pushed and had decided to resign as he had been in the job for 10 years, and with the Snowy 2.0 project one-third complete, now was a good time to move on.

Another report said Broad had been forced out after disagreeing with Energy Minister Chris Bowen over the government's push for a proposed Snowy gas-fired power plant to be converted to hydrogen.

Bowen's office did not comment on the report, but a spokesperson said the government noted Broad's resignation and thanked him for his work over the past 10 years.

Snowy 2.0, originally budgeted at A$5 billion, had been scheduled to launch in mid-2025, but the timing has now slipped to late 2025 or early 2026 at best, Knox said.

"We're only a third of the way through the project," Knox said in his first public comments on reported problems facing Snowy 2.0.

"You're not in a cost blowout situation. The project's actually going quite well," he added.

The pumped hydro project is seen as essential backup for intermittent wind and solar power which are expected to rapidly gain share of Australia's electricity market over the next eight years.

The project will add 2,000 megawatts (MW) of capacity, pumping water uphill into a dam when there is cheap power and releasing the water downhill to generate power when prices and demand are high. It will store enough energy to power 3 million homes for a week.

Construction is being run by a consortium led by Italy's Webuild SpA and involves boring 27 km (17 miles) of waterway tunnels connecting two existing dams and excavating a vast cavern between them for an underground power station.

"It's very hard to determine the schedule until you're well into the cavern. That's effectively 12 to 18 months away," Knox said.

Snowy's Chief Operating Officer Roger Whitby will be interim CEO while the board seeks a new head, the company said.

(Reporting by Sonali Paul; Editing by Clarence Fernandez, Richard Pullin and Tomasz Janowski)