Meridian Energy - half-owned by the Government - has come out against the Labour Party's pumped hydro proposal for Lake Onslow.
Labour's plan would involve moving water to an upper reservoir when there is surplus renewable energy generation and demand for electricity is low, and released back down to a hydro station to generate electricity when demand is high.
Such a move would eliminate dry year volatility and, by doing so, cap wholesale electricity prices.
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Meridian chairman Mark Verbiest said pumped hydro could prove uneconomic and may crowd out private investment.
"The opportunity to electrify transport and industrial energy use – the demand side of the equation - with renewable electricity is massive for our country and, once it's done, will go a long way to eliminating our non-agricultural emissions," Verbiest told the power company's annual meeting.
"We need to do all this while keeping electricity affordable and maintaining investment in renewable generation.
"It is important that all options are canvassed before significant public investment is committed.
"Public investment in pumped hydro could lead to an uneconomic generation overbuild, crowd out private investment and push up electricity prices –slowing down the electrification of the economy."
This risk has been highlighted by independent experts like the Productivity Commission and Interim Climate Change Committee.
"Meridian encourages any future government to proceed with caution when investigating such options," Verbiest said.
"We need to be a nation of climate activists and Government and business need to work together to decarbonise our country and accelerate the pace of change to achieve our emissions targets."
It was a similar message to that given by Genesis Energy's chief executive Marc England at that company's annual meeting this week.
"Is spending $4 billion, or more, on a new dam at Lake Onslow the best way to encourage more renewable investment by the private sector – or does it scare it off?"
He said following the meeting that any review of dry year capacity needed to consider all options, not just the Onslow proposal.
Meridian, whose hydro generating assets are in the South Island - stands to be disadvantaged by the planned closure of Rio Tinto's Tiwai Point aluminium smelter next August as the smelter is by far its biggest customer.
The company put together a package for Rio Tinto that would have delivered a significant reduction in the cost of delivered energy to the smelter, well in excess of $60m a year.
"We believe that this offer was fair and in the interests of Meridian shareholders, the smelter owners and New Zealand more broadly," chief executive Neal Barclay said.
"As part of that package we asked the smelter owners to commit to New Zealand for a period of at least four years," he told the meeting.
Rio Tinto was not willing to make that commitment and instead chose to terminate the contract with Meridian.
"The loss of roughly 13 per cent of electricity demand within a relatively short space of time will undoubtedly be disruptive for our industry and Southland in the short term," said.
Prime Minister Jacinda Ardern said the Government had put forward a proposal to Rio Tinto to extend the life of the smelter with a discounted transmission bill.
"To date nothing has been resolved and it appears unlikely that anything will be until after the general election," Barclay said.
Barclay said the outlook for the current financial year to June 30, 2021, was sound, but the uncertainty lay in the post-Tiwai period from August onwards.
He said current hydrology was "sound and lifting" thanks to heavy rain and snow, but that autumn would prove the critical period.
"At this stage the outlook for the financial year is sound," he told the Herald.
"We are keeping up the momentum to grow our retail businesses," he said.
"The challenges really start to emerge once we work out whether (Rio Tinto's) NZ Aluminium Smelters is staying or going," he said.
Shares in Meridian last traded at $4.94, down 1c from Wednesday's close.