A 1980s Think Big-scale energy project could fundamentally transform the electricity market but an analyst says the proposed hydro pumping scheme in Otago would come at a ''colossal'' cost.
Generators could face a cap on
prices and one says it has looked at such a pumping system elsewhere but couldn't stack it up financially while another is urging the
Government to consider all dry-year options as it moves towards its 100 per cent renewable generation target.
Enerlytica research head John Kidd says it is unclear who would pay for the Lake Onslow project which could create thousands of jobs during the build but cost $4 billion or more.
• Premium - Electricity companies turning on to green power
• Electricity reforms may cut power bills for struggling families by about $30 a month
• Consumer NZ survey ranking best and worst power companies
• Power consumers who don't switch will be pushed to shop around
Announced by Energy Minister Megan Woods at the weekend, pumped hydro acts as a battery which moves water to an upper reservoir when there is surplus renewable energy generation and demand for electricity is low. It is released back down to a hydro station to generate electricity when demand is high.
Kidd said there could be quite a bit more to the announcement than what first appears.
''With Tiwai Point having made its call and other major industrials likely to reach similar decisions in future the scale of the project being talked of would far exceed what's required from the supply side to balance demand even in dry years,'' he said.
He described the Onslow scheme as an ''overbuild'' but it would eliminate dry year volatility and by doing so cap wholesale electricity prices.
''And this would represent a fundamental recast of existing electricity market arrangements,'' he said.
The $30 million committed to a feasibility study shows the Government is serious about the project.
In a note to clients Enerlytica said the announcement was a ''chess move'' aimed to establish a long term option to cap peak period wholesale electricity prices.
''We see the pitch and timing as perplexing - in our view there are numerous other feasible options to store energy that are likely to be easier to build, less invasive on the environment (and) better located to demand. All that are probably billions of dollars cheaper to execute,'' the note said.
The original architect of the Lake Onslow scheme, Earl Bardsley, said he was now confident it would go ahead.
''It will go ahead for sure, obviously there will have to be some environmental mitigations negotiated but it does enable us to break free from carbon which is great.''
The lake's surface area would increase from about 8sqkm to 40sqkm as its level was raised.
Bardsley, an associate professor hydrology at Waikato University first proposed the scheme in 2005 but since then concerns about emissions had grown.
''This could effectively mean we could shut down Huntly and the gas-fired power stations and importantly it allows us to transform to th e renewable economy. We wouldn't dear do that because a dry year could bring the whole economy to a halt.''
Up to 27km of tunnels and pipes would be needed for the system which pumps water back from Lake Roxburgh to the upper reservoir Lake Onslow using excess renewable power from other parts of the system.
Bardsley says hydro-pumping was common overseas but Lake Onslow could be one of the world's biggest such schemes.
The country's biggest generator, Meridian, said it had investigated pumped hydro at its Waitaki system but found it wasn't viable.
While it said it commended the Government's vision in looking at bold ways to take action on climate change investments such as the $70m to increase electrification of industrial and process heat in the lower South Island were where the biggest near-term opportunity is.
''Meridian is always interested in ways that we can increase our renewable energy and reduce our reliance on fossil fuels and will watch with interest as the study outlines the opportunity around pumped storage,'' a spokeswoman said.
Stretching the flexibility of existing storage lakes supports the company's push to improve deep storage. Last year, Meridian unlocked additional storage at Lake Pukaki.G
Genesis is the country's biggest thermal generator and its chief executive Marc England said his company has urged the Government to be cautious in aggressively pursuing a 100 per cent renewable electricity plan which could be very expensive for consumers.
As electricity generation contributes only 4.2 per cent of New Zealand's emissions, a bigger decarbonising prize would be the electrification of transport (21 per cent) and industrial heat (8 per cent) first.
''We have long maintained that the key to widespread electrification of these sectors lies in ensuring that electricity remains affordable, reliable and flexible enough to adapt to tough market conditions.''
He said he had no idea of how power prices would be affected by the Lake Onslow project or how it could be funded. A consortium of power companies with the Government could fund it in a private public partnership, if the business case being studied now worked out.
''I don't think one gentailer could afford it. It would take years to build - there is a lot of water to go under the bridge.''
Shifting the power
Transpower anticipates being involved with the investigation project.
''We would need to find the most economic way to connect the Lake Onslow scheme to the national grid, and enable electricity to flow north ... and cover times of low hydro storage,'' said a spokeswoman.
The SOE has lines within relatively close proximity for a connection but wider grid enhancements may also be required.
While the big gentailers have reservations about the project, lines company Vector is more enthusiastic about the plans.
''Vector welcomes any move that would see consumers benefit from a more affordable, cleaner and reliable electricity system in New Zealand, especially given increasing climate change risks and the move to electrification of the transport fleet,'' Vector's chief executive Simon Mackenzie said.
He said as fossil-fuelled generation plants retire, pumped hydro would provide a ''smooth and reliable transition'' to a 100 per cent renewable system alongside customer investments in solar and other technologies.
Lake Onlsow is good for high altitude trout fishing and Otago Fish & Game said it was ''cautiously optimistic'' about the project which could help improve the variable and sometimes large operating ranges of hydro lakes and flow fluctuations in the Clutha River.