Contact says Lake Onslow scheme would 'paralyse' investment in renewables

Wednesday, 11 November 2020

The Lake Onslow hydro scheme could tip the energy market on its head, and not everyone is enthusiastic.

The Government’s proposed multibillion-dollar Lake Onslow pumped hydro scheme could temporarily “paralyse investment in renewable energy”, Contact Energy’s chairman says.

Energy Minister Megan Woods ordered a $30 million business case for the project in July and committed another $70m for “engineering design and preliminary field work” during the election campaign.

Although the Government has not said the scheme is guaranteed to proceed, it appears the easiest path to meeting its commitment to achieve 100 per cent renewable electricity generation by 2030.

The artificial lake would act as a massive 6000 gigawatt-hour battery for the national grid, allowing for the effectively unconstrained generation and storage of power from weather-dependent energy sources such as wind, solar and conventional hydro.

* $4 billion Lake Onslow pumped hydro scheme could 'tip electricity market on head'

Contact is describing the massive Lake Onslow proposal as “a solution from the past”.

But Contact chairman Robert McDonald told shareholders at the company’s annual meeting on Wednesday that the scheme could dissuade power companies from investing in additional renewable energy “in the meantime”.

“Whilst it is a fascinating project, we do have concerns that although the goal is worth pursuing, a multi-billion dollar solution from the past is high-risk on several fronts and we are not sure it will solve the problem in the best way,” McDonald said.

“We believe there is much smarter technology that can potentially be harnessed in the pursuit of a lower carbon economy in Aotearoa,” he said.

A spokeswoman for the Ministry of Business, Innovation and Employment (MBIE) said Lake Onslow was “one of the options” that was being considered as part of its “NZ Battery Project”.

That aimed to find solutions to the “dry year risk problem” that New Zealand currently needs to rely on fossil fuels when hydro levels are low.

“Other smaller pumped storage proposals are likely to be evaluated, as will options that use other technologies such as biofuels, hydrogen and demand response,” she said.

MBIE had been recruiting staff to oversee the work, she said.

“MBIE is also currently contracting for services to analyse how the options assessed in the NZ Battery Project would interact with and affect New Zealand’s electricity market.”

This first phase of the project is expected wrap up in early 2022.

The next task would be to do further investigation of a preferred option, dependent on Cabinet’s decision.

“Only in phase three – once the preferred option or options are agreed by Cabinet and funding is secured – would a tender go out for the construction of any of the selected options,” she said.

Power companies that generate significant amounts of electricity – and in particular ‘gentailers’ Meridian, Mercury and Genesis – appear to have a vested interest in the hydro scheme not proceeding, as it could crash wholesale electricity prices under the current electricity market model.

Enerlytica analyst John Kidd said in August that the project could “tip the electricity market on its head”, saying its “sheer scale” had left the industry shell-shocked.

“It is so big that the entire market would need to reconsider how it behaves in a market with Onslow present,” he said.

In better news for shareholders, Contact chief executive Mike Fuge said he was optimistic that a deal would soon be struck that would allow for an “orderly exit” of the Tiwai Point aluminium smelter, rather than a sudden closure.

There has been speculation that the smelter’s major owner, Rio Tinto, reached an understanding with the Government before the election on the key elements of a deal that would see the smelter stay open for a further three to five years in return for a reduction in its Transpower transmission bills.