So far, so good for multibillion-dollar Lake Onslow power scheme, Cabinet decides

Thursday, 7 July 2022

A shallow lake nestled high in the Central Otago hill country could electrify the country.

The Cabinet has agreed the Lake Onslow power project appears technically feasible at this stage.
Officials say it could smooth wholesale power prices and create path to 100% renewables.
Forsyth Barr says the cost of providing backup generation using coal and gas has risen sharply.

The odds of a multibillion-dollar pumped hydro scheme at Lake Onslow in Otago getting the green light appear to have increased after the Cabinet expressed confidence in the work done so far.

The Ministry of Business, Innovation and Employment (MBIE) said early analysis suggested Lake Onslow could help smooth out wholesale electricity prices, which have been volatile and soaring over the past few years, and ensure the country had enough power in dry years when traditional hydro output was low.

Engineers engaged by MBIE are in the midst of investigating the viability of the scheme, which could cost $4 billion or more but could enable the power system to end its periodic reliance on expensive coal and gas generation to meet periods of peak demand as well as low hydro generation.

Analysis firm Forsyth Barr said on Wednesday that it expected wholesale electricity prices to rise further because of expectations of higher interest rates, and rising capital expenditure costs for generators.

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The Lake Onslow power project has prompted fierce debate within and outside the industry, even before all the facts have been gathered on its likely costs, viability and implications.

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It said a big increase in the cost of running backup thermal generation was also having an impact.

Coal and generation is now far more expensive than renewable generation from hydro and geothermal plants and more intermittent wind and solar power.

The Lake Onslow scheme could allow the country to move entirely to cheaper renewables as it would be capable of storing at least 5 terawatt-hours of power, which equates to about an eighth of the country’s total annual electricity usage.

The costs of the project would be highly dependent on the results of engineering studies, and in particular whether rock from the alpine site is of good enough quality to construct the dams it would require, or whether significant volumes of material would need to be trucked in.

MBIE said in its project update that the Cabinet had confirmed that a pumped hydro scheme at Lake Onslow “appears technically feasible at this stage”, although it said more work was needed to confirm that.

“Early analysis also shows Lake Onslow could mitigate the dry year problem and would support a pathway to a 100% renewable electricity system,” it said.

“It could also help smooth wholesale prices and reduce need to overbuild renewable generation to replace fossil fuel generation.”

But the ministry said more work was required to “incorporate environmental, cultural, social and geotechnical findings” and refine the potential design options.

“This will give a good indication of development timelines and costs for a feasibility level decision,” it said.

A decision on the feasibility of the scheme is expected by the end of the year, but a final decision on the investment wouldn’t be made until after a detailed business case, on which work wouldn’t start before early next year.

The area around Lake Onslow was culturally significant, so it was important that MBIE continued to work with mana whenua while exploring the possibility of this scheme, the ministry said.

“It’s also important we understand the possible impacts on the local community, and we will be continuing to engage with community members in the coming months.

“In particular, we appreciate the investigations place uncertainty and stress on a small group of landowners who would be significantly impacted if the scheme was to go ahead.”

The Cabinet decided to ditch investigations into investing in rechargeable batteries or compressed air to store the huge amounts of power needed to provide backup for times of low hydro generation.

Both options are understood to be massively more costly.

But it will continue to consider pumped hydro in other locations, hydrogen storage, biofuels and “flexible geothermal” generation as alternative options.