Minister says $15b Lake Onslow investment decision should be above politics

Thursday, 16 March 2023

Energy Minister Megan Woods says relying on coal won't cut it.

Anyone shocked by the possible $15.7 billion price tag of the Lake Onslow power scheme should remember it would “serve New Zealand for 100 years or more”, Energy Minister Megan Woods says.

Woods announced on Thursday that the Cabinet had agreed to draw up a detailed business case for the possible pumped hydro scheme in central Otago.

“We benefit from the kind of infrastructure thinking that previous governments had in this country and we've failed to think in terms of those long-term strategic horizons,” she said, commenting on the possibility of bill shock.

“We're talking about a kind of asset that people's children's children's children's children will get the benefit of. When was the last time we talked about actually building something that was going to set us up for a century? We haven't made any decisions, but that's how people need to think about it,” she said.

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Megan Woods: “When was the last time we talked about actually building something that was going to set us up for a century?”

The only previous attempt to estimate the possible cost of building Lake Onslow had suggested it could come to about $4b, but Woods said that figure dated back to 2006.

The idea of harnessing the large natural rock basin at Lake Onslow to create a larger artificial lake capable of holding enough water to cover the country’s power needs for about six weeks during “dry years” when hydro lakes were low has been seriously in play for a few years.

The Cabinet’s decision to give the green for a detailed business case at a cost of about $70m brings it closer to reality, but a report by the Ministry of Business, Innovation and Employment indicated there would be no final investment decision until around the end of 2026.

Woods announced that the Government would at the same time also continue investigating an alternative set of power-storage initiatives which would cost an estimated $13.5b to develop but which she said would come with higher running costs.

That alternative plan could see a smaller pumped hydro scheme built on the Upper Moawhango in the central North Island, along with investments in biomass-burning power stations, “flexible geothermal energy and green hydrogen”.

Woods voiced hope at a select committee that the investment decision could transcend party politics.

“This is a very serious, long-term asset that we'd be talking about. The prudent thing is we have to find a solution and we have to do this in a rigorous and methodical way that I think takes the politics out of it,” she said.

But National Party energy spokesperson Stuart Smith suggested the idea Lake Onslow might go ahead was “tone deaf in the middle of a cost-of-living crisis” and National would immediately cancel the business case if it won the election.

He said Lake Onslow was “a return to the bad old days of expensive government investment in a well-functioning electricity market” and said last week that any solution to the dry-year problem could be left to the market to deliver.

Energy Resources Aotearoa (ERA) was similarly opposed.

Its chief executive, John Carnegie, said Lake Onslow would make justifying investment in new generation harder and would push up energy prices, describing it as “a cloud hanging over the energy system”.

“The idea of a government-owned, taxpayer-funded behemoth dominating the market is bad for business and households,” he said.

The executive director of BusinessNZ’s energy council, Tina Schirr, said the dry-year problem and demand peaks were serious issues for the sector that need to be addressed.

But she said it was important the Government considered options that were “modular, decentralised and spread risk across the country to build resilience'.

Onslow carried a huge price tag for a solution that “wasn’t modular and won’t deliver in the next few years”, she said.

Woods said no-one should be surprised by the response from the ERA given it was the “peak body for the fossil gas industry”.

“It is really important for people to understand that there is a huge price tag to doing nothing,” she said.

Woods said the country needed to store energy in some form to cope with “dry years” when hydro lakes were low and to date that had been achieved by stockpiling and burning coal, but there were no cheap options.

Officials had estimated that the cost of relying on coal to cover times of low renewable generation would climb to $2.2b a year by 2050, making that both economically and environmentally unsustainable, she said.

“Continuing the way we are, using gas and coal as our way through a ‘dry year’ or to meet demand peaks is what will push up the cost of electricity over the long term.”

Waikato University professor Earl Bardsley, who first identified the potential of the natural rock basin at Lake Onslow to create an artificial lake, said the business case for the scheme would need to take a “wide view of the national benefits”, given the cost.

That could include the economic gain from electricity being cheaper than it otherwise would be, and the general advantages of the green transition, he said.