BusinessNZ Energy Council


Otago pumped hydro a fanciful, rainbow project

Aug 28, 2020 | News

Gavin Evans
Fri, 28 Aug 2020

The government’s plan for a pumped hydro scheme in Central Otago is “fanciful” and a costly “rainbow” project that will be abandoned within two years when it proves unworkable, a pre-election panel on energy policy heard Wednesday.

Opportunities Party leader Geoff Simmons said the country does need to be thinking about long-term options to address dry-year risk in the electricity sector. But he questioned why the government needed to pursue its proposed $4 billion pumped hydro option at Lake Onslow given the pace renewable electricity costs are declining at.

If affordability of renewable electricity is no longer an issue – as proposed by fellow panellists Energy and Resources Minister Megan Woods and Green Party Associate Transport Minister Julie Anne Genter – why was Onslow needed at all?

“We definitely need to be thinking about this sort of stuff,” Simmons said on the panel convened by the BusinessNZ Energy Council. “But it’s very early days and there is lots of low-hanging fruit to focus on and we don’t need to go chasing rainbows just yet.”

The government shocked electricity industry players late last month when it committed $100 million to investigate a scheme at Lake Onslow with more storage than all the country’s current hydro dams combined. The first $30 million was to test the business case for the project and potentially two smaller North Island schemes as well.

Earlier advice

The Independent Climate Change Committee has estimated the cost of emissions saved through pumped hydro projects at about $250 per tonne of CO2. Electricity generation accounts for about 4 percent of the country’s emissions and NZ carbon units are selling for about $34 a tonne.

While the committee suggested more work should be done on pumped hydro, it said the government’s target for 100 percent renewable generation by 2035 would be too expensive and risked slowing the electrification of transport and industry, which account for close to 30 percent of national emissions.

Woods told the panel the Onslow decision was consistent with the ICCC’s advice. Getting the last few percent would always be difficult under “business as usual mode”. Getting to 100 percent renewable generation required a “step-change” in the country’s approach to storage as well as ambition and leadership from the government.

Woods said the government’s commitment is to the business case, “whether that be Onslow, some other form of pumped hydro, or some other form of dry-year storage” and the work will be progressed in line with recommendations from that work.

The country’s cheap wind resources are a strategic advantage, but only so long as it has the dry-year storage to back that up, she said.

“While the capital costs of this are obviously high, what we are doing, by making the infrastructure investments around that, is actually allowing some incredibly cheap electricity generation within our economy and in New Zealand and for us to utilise that.”


ACT Party leader David Seymour, an electrical engineer by training, said it was astonishing that Woods could claim a high capital cost project would deliver cheap electricity.

“I mean, come on. This is what you expect from the university socialist club – ‘After we use all the government’s cheap capital we will be in nirvana’.”

Seymour said the best thing the government could do was to set a realistic carbon price and then allow industry to develop more renewable generation. The biggest obstacle to that, he said, is the Resource Management Act.

“It’s not a lack of cheap government capital for some fanciful scheme that the minister has dreamed up,” he said.

“It’s the role of government to set clear rules of the game, rather than trying to pick the exact technology, or even the exact plant to build in a particular place.”

He predicted Lake Onslow would be abandoned within a couple of years, like the 100 percent renewable generation target, which “wasn’t a particularly bright idea either”.

Critics have dismissed the Lake Onslow project as being too large, on the wrong island, and unconsentable given the area hosts two regionally significant wetlands.

Last week, Tilt Renewables told investors it was concerned by the proposal and its potential to delay investment in generation and storage by other market participants. The company is building the Waipipi wind farm near Waverley and has wind development options at Mahinerangi in Otago and at Kaiwera Downs in Southland.

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