By Earl Bardsley*
Coalition ministers refer to the Lake Onslow pumped storage scheme concept as having been scrapped. However, a New Zealand government cannot impose energy policy on the opposition.
As a quick reminder, the Onslow scheme’s potential for impact derives from scale. Its capacity is equivalent to a “battery” running at 1000 MW for more than six months. This would make it the world’s largest pumped storage scheme by energy storage measure.
More than $20 million was spent on Onslow investigations by the previous Labour Government. The motivation was to seek a low-emission alternative to fossil fuels for power generation in dry years.
The “pending decision” is whether Labour will include restarting Onslow scheme evaluations as part of its 2026 election energy policy. Clarification will probably come later this year.
As a possible indication, Megan Woods concluded a RNZ interview last year with brief mention of the Onslow scheme in the context of renewable energy storage options.
In the event of a policy announcement, there will be a restart of debate about the scheme.
Starting from 2020, there were strong views expressed in both positive and negative contexts.
However, some of the subsequent negative comments were of questionable motivation or were just unsupported statements in the heat of the election.
For example, Christopher Luxon on the campaign trail in Central Otago simply asserted that the Onslow scheme was an insane idea.
Hopefully, any resumed Lake Onslow debate will start at a higher level. Toward this end, four noted earlier criticisms of the Lake Onslow pumped storage scheme are considered again here.
It is too expensive
The scheme became an easy election target as an “expensive boondoggle” when its construction cost was estimated upwards to $16 billion, It seemed unjustifiable that this amount should be distributed over future power bills, or cause government funding to be diverted away from important areas like health and education.
However, missing from the discussion was that the Onslow scheme would generate substitute electricity. That is, its generated power replaces the more expensive electricity that would otherwise have come from burning fossil fuels.
The scheme’s construction cost would be paid for as a cost recovery levy on consumer electricity bills. The levy would remain invisible because it has been estimated that the capital cost of Onslow would be completely offset through the lower electricity prices to consumers.
This concept is set out on page 49 of the 2023 Kelly report - The economics of four future electricity system pathways for New Zealand, prepared for the Parliamentary Commissioner for the Environment. Only closure of the Tiwai smelter would have a greater lowering effect on electricity prices.
Avoiding high electricity prices would also have the economic benefit of aiding productivity and sustaining industry. The closure of some pulp and paper plants in the Central North Island was in part due to high electricity prices in the 2024 dry winter. Over the same period, partial closure of some industries to gain emergency electricity caused a loss of export income totalling $300 million.
In the light of the price impact of the 2024 dry winter, an Onslow price-lowering effect is likely to be seen as being at least as important as its low-carbon aspect. There is no point, for example, to burn wood for power generation if that still results in expensive electricity.
The risk factor in the Kelly analysis is the possibility of an Onslow cost blowout beyond the estimated $16 billion. Australia’s Snowy 2.0 scheme is often mentioned in this context. However, all major civil engineering projects are different and Snowy 2.0 does not negate the value of pumped storage generally. For example, the new (conservative) Queensland government is proceeding with investigations of the Borumba pumped storage scheme, which has a similar estimated cost to the Onslow scheme.
The Onslow project caused a chilling effect on new renewable generation
At their respective 2020 shareholder meetings, Contact and Genesis claimed that the Onslow scheme just being under consideration could dissuade power companies from investing in additional renewable energy.
The suggestion was that there was a significant risk that Onslow operation would lower electricity wholesale prices to such an extent that it would kill investment in new renewable power projects.
The Onslow scheme’s supposed holding back of renewable generation was raised again by David Seymour during the election.
It seems a significant criticism at first. That is, a major green scheme has the unintended consequence of discouraging new renewable generation.
However, the argument is questionable.
The implication is that the Onslow scheme generation could undercut renewable energy prices even after adding in the cost of the inefficiency loss from raising water up to Lake Onslow from the Clutha River.
Anyone attempting to market renewable electricity at a price greater than Onslow power would certainly deserve to be undercut.
Unsurprisingly, there has been no referenced example of any renewable generation project being cancelled because the Onslow scheme was under consideration. Also, no opposition to the scheme was raised by those involved in current renewable energy work.
In fact, an announcement of the Onslow scheme going ahead could unleash a proliferation of new wind and solar projects.
This would occur in anticipation of the scheme’s final completion resulting in a floor price becoming established in the electricity market. As noted in the Kelly report (p. 53), a floor price improves the economics of both wind and solar generation.
If it could increase the build rate of new renewable generation in this way, the Onslow scheme would have a positive effect long before its final completion.
The scheme would do nothing for most of the time
The idea of “dry year backup” gives an immediate image of a lake sitting at the top of a hill at the bottom of the South Island, waiting for a dry year to come along.
If constructed, the Onslow scheme would operate like any other pumped storage system in a commercial environment. That is, pumping when power prices are low, generating when prices are high, and doing nothing when prices are intermediate.
This implies near-continuous operation driven by power price variations, serving multiple purposes at the same time.
For example, having ability to switch between pumping and generating means its 1000 MW generating capacity could buffer 2000 MW of new wind energy. This would create only minor fluctuations in lake water level without imposing a trend, so seasonal and dry year operation is not affected.
The dry year reserve aspect would not just relate to the geographical location of the Lake Onslow reservoir.
Operating consistently in the electricity market, the Onslow scheme would cause a reduction of the seasonal variation of the main hydro lakes. This means the hydro lakes will often be higher at the start of a dry period of low inflows.
The hydro lakes will also be less often at their highest levels. This would have the fortuitous effect of hydro power gain from reduced spill, particularly from the Waitaki scheme.
There would be a large transmission loss
In 2020, the National Party energy spokesman Jonathan Young probably reflected the concerns of many when he said that consumers would have to pay for the huge transmission losses getting Onslow power to the North Island.
However, pumped storage schemes are not power stations. No new South Island electrons would be created at Lake Onslow to be lost in transit to the North Island.
The Onslow scheme would in fact reduce transmission losses by avoiding the need to send North Island power to the South Island in dry years. For example, the 2024 dry winter resulted in net southward power transmission in August.
From a publicity viewpoint, the Onslow scheme could be operated to avoid any southward power transfers. The South Island might then market itself globally as an island with 100% renewable electricity.
The four topics reviewed here are for clarification in the event of future discussions, and not an advocacy of pumped storage at Lake Onslow.
There are many other aspects, both positive and negative, that would need to be taken into consideration before the Onslow scheme could be constructed as a component of the future national energy scene. Some further Lake Onslow scheme topics are outlined here.
For now, we await the pending Labour Party policy decision as to whether pumped storage at Lake Onslow is still up for consideration.
*Earl Bardsley is Associate Professor at the University of Waikato School of Science. He is the original proposer of the idea of pumped storage at Lake Onslow in Central Otago, as an alternative to burning coal and gas in dry years when hydro lakes are low. Bardsley spoke about the Lake Onslow idea in an episode of the Of Interest podcast in 2022.
51 Comments
Good article.
I have the utmost respect for the writer, and his work.
Initially supportive, I now ask whether the grid, in present form, is maintainable. A physics professor for whom I have a lot of time - designed and built the laser-target-tracking systems for tracking the moon, so no slug - has evolved this thinking on his blogsite https://dothemath.ucsd.edu/
He's paralleled me - starting with being an early-adopter, evaluation, thinking wider, then 'oh sh.t'. Now states that modernity is temporary and has dropped being a professor as a waste of his remaining time.
Water-at-height is the most benign battery, of that there is no doubt. Just what we can maintain, beyond the carbon pulse? is the primary question. I suspect the writer is a techno-optimist, and avoids the question - but what we do with the remaining fossil-time, is important. Squandering is suboptimal, and we need that bigger debate.
Every dry year in the next decade or two we can look back and curse the Luxon government's short-sighted cowardice as industry shuts down around us and power prices creep up.
Shutting the project down just before it reported on the various solutions was insane - they never had to commit to building Onslow but we would at least be arguing from a position of greater knowledge.
And from their initial reports, Onslow was like number 4 on their list. Basically it said there were much better options (like converting Huntly to wood pellets and having idling geothermal capacity) which should be built for a whole host of reasons first. And they all seemed politically palatable, likely costing in the 1-3b range to get rid of the dry year risk for the next couple of decades, without too much cost to us and would make the government look like they were actually serious about tackling it. Basically a home run for those that act on it. National would pretty much just have to replace one of their dubious RONS with fixing the entire countries dry year risk, surely a no brainer.
I hope that Onslow comes back into discussions in the future and agree the with the article. It is also worth remembering the effect of the constant threat that the smelter would close its doors on renewable energy investment. No-one wanted to spend too much on wind farms knowing 15% of demand could disappear before your turbines start to turn.
Now that a long term contract has been signed the Gentailers have dramatically stepped up their investments. Blaming the chilling effect on Onslow is misplaced - the investments came when that contract was signed, not when the battery project was shut down.
... and perhaps , David , you'll publish alongside this article something from an expert who was dead against the Onslow project ... we're getting the bias of only one side of this story ...
As I recall the original budget was $ 4 billion ... which quadrupled to $ 16 billion ... and some said that a final bill of $ 28 billion was more likely ...
IIRC NI transmission from Manapouri was costed at around $650M a few years ago.
Successive Govts have blinked when RioTinto stared them down, so we give away power at far less than the cost of replacement generation plus gift them millions in cash & climate credits.
Howdy Gareth : I do recall that there was robust discussion on both sides of the Onslow debate back in the previous government's last term ...
... one argument was what were the alternative uses of a lazy $ 28 billion burning a hole in the finance ministers back pocket ... the addition of new geothermal/solar/solar subsidies & wind power into the national grid was a compelling narrative ...
This is true but… how do you get the market to overbuild by $16B. The market won’t build capacity for the 95-100th percentile scenario - especially when they make bank when that scenario happens. So you have to either build onslow or otherwise change the rules of the market. The problem with National is not that they cancelled onslow, it’s that they cancelled it and did nothing to replace it.
Gas has to go. We have emissions commitments that are incompatible with gas. Also the discovery is unreliable. Nobody has banned importing gas but guess what - you need to build storage and import infrastructure and it isn’t economic.
Gas also doesn’t address the point I’m making. Nobody is going to overbuild generation for a once in 15 or once in 20 year event. It’s doesn’t matter if it’s coal, gas, whatever. You have to pay for the latent capacity. Better to do that with Onslow and renewables than coal/gas.
Onslow only acts as a " battery " ... it's not a net energy producer ... think of it an a very expensive energy insurance scheme ...
... as an alternative , take that $ 28 billion and subsidise every house in the country with $ 10 000 worth of free solar panels : Booooom ! Massive increase in net electricity production ...
I understand the concept of a battery.
From your comments it seems you do not. There is no point building more solar if we can’t use the power when we need it. Onslow was critical because it allows large amounts of power to be shifted in time. Otherwise you can get weeks where the sun isn’t shinning, the wind isn’t blowing and the lakes are dry.
The problem that you’ve missed in all your comments that I’ve seen. Is that to have enough generation - solar, gas, whatever you are promoting - in a dry year you need to build say 120% of BAU demand. The market will never build that surplus - see Genesis and the consent they never build - even if the government were to build it, it’s possible the private sector would decommission capacity to compensate since they get punished by the Bradford pricing mechanism when there is surplus power. The market needs us to be on the brink of shortage so the wholesale prices stay tasty.
The advantage of Onslow is because of the feature you point out - it’s a battery not a producer - it buys power off other generators. It encourages people to build solar and wind farms because it buys their power. So all the ideas in these comments to put solar on lakes etc, great, those ideas make more sense with Onslow. And it makes money doing this because it buys low and sells high. And it helps the economy because businesses won’t get a 100 times increase in their wholesale price at a point in time they can’t predict.
The alternative to Onslow isn’t just building more capacity it’s building more capacity in the context of the Bradford power market. So if you are going to say - why don’t we just build solar which is cheaper - how, how will you ensure the amount of generation capacity goes up? And how will you ensure the mix is right even if it’s cloudy or still or dry?
Gareth - perhaps get Bryan to do an article for a bit of balance to Earl's pet project?
"...Economically, it is a disaster. It is estimated to cost $4 billion [now $16 billion!] but, after allowances for interest during construction, escalation and contingencies, it is likely to cost $5 billion or more.
Annual capital charges at 6% would be $300 million, operation and maintenance would be about $20m and transmission charges might be $5 million. Making up for evaporation loss at 5 cents/kWh could be as high as $35 million per year. Refilling the lake every five years at 5 cents/kWh would amount to $40 million per year. So the station has to earn an average of $400 million per year ($2 billion every five years) just to break even.
Assuming that it needs to generate 3000 GWh one year in five it needs a price of $0.70/kWh to bring in $2 billion.
Because of the way our electricity market works all the generators would be paid this $0.70 so each dry year would cost the consumer and the economy more than $20 billion and the domestic power price will treble. This would fall heaviest on poor people and decimate our economy."
https://breakingviewsnz.blogspot.com/2020/10/bryan-leyland-onslow-pumpe…
Fancy going to all that trouble and not even realising that Onslow would make money every year as it buffers intermittent supply on a intra- and inter- day basis. Buy cheap abundant power, sell expensive scarce power when the clouds come over and the wind stops, or when people get home in the winter and turn on their heaters.
I wonder if it's simple ignorance or if it's malicious?
I think he had a meeting with the main gentailer CEOs in the last 6 months. The outcome if I recall was go away and come back and tell me whether setting a LNG terminal, port facilities etc will be around $200m. Possibly the CEOs came up with that number. I did some rudimentary calcs and the cost/kWH output based on an international LNG price was in excess of 30c/kWh. I think that was around NZD60c/USD
Of course if you are a climate alarmist Onslow will be cheap at the cost of $16b and going up.
Some extracts from one of the Onslow reports.
pg 18
Subject to iwi engagement, the next steps for the North Island pumped hydro option are
to determine whether it could have sufficient economic benefit to be worth investigating further. The NZ Battery project will require a focus on building strong relationships with iwi / Māori, as well as engagement with other stakeholders.
pg 19
The project is nationally significant, intergenerational, and has potential environmental and
cultural impacts, so is of interest to many iwi / Māori groups. The NZ Battery Project has....
pg40
Freshwater bodies are of spiritual, cultural, social, and economic importance to hapū and iwi.
Early hydro power scheme developments have caused historic grievances for associated iwi, and
the magnitude of this impact continues to be felt today. This has been the result of....
my comment this is victimhood in full swing
....waterbodies. Many of these schemes were developed in a way that is inconsistent with tikanga,
such as the mixing of waters from different rivers for the Tongariro Power Scheme.
my comment More sorcery/witchcraft that has no place in the modern world.
pg41
Specific treaty settlement legislation recognises the role and relationship of iwi with specific
freshwater and geothermal resources, and some create specific legislative frameworks for the management of such resources.
pg58
Failing to be a good Treaty partner The historic development of hydro schemes has led to Te Tiriti grievances. NZ Battery solutions have the potential to lead to further grievances where iwi / Māori are not involved meaningfully in the project.
Two of the Onslow committee members.
Hoani Langsbury, Ngāi Tahu and Te Rūnanga ō Ōtākou, Former Chair, Otago Conservation Board (2005 – 2010), Member, Department of Conservation's Te Roopu Kaitiaki (2001 – present)
Isla Day, Member, Wellington City Council Environmental Reference Group (2019 – present), Founding member, School Strike 4 Climate New Zealand (2019)
Just ask Google or Bing:
What is wrong with pumped hydro?
Boof! Instant articles and videos. This one looks nice and click-baity: Pumped hydro in Australia is plagued by failure and controversy
Gah - 3 minutes to read? TLDR (okay, I did read it).
So its not going ahead because it would undermine the profits of the National- privatized power companies?
The power companies does not want to invest in renewables in case future government goes ahead with it and lower their profits
Net result is continuied high profit for power companies at the cost of all other customers
More businesses relying on power to produce will shut down, most of them , timber processing plants.
Then we will end up with even more logs to ship off , if anybody wants them,
A low grade product... that will not help us into surplus....
This country gotta be one of the most fucked up in the western world.....
But, the reason im here, its got some of the best hunting and fishing... and its free...
" ... a New Zealand government cannot impose energy policy on the opposition."
Nonsense. Of course it can, at least as long as the coalition holds.
Ardern decided all by herself to shut down new oil and gas exploration, and it was done. She didn't even consult NZ First, even though they were coalition partners.
I don’t see why you need a levy to pay for it.
The government should just fund it out of taxation, transfer the asset to a SOE, and then take dividends. It won’t pay for itself in revenue, but it will pay for itself after you take into account the $16B working through the economy and the savings to businesses and resulting economic growth.
The claim it discourages investment in renewables is ridiculous. Renewables lose the most from the spikes and troughs in prices - they are producing when there is a surplus and idle when there is a shortage. Onslow would smooth these effects creating an effective minimum price giving them surety. It’s the expensive thermal generation that is at risk and that’s why contact/genesis are crying about it.
For gods sake make sure we design in a spillway into any pumped storage dam
This is the simplest safety valve for any pump control system failure
There have been failures of pumped storage facilities overseas which could threaten lives or nearby environment and we need to learn from their mistakes..
We are such lousy long term thinkers and planers.
I think that the whole subject of of power generation, dry year back up, network stability and generation optimization to minimize prices and CO2 emissions etc should be undertaken so that we have a coherent, optimum forward plan for our generation system. Presently we just stagger along from one crisis to the next, one bright idea to the next like drunken halfwits, without out any coherency. Such is planning and governance in New Zealand.
It may be that pumped storage has a place in our system, when? where? There may be other alternatives? How can we possibly know without detailed analysis and planning? If pumped storage is a good idea for some point in future, then analysis should be carefully worked through regularly reviewed and updated for the time when it is sensible to implement. Not just rejected and discarded.
Part of the reason we behave like this is that the players are bean counter driven corporates who only seem able to react to historical accounting figures. They would not have a clue how to plan for the 20 to 30 years required for these sorts of projects. I would suggest that the timescale required between evaluation and commissioning of a major Hydro project would be at least 20 years These guys just seem incapable of that.
No need to go that far. We need a swing player in generation . It would most likely need to be an SOE. Unfortunately there in no govt engineering department any more. Forgotten what its actual name was. For consultants with snouts in the trough, and which ones wouldn't be, it falls on them to carry out the project with probably little or poor oversight from govt. I think Dunedin hospital is a good case where the Labour govt or at least who they appointed didn't have much of a clue what was going on with huge scope changes. Scope changes are a consultants and construction companies cream, thick and a lot of it, on the top.
My idea for owning and operating a pumped storage scheme is to run it something like the reserve bank. Maybe Transpower could do this.
Generators or retail distributors could pay a fee to store power and withdraw it when it suits them. Also the pumped storage operator could buy power on the open market and sell it later when demand is high. This way, like the reserve bank, the whole electricity market would be stabilized at more realistic prices.
Re the lack of something like the ministry of works. Yes a great pity.
Re the Dunedin Hospital contract. In my opinion the government,s biggest mistake was awarding the contract to CPB.
There was no incentive for Labour to think of that : because it's cheap & simple , quite logical , and a net energy producer ... quite the opposite of everything they came up with ...
... why the Gnats don't run with schemes like this baffles ( but does not surprise ) me ...
This is exactly why the Chinese model is going to crush western democracies. They have a 50 year plan and enact it. We have a 3 year plan, and change it everytime a new government gets elected. It's literally become a sport, and is universal amongst democracies worldwide and incumbent parties. Large infrastructure projects, beneficial to generations require generational commitment. While we squander billions of dollars going nowhere, the big red train keeps chugging along, achieving things impossible in current western politics. A 50 year plan is going to beat a 3 or 4 year plan everytime.
It's difficult to say LmbF because, as noted by "George Orwell" above, New Zealand does not have a planned long-term infrastructure pipeline. That is, there will be an uncertain amount of time before all the skilled people and heavy machinery can be gathered together in Central Otago and get started. The more immediate value of a positive Onslow build decision is likely to be an increase in construction of new renewables. However, this is jumping the gun. We have to wait and see if the scheme is on the political table at the end of the year.
Overbuilding solar and wind is an option, but hits the problem of when there's plenty avaliable , the price plummets. you'd really want an alternative use for those times , maybe just a resistive element in a fossil fuelled boiler.
Off grid solar systems have certainly moved towards having excess solar in relation to battery storage , as solar has got cheaper, and batteries have remained relatively expensive. For example facing panels facing east to catch the morning sun has a lot of benefit if your batteries are flat in the morning , but lousy economics if you calculated that daily wattage production compared to if they were facing north.
A great article and a great project! Such a pity it has been ridiculed and rejected by a group of ignorant people who are supposed to be acting for the best interests of NZ.
This project would totally change the landscape of power generation and use and needs to be started on on ASAP. Things need to be advanced to the point of sending in the diggers the morning after an election result. Hopefully this would mean that the project would be advanced enough to avoid a Cook Strait ferry debacle if there was a change of government during construction.
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