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.
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