A pumped hydroelectric power scheme at Lake Onslow in Otago would cost four times as much to build as previously expected.

Energy and Resources Minister Megan Woods announced the $15.7 billion price tag – up from initial estimates of $4 billion – on Thursday, as part of the next phase of the NZ Battery project. The project is seeking a solution to the dry year problem, in which low precipitation across a year means our hydro stations can’t generate enough electricity over winter.

“Until we address the dry year problem, we will continue to rely on burning expensive and polluting fossil fuels to produce our electricity. That’s bad for the climate and our power bills,” Woods said.

* Solving the critical flaw in our power grid
* Govt considering North Island pumped hydro scheme

Pumped hydro involves two basins, with water pumped from a lower one into an upper lake when power is abundant and then filtered back down to generate power in dry years. The schemes aren’t dependent on precipitation.

Woods said the Government was proceeding with a detailed business case for a massive pumped hydro scheme at Lake Onslow as well as an alternative option. The alternative would involve a portfolio of technologies, including burning biomass, next-generation geothermal energy and green hydrogen, as well as a smaller pumped hydro scheme in the central North Island.

Newsroom first reported on Thursday morning that the Government is considering a pumped hydro scheme on the upper Moawhango River. Woods didn’t specify in her statement whether this was the scheme she wants to scope out, but said the North Island option was “subject to agreement with iwi”.

The alternative, portfolio option would cost about $13.5 billion, Woods said, but it would have much higher operating costs than Lake Onslow.

“We always knew that any dry year battery storage solution will require significant investment, that’s why it’s important we thoroughly test these scenarios and get it right,” she said.

“Now some more detailed work has been done we have a much clearer picture of the projected costs which differ significantly from the 2006 high level costings. The next phase will be to dig even further before we look at spending such a huge amount of money, but one thing we do know is that doing nothing to plan for climate change is not an option.”

National Party Energy spokesperson Stuart Smith said on Thursday afternoon that, if elected, National would scrap the Lake Onslow project.

“At a time when we should be reigning in spending and focusing on improving the outcomes for Kiwi households, Labour remains fixated on a massively wasteful project which will not be delivered until at least the mid-2030s,” he said.

Responding to questions from Smith in the Transport and Infrastructure Select Committee, Woods said officials had also calculated the costs of the current dry year approach of burning coal for future years. In 2035, she said, dry year storage would cost $900 million for the coal and $700 million for the carbon price. That would rise to $1.1 billion for each in 2050.

“If a single year of covering a dry year of coal in 2050 is $2 billion, it doesn’t take many of those to actually make the battery stack up,” she told reporters afterwards.

National’s deputy leader Nicola Willis said the party would look to fossil gas and geothermal to plug the dry year gap.

The Green Party says it wants to wait until the conclusion of the business case process before taking a position, but co-leader James Shaw said National’s reliance on gas wasn’t an option for him.

“Gas is a fossil fuel that causes climate change, so no,” he said.

The fossil fuel lobby group Energy Resources Aotearoa lambasted the new price tag on Thursday.

“Our own analysis shows additional natural gas storage, in combination with demand response and new generation, will provide the seasonal and fast-response backup we need at much lower cost. We also have future options to decarbonise thermal peaking generation, including carbon capture and storage, biomass, or using renewable gas,” CEO John Carnegie said.

“The coming years are going to be bad for New Zealand’s energy affordability security unless the Government shelves this project. The energy sector stands ready to collaborate with Government to deliver better outcomes for businesses, households, and taxpayers.”

Marc Daalder is a senior political reporter based in Wellington who covers climate change, health, energy and violent extremism. Twitter/Bluesky: @marcdaalder

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