The future of hydro power

The mothballing of the North Bank scheme on the lower Waitaki River has raised questions about the future of large electricity - and particularly hydro - projects in this country.

Meridian last week confirmed it was putting its billion-dollar project on hold because of a nationwide slump in electricity demand, believed to last at least five years. While the exact figure spent so far is ''commercially sensitive'', it is believed millions have already been spent on the consents and appeals process and on acquiring 1000ha of land for the project, which chief executive Mark Binns says the energy company still regards as ''New Zealand's best hydro opportunity''.

The scheme would incorporate a 34km tunnel and canal system connecting two powerhouses and generate 260MW of electricity - enough to power 140,000 homes - and was the successor to Meridian's controversial $1.2 billion Project Aqua hydroelectric canal scheme on the lower Waitaki, which was abandoned in 2004 after the company had spent $95 million on it.

There are many in North Otago disappointed with the decision to suspend the project. Supporters Waimate Mayor John Coles and Waitaki Mayor Alex Familton remain hopeful it will be revived, believing it will provide an economic boost to the region, particularly in the short term through the creation of hundreds of jobs during the construction phase. Landowners and irrigators are frustrated about being left in limbo, after what they say have been years of stressful, time-consuming and costly land negotiations.

The scheme received considerable opposition initially, with environmental concerns around river flow and levels, and the impact on aquatic species and the lower Waitaki wetlands. Hundreds of submissions against the project were received and several appeals made to the Environment Court. But many of the environmental effects were mitigated through hearings with Environment Canterbury and the Environment Court, conditions amended by Meridian, and water consents finally issued after a four-year process. There remains opposition, however, and there will be those who are hopeful the project does not see the light of day.

In addition to the North Bank scheme and Project Aqua, in May last year Meridian cancelled its $2 billion 630MW Project Hayes wind farm on the Lammermoor Range after investing $8.9 million in it.

Although the company acknowledges the North Bank project can be picked up at a time when new electricity generation is required, the costs of such large projects and the vagaries of demand show the considerable risks involved when projections are made years in advance given the considerable consenting and construction periods involved. Meridian's figures when it first applied for water consents for the project in 2006 show it anticipated increased electricity demand at an annual rate of 2% as a result of the ''expanding economy and growing population''.

A global financial crisis, thousands of national job losses, many manufacturing sector closures, and the Canterbury earthquakes later, national grid operator Transpower reported the South Island's peak demand growth from 2006 to 2011 was 0.3% a year. Another factor causing uncertainty must be Meridian's ongoing price discussions with Rio Tinto over the Tiwai Point aluminium smelter, which has said it may be forced to close if it cannot get cheaper power.

The smelter uses about 15% of New Zealand's power, which would flood the market if it closed. Also in the mix and creating further uncertainty is the Government's controversial plan to partially privatise state-owned assets, including Meridian. Legal challenges in relation to Maori water rights are going through the courts at the moment.

Other power companies are making similar decisions regarding major projects. Last year, Contact Energy pulled the plug on plans for further hydro development on the Clutha River, saying new geothermal and wind-generation options were more economic. Trustpower says its future is in wind and geothermal generation. Given the numerous factors, it does appear the future for New Zealand - at least in the short to medium term - is predominantly with smaller, lower-impact and lower-risk renewable-energy schemes.