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Alexandra's new $14.8million drinking water supply could end up costing another $5million because of the discovery in Lake Dunstan of the algae that causes lake snow.
However, the potential cost increase could have been even higher if the Lindavia algae had not been discovered now, Central Otago district councillors have heard.
The discovery of the algae - the first time it has been found in Lake Dunstan - was announced in a council statement last week and discussed at the council's Three Waters Infrastructure Committee meeting on Wednesday.
It would add "significant" costs to the Lake Dunstan Water Supply Project, council executive manager infrastructure services Julie Muir said.
It was not known how much, but one estimate suggested it could cost another $5million.
It was also possible the algae would spread to other schemes downstream of Lake Dunstan, such as Roxburgh.
The Central Otago council was discussing the issue and sharing the cost of solutions with the Queenstown Lakes District Council, Ms Muir said.
The Alexandra drinking water project involves taking filtered lake water from new bores near Lake Dunstan, at the Clyde drinking water supply source, building a new high-tech water treatment plant at Clyde to treat the water, and constructing a pipeline to take the drinking water to Alexandra.
A pipeline to take Clyde wastewater to Alexandra for treatment will also be constructed at the same time and run alongside it.
The Lindavia algae is non-toxic, and poses no risk to human health.
However, the slime produced by the algae clogged cartridge filters proposed for the water scheme within 24 hours rather than the expected three to six months, Ms Muir said.
The slime also needed to be removed to meet New Zealand drinking water standards, she said.
This was an "unintended" consequence of the standards, but they did need to be met.
The algae had been discovered during trials of different filtration systems for the water scheme. It was "disappointing", but the presence in Lakes Wanaka and Wakatipu of the algae meant it was inevitable it would reach Lake Dunstan and it was at least better to find it now, Ms Muir said.
If it had not been discovered, the previously planned $5million cartridge filtration scheme might have been built, and would then have had to be replaced, she said.
Finding the algae now before that occurred was a "silver lining", council chief executive Sanchia Jacobs said.
Six possible solutions for the filtration system, including membrane filters, will now be investigated and a report prepared. A report will also be prepared about chlorination and UV treatment proposed for the original scheme.
In the meantime, councillors voted to continue with construction of the pipeline from Clyde to Alexandra. It was announced yesterday that Fulton Hogan had won the contract for both the drinking water pipeline and Clyde wastewater pipeline work. Construction of the underground pipelines is expected to start this month.