The Battery Project - touted as being in the national interest because it would shore up electricity supply with a renewable resource during dry years, when other hydro-electric schemes struggle - has advanced to the next stage of consideration and its viability will be assessed.
It might come with a price tag of $15.7 billion.
Former Teviot Valley Community Board chairman Raymond Gunn said he expected benefits would include an influx of construction workers and an injection of money into the district’s economy.
Risks included upheaval and the potential for the community to feel overwhelmed.
It would want to avoid or reduce the impact of a boom-bust scenario.
He was "not really surprised" the Government remained interested in progressing the project, but he had wondered if it might be put on hold as part of Prime Minister Chris Hipkins’ policy bonfire and focus on "bread and butter issues", Mr Gunn said.
The National Party has pledged to scrap the project, which it labelled "massively wasteful".
Millers Flat landowner Pat Garden said his personal preference was for the scheme not to go ahead.
"If I consider the community, I’m nervous about the impact ... [and] disruption to our way of life."
He was wary of potential environmental effects on the lake.
However, he noted there might be long-term benefits for the area if the project was managed well and he was conscious of potential national benefits.
"I can see its purpose - storage of energy is going to be critical for the future electrification of our economy."
Central Otago Mayor Tim Cadogan has previously spoken of the district benefiting "immensely" if the scheme goes ahead, such as by producing a vast number of jobs.
Yesterday, he drew attention to a national imperative to manage resources in more sustainable fashion.
"As a nation we need to find a way to stop using the Huntly power station when the lake levels get low, because it burns fossil fuels and is, as I understand it, reaching the end of its useful life.
"Given the incredible cost of alternatives to that, further investigation to make sure the right answer is found seems sensible."
Energy and Resources Minister Megan Woods said the Government would look at the viability of the Lake Onslow pumped hydro scheme, as well as alternative approaches.
The Battery Project was set up late in 2020 to find solutions to what she called the "dry-year problem", when hydro-electricity lakes ran low, leading to the burning of more fossil fuels to cover the electricity shortfall.
"Pumped hydro is an ingenious way of storing energy in a big reservoir, which is released into a lower reservoir when more power is needed, like a giant battery."
Constructing the Lake Onslow scheme could take seven to nine years.
A multi-pronged alternative approach could have a cheaper capital cost of about $13.5 billion, but with significantly higher ongoing operating costs.
A detailed business case is expected to be developed by the end of next year, followed by a final investment decision, which could be a further two years away.
Mosgiel man Colin Brown said he had seen similar, successful schemes to the Battery Project in the United States.
It was easy to get put off by the initial price tag when a long-term view might be required, he said.
National Party energy and resources spokesman Stuart Smith said Lake Onslow was a "white elephant boondoggle".
"National will immediately cancel the Lake Onslow project if elected in October and focus on making it easier for renewables to be consented and built," he said.
Forest and Bird said the proposed Lake Onslow scheme would flood significant wetlands and destroy habitats of endangered species.
"The staggering levels of investment required would be better used to decarbonise the country in other ways," a spokeswoman said.
