The station on the Teviot River, built by Central Otago power company Pioneer Generation, is nearing completion.
Located 3.5km east of Roxburgh, the scheme will generate a maximum of 1.9MW, enough power for about 500 homes, Pioneer's chief executive Peter Dowling said yesterday.
It cost about $6 million and should meet some of the growing demand for more power in the region, supplying homes in Roxburgh and Alexandra, he said.
"That extra capacity is needed and the demand is growing all the time."
The new scheme made use of water which otherwise would be spilled from the Marslin Dam, 1.5km upstream of the site.
If the flow down the river exceeded 6cumecs, some went to the Michelle power station and the rest was spilled.
"Now, the excess water will be picked up and run through a pipeline into the [Kowhai] power station, which means we have the ability to generate [power] from that water rather than just spilling it, " he said.
Construction of the new scheme, named after the kowhai trees in the area, began in September.
It was on farmland and creating an access road into the small site was the first challenge for the company, Mr Dowling said.
The scheme used a weir which was part of the original Teviot irrigation scheme and dated back to the 1920s.
The new 1.3km pipeline followed the route of the existing pipeline that supplied water to the Michelle station from the Marslin Dam.
Kowhai was a joint-use project, meaning some of the water would be used for irrigation purposes.
Up to 15 staff have worked on the project.
The generator and turbine were bought from a German company and a representative from the company travelled to Roxburgh from Germany to supervise the installation of the machinery.
The power station is automated and can be remotely accessed through Pioneer's computer system.
Mr Dowling said there was the possibility, in spring, for excess power generated to go into the national grid.
Kowhai was part of the company's growth strategy, he said.
Its next hydro-electricity project was to refurbish the Wye Creek plant by installing a new turbine and generator, to give greater output and reliability.
At present, it generated 1.4MW, and that would increase to 1.7MW after refurbishment.
The company was also looking at wind energy and had installed three wind turbines next to its Horseshoe Bend hydro-electric power station, 15km east of Roxburgh.
That was Otago's first wind farm and it began producing power in October.
All three machines had been generating power "when it's windy enough", Mr Dowling said.
