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Leaks in the 26.5km-long canal, which links the Tekapo A and B power houses owned by Genesis Energy, have been a problem since it was opened as part of the upper Waitaki hydro electric power scheme in the 1970s.
Genesis public affairs manager Richard Gordon said work to repair the canal would start in the New Year and be carried out in two 14-week periods, during which temporary dams on the canal would be in place. The first phase would start in January 2013, and carry on again in summer 2014.
The full cost would not be known until the affected sections, which were lined with earth rather than concrete, had been emptied of water, but it was expected to be "in excess" of $125 million, he said.
"The work that's taking place is both to the liner of the canal and to the canal walls at different sections. There have been a number of leaks over many years, but it has been deteriorating in the last couple."
During the work, which would also repair erosion-damaged bridges, the canal would be closed to new water entering it from Lake Tekapo. Both Tekapo power houses would stop operating.
As a result, Lake Tekapo would start to fill. It would be reduced to its minimum consented operating level (704.1m above sea level) at the start of each 14-week work period, during which it would fill up again.
Genesis had additional power generation available in the North Island, and although there would be a reduction of 185MW on the national grid, power supply or the price for consumers would not be affected, Mr Gordon said.