Lake Onslow — Government’s $16 billion folly
Hydro scheme looks like a return to the bad old days of Think Big
Just one piece of news in the last week was enough to give the impression that the Government’s great policy bonfire is really smoke and mirrors. The gobsmacking announcement that the already gold-plated Lake Onslow electricity project has nearly quadrupled in cost yet the Government will forge ahead anyway, confirmed two things. This is the most economically reckless Government since Rob Muldoon, and it has no plans to rein in its own budget to something more appropriate for a country of our size and stage.
For the uninitiated, the Lake Onslow pumped hydro project is an idea to fill in a sizeable part of Central Otago east of Roxburgh by expanding the existing lake’s area by something like 400 per cent. It would likely be the biggest civil engineering project in the country since the Clyde Dam.
The plan is to pump water uphill using hydroelectricity and other forms of renewable energy when there is a surplus, and then release it back down again when there is a shortage, including during the infamous “dry year” scenario, when there is potentially insufficient rain to fill New Zealand’s regular hydro lakes. I say potentially, because the last Government’s reforms of the electricity sector reduced the risk of dry-year shortages by providing better incentives for companies to manage demand.
Minister Megan Woods says pumped hydro is necessary to stop us burning coal to create electricity when there are shortages in renewables. Burning coal for electricity is an embarrassing feature of this Government’s current energy policy. The decision to ban gas exploration back when climate change was this generation’s nuclearfree moment has made us more dependent on coal-fired electricity generation than we otherwise would be. Gas creates about half the emissions of burning coal, but no matter.
There are plenty of lower-cost, low-emissions solutions to the country’s electricity problems that energy companies would supply if the Government got out of the way and let them get on with it. There are proposed new geothermal schemes, new technologies providing sophisticated demand management tools for industrial users, smaller and cheaper run-of-river hydro schemes, the option of greater storage in existing hydro lakes, and carbon capture and storage technologies which would allow us to keep using natural gas while providing near-zero emissions.
Many of these options would be willingly funded by banks and investors if the Government wasn’t standing over them with a huge taxpayer chequebook threatening to spend $16b and more, and making their investments redundant. For full disclosure, I work with two companies which have technology options which could help bridge a shortfall in hydroelectricity, but there are dozens. In a genuine market of ideas, the best options would get funded but this is not a market of ideas, it’s all about the minister’s preference.
Virtually the whole energy sector thought the Lake Onslow pumped hydro scheme was expensive and bonkers even before the price quadrupled. Even the proposer of the project, the well-meaning Earl Bardsley from the University of Waikato, admits the business case for it won’t stack up unless a “very wide view” is taken of the economic benefits of the scheme. That’s code for including lots of things that aren’t attributable directly to the scheme to make it look better.
Minister Woods is infamous in Wellington circles for her Muldoonist tendencies. Lake Onslow is her version of Muldoon’s “Think Big” energy schemes which almost sent the country broke in the early eighties. The minister likes to decide a preference very early and then defend it to the death despite any evidence to the contrary. Critics are all dismissed as “vested interests” and cost is no barrier to her preferred policy solution.
At select committee last week, the minister suggested Lake Onslow should be considered as “above politics”, such is the importance of her decision and, presumably, the unassailability of her logic. She even had officials construct a convoluted alternative approach, which she duly shot down, as evidence for her plan. That the alternative bears no relationship to what would actually happen if Onslow doesn’t proceed didn’t seem to trouble her.
The minister also suggested that spending the whopping $16b on Lake Onslow would result in cheaper electricity prices. Only if you ignore the fact that taxpayers will be fleeced of $16b to get the “cheaper” power prices. Imagine what $16b would buy if it wasn’t being spent on this boondoggle. It could rebuild half of the country’s hospitals or construct four-lane highways between, say, Whangārei, Auckland, Tauranga and Rotorua, with change left over. Lake Onslow presents a massive opportunity cost.
Those supporting Lake Onslow have no money at stake in their advocacy, while those against are clearly prepared to invest and put their money where their mouths are. We used to have a saying in Cabinet that if the only investor in a “commercial” project is the government, it isn’t a viable project.
It is also ironic that the environmentalists and Greenpeace supporting it are the same people who would have laid in front of the bulldozers protesting the scheme in times past.
Lake Onslow is just another of those white elephant ideas that have been kicking around Wellington for 20 years in search of a sponsor gullible enough to take it forward. Light rail is another, and a bike bridge across the Waitematā was yet another. This Government has probably been the most taken with unworkable populist ideas that we’ve seen for decades, which would be amusing except that we churn through hundreds of millions of taxpayer dollars proving what was already obvious at a cursory glance.
It is sad we don’t have a Finance Minister or a Prime Minister able to rein in such flights of fancy. Some days Grant Robertson looks like he is truly phoning it in. How can you allow a colleague to go out backing something which was already prohibitively expensive and for which the price just quadrupled, and accept spending another hundred-odd million on a business case for it?
And as for the PM, he missed a trick. A revelation that Minister Woods’ pet project had blown out in cost from $4b to $16b was an ideal time to add it to the “policy bonfire”. It would have shown the Government was perhaps serious about fiscal restraint and tackling the cost of living crisis. That he didn’t gives the impression the great policy re-set is a charade, and that some ministers are not for turning, by anybody.