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Transpower gets go-ahead for $170m lower South Island grid upgrade

Tuesday 27th April 2010

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Big new wind and hydro-electricity project proposals in the lower South Island got a shot in the arm today, with Transpower gaining approval from the Electricity Commission to proceed with a $170 million upgrade to the national grid between the Waitaki and Clutha river systems.  

Transpower, the state-owned national grid operator, applied last November to undertake the upgrade, which the EC decided was necessary if some of the renewable projects planned in the deep south were to be built.

The project will see five sections of the grid between Roxburgh and Twizel and will allow Transpower to recover up to a total of $197 million from electricity generators and consumers, in 2015 dollars, for the project.

"There is the potential for very large wind farms to be constructed in the lower South Island region, which may be more economic than constructing generation elsewhere in New Zealand due to economies of scale," the EC decision said. 

"The Clutha hydro schemes proposed by Contact Energy Limited, and North Bank Tunnel hydro scheme proposed by Meridian Energy Limited, may be the most cost-effective generation options available for large hydro projects.

The EC's analysis showed that enabling such options "provided substantial benefit", even with higher costs.

"A key reason for the benefit is that new lower Sout Island hydro, backed by storage, would provide firm capacity which would contribute to meeting peak demand.  Both hydro and wind can also provide bulk low-cost energy."

The EC also disagreed with Transpower's assumption that generators would build substantial new renewable plant in the lower South Island if the grid upgrade did not go ahead.

"Developers are understandably reluctant to construct new generation behind an export constraint," the EC concluded.

The EC asked Transpower to check whether the Rio Tinto-owned aluminium smelter at Bluff would consider voluntary load reductions when generation capacity was required elsewhere in the country.  It was not, and this provided further rationale for approving the upgrade.

The project is one of many now occurring to restore the capacity in the national grid after a long period of under-investment.  Most critical is restoration of full capacity on the Cook Strait cable.  Energy Minister Gerry Brownlee turned first earth on that upgrade, the so-called Pole 3 project, last week.

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