Meridian Energy is canning its planned North Bank Hydro Project on the Waitaki River for the foreseeable future, saying it is uneconomic in the current flat electricity market.
"Like other generators we recognise that the demand outlook for the next five years is probably flat to slightly declining," chief executive Mark Binns says in a statement. Land access negotiations will be suspended indefinitely.
This is the second time in a decade that Meridian has dropped anchor on a hydro scheme based on an intention to channel Waitaki River water through canals to generate additional electricity from a river where it already owns conventional hydro dams.
The move is the latest in a string of initiatives under Mr Binns, who took over early last year, which will help prepare Meridian for sale in a partial privatisation, if the government chooses and is able to proceed with intended asset sales this year.
Mr Binns told BusinessDesk earlier this month that Meridian is considering quitting its $A500 million investment in the huge Macarthur wind farm in Victoria, Australia, in order to return capital to strengthen the state-owned enterprise's balance sheet and take profits now rather than over the 25-year life of its investment, which is structured to provide "bond-like" returns.
Meridian also recently sold its Electricity For Industry large consumer advisory business.
It had projected the 260-megawatt North Bank scheme would generate enough electricity to power 140,000 homes and had fought in the Environment Court to obtain water consents after initial approvals were appealed by Ngai Tahu and other groups, receiving final approval in November 2010.
Mr Binns told the Timaru Herald yesterday the company would not completely abandon the project.
"This is probably the best large-scale hydro opportunity left in the country," he said.
"We're sitting on our hands, but we're not walking away from it. I would be surprised if we weren't looking at it again before 2020."
Meridian already owns and operates six hydro stations along the Waitaki River. The company abandoned another hydro project on the river, dubbed Project Aqua, in 2004.
In May 2012 Contact Energy suspended plans four hydro stations on the Clutha River, citing similar concerns of economic viability, while another major player, Genesis Energy, has built no new generation for several years.
Economic recession and higher prices for electricity have seen reduced demand from major industrial users, who have invested in energy efficiency measures, chosen other fuel sources or have on balance contracted rather than expanded their operations.