State-owned electricity generator Meridian Energy says it has been given water-only resource consents for a $900 million hydro development in the Waimate district.

Meridian now has water rights for a 34km hydro-electric tunnel that could produce enough electricity to supply 175,000 homes at a cost of $600 million to $900 million.

The north bank tunnel project could take six years to build 128m underground and would divert water from behind the Waitaki Dam into a big tunnel, through a power station then return it to the Waitaki River at Stonewall, 34km downstream.

By generating an average of between 1100 gigawatt hours (GWh) and 1400 GWh of electricity a year, it could supply the households in a city the size of Christchurch.

Farmers say that if the scheme goes ahead, it will probably lead to big Hunter Downs irrigation scheme carrying water north in southern South Canterbury.

Some critics of the tunnel proposal among 400 opposing the application at a 12 month hearing which began in August 2007 said they would prefer the lower Waitaki River to be left unchanged.

Witnesses, including recreational and conservation groups, said there would be environmental and recreational costs. Under Meridian's application the minimum flow in the river will fall below Waitaki's allocation plans of 150 cumec (cubic metres) minimum to 110 cumec.

They said reduced flows in the river will cut the aquatic habitat, available and dry out wetlands, with a lowering of the water table in river flats and tributaries separated from the river. Reduced flows would restrict the dilution of agricultural run-off, and cut the number of braids in the river.

Fish and Game said it worried flows would be cut in summer and maintenance of minimum flows would be a key issue.

Meridian argued that despite the debate over minimum and flushing flows, its application was not contrary to the Waitaki River allocation plan, and the project could provide much-needed renewable energy.

The commissioners who heard the application -- Professor Peter Skelton, chairman and former Environment Court judge; Mike Bowden, environmental consultant; and Dr Greg Ryder, freshwater scientist -- called for additional information earlier this year.

They wanted to know about the need for energy and the potential role of hydro, a commitment made by Meridian to provide additional water for downstream users between the Waitaki Dam and Black Point, problems with the invasive algae didymo, and proposed river enhancement work.

Meridian chief executive Tim Lusk said today he was pleased to finally have a decision, after the proposal was first presented during the Waitaki water allocation plan hearings in 2005.

"Our next step is to work through it carefully to better understand it and its implications for the project," he said.

Electricity supply fluctuations over the past winter had brought into sharp focus the need for Meridian to maximise output from its existing assets, including those on the Waitaki River.

Meridian would next consider the engineering studies necessary to support applications for land-use and construction consents for the building of the tunnel and power station -- a process that could take several years.

If consented, construction could start as early as 2012.

Waimate mayor John Coles -- who was in favour of the project -- has criticised slow resource management processes for large projects that are in the national interest, and has supported the new National Government's proposed streamlining of the resource management process.

"If the tunnel and Hunter Downs go ahead, we need to be pro-active and get the greatest benefit out these projects that we can for our community," Mr Coles said.

Meridian has said it would support the Hunter Downs irrigation proposal taking water from 2km below the tunnel's outfall at Stonewall to irrigate 40,000 hectares of south Canterbury.

Irrigation decisions, including Hunter Downs are expected next year.