The death of Project Aqua has pitched New Zealand into the gravest power crisis since the 1992 blackouts.

The outlook for secure and cheap power is bleak.

Consumers have already had a taste of what to expect -- brownouts, threats of blackouts and wildly fluctuating electricity prices -- thanks to the shortages caused by dwindling lake levels.

The Aqua decision has effectively plunged Energy Minister Pete Hodgson into his third major power crisis since 1999. Last year and in 2001 he faced acute electricity shortages, caused by alarmingly low lake levels.

This could be his biggest test in the portfolio yet.. Hodgson's comments after the announcement imply he is optimistic about other power generation projects being proposed in the next year or so.

He also talked about better managing electricity demand and argues the Government's National Energy Efficiency and Conservation Strategy is on course to improve energy efficiency by 20 per cent by 2012.

But with Aqua's demise, crunch time looms larger.

A crucial part of our power network is the North Island gas fields. As they empty, experts warn of a yawning energy supply and demand gap as early as 2007.

According to latest Economic Development Ministry estimates, about 3555MW of new power stations -- roughly six Aquas -- are needed in the next 20 years to cope with rising demand.

Electricity use rose 4% in 2002 alone. Demand is growing at 150MW a year, about the amount of electricity needed to power a city like Hamilton.

Only at the weekend, Transpower, the national grid company, warned that blackouts could be seen in Canterbury next winter if a major circuit in the South Island transmission network blows.

Now the industry is asking whether the days of large-scale hydro- electric generation projects, producing plentiful and cheap power, are over.

Meridian chief executive Dr Keith Turner and senior managers are understood to have made the decision to can Aqua late last week after the High Court judgment on water rights in the upper Waitaki River opened up the possibility of years of legal argument.

Meridian spokesman Alan Seay said that, while water rights remained a contentious and complicated issue, there was no point in considering hydro schemes. "We have put a stop to Aqua and that's that. Who can say what will happen in the future?"

The fact Meridian is hanging on to the land, worth $50 million, it bought in the Waitaki Valley indicates some in the organisation may believe there is still a chance for an alternative hydro scheme.

Meridian has not pointed the finger at Environment Minister Marian Hobbs and her ministry, although critics have said complications caused by her calling in of Meridian's key resource consents, and the push for special legislation for the Waitaki catchment, aided Aqua's death.

A spokesman for Hobbs said those changes aimed to establish a fair system of water allocation, not to nobble Aqua.

Seay is adamant Meridian is not engaging in brinkmanship over Aqua and is not bluffing the country over the issue: "Absolutely no way. We don't play games."

Meridian cited ballooning costs and the exhaustive requirements of Resource Management Act (RMA) processes as significant reasons for ending the project.

Many in the business sector empathise, and have called for urgent action over the RMA, which they see as slowly strangling the country's future.

Industry members say that, if Aqua ground to a halt because of the RMA and associated legal issues, other proposals would too.

Even Solid Energy's chief executive, Dr Don Elder, said future coal-fired power stations could experience the same problems.

Christchurch energy analyst John Noble said coal and wind would assume hydro's crown, but the amount of electricity they could put into the national grid was simply not enough.

"What are we going to do now? That really is a wonderful question. And the answer is, it's not obvious at all."

While Prime Minister Helen Clark said the Government would not step in and sort out the situation, Hodgson said it was reviewing gas exploration guidelines and would finish that in the next few months.