Yesterday's withdrawal came three working days after Contact lost its Environment Court appeal against TrustPower's Mahinerangi wind farm proposal.
Contact communications manager Jonathan Hill said the company did not oppose the wind farm projects, but rather a subsequent constraint on transmission capacity.
It was concerned its Clutha hydroelectricity dams at Clyde and Roxburgh would spill water if energy generated from wind took precedence on the national grid, which did not have the capacity to take both.
"We felt the most constructive way of getting grid constraint in the area addressed was through a collaborative approach [with Meridian]," Mr Hill said.
Transpower estimates an upgrade of the 220kv line from Roxburgh through Naseby and into the Waitaki Valley could cost $30 million and carry 200MW.
In May, Transpower grid development manager Tim George said plans and economic justification for the lower South Island link upgrade could be completed and lodged with the Electricity Commission by the end of the year.
Mr George expected the commission to take four or five months to decide on approving the upgrade, after which work could take between 18 months and two years.
Mr Hill said Contact had been in touch with Meridian for "a while" and both companies would work together to pursue the Electricity Commission and Transpower for more transmission capacity in the lower South Island.
"We both want the same outcome, which is a transmission network that will enable electricity to reach all our customers.
"We are absolutely vigorous competitors, but it makes no sense from a national perspective to have one form of energy generation such as wind replacing another form like hydro," he said.
In a combined press statement yesterday, Contact chief executive David Baldwin and Meridian chief executive Tim Lusk said their co-operation was "an excellent example of industry players working together in issues of national importance".
Contact's withdrawal ceases any involvement the company had in the Project Hayes appeal hearing, the schedule of which will resume unchanged at Cromwell on July 28.
Appellant group Save Central was neither surprised nor disappointed by Contact's withdrawal yesterday.
"We have always seen Contact's appeal as quite separate to the concerns we are voicing," spokesman Graye Shattky said.
Contact is the second active appellant in the Project Hayes hearing to withdraw its argument.
The New Zealand Historic Places Trust withdrew its appeal against the development two weeks before hearings began in Cromwell on May 19.
The trust also cited co-operation with Meridian as a reason for withdrawing its appeal.
