Winstone Pulp International’s chief executive said energy costs had risen from 15 percent of total production to in excess of 40 percent. File picture.
Photo: 123RF
Major energy users are grappling with extremely high power prices and one timber company has stopped operating to consider if it can keep going.
Since September 2021, wholesale prices have risen from around $100 per megawatt hour (MWh) to an average of around $700 per MWh this week.
Winstone Pulp International (WPI) has paused work for 14 days at its two operational sites, Tangiwai Sawmill and Karioi Pulpmill.
Chief executive Mike Ryan said the company was thinking about its future now that energy costs had risen from 15 percent of total production to in excess of 40 percent.
He said the volatile power market in New Zealand was challenging and the business had had to adapt.
“We can’t pass these increases onto our customers because this is a New Zealand issue, and we sell into a commodity market where the price is the price.
“As a business, we’ve invested tens of millions into CAPEX to improve production and energy efficiency. The team’s hard work has seen us significantly improve production capacity, while at the same time reducing our energy use by 20-30 percent for every ton produced.”
Ryan said WPI also had a policy of maintaining a high level of energy price hedging to manage the risk of sharp price increases but that was no longer possible.
“As these arrangements have come up for renewal, the cost of replacing them has been unaffordable in the context of remaining globally competitive.
“Realistically, no hedging policy or future efficiency improvements will offset a 600 percent increase in input costs that shows no sign of abating.”
Government intervention and/or a material increase in energy generation was needed to bring prices down long term and without that the options for WPI were limited, he said.
Major Electricity Users Group searches for answers
The association representing big energy users is conducting an investigation into what is driving high power prices because no one else will.
Major Electricity Users Group chairperson John Harbord said the government and the Electricity Authority had not been willing to get to the bottom of the problem.
“There’s lots of theories… but at no point really have we had a really robust look at it and the confidence that the regulator or the government’s going to do so is so low that the Major Electricity Users Group is in the process of actually commissioning some analysis of their own because no one else is doing it.
“Hopefully that will inform the issues about what’s behind these high prices and what some of the options are to fix them. I think one thing we don’t need is a knee jerk reaction or rush to a solution before we really identify what’s the driver behind it.”
Harbord said so far WPI was its only member to have temporarily stopped operations but that did not mean others were not acting with caution.
“Major users are constantly reviewing the wholesale electricity price, what they’re manufacturing and how much they’re manufacturing. In some cases, production is certainly being reduced.
“We’re talking about the country’s largest exporters and they’re reducing the amount of product they’re making for export, which means as a country, we’re all worse off as a result.”
He said at the moment New Zealand was not an attractive investment option, with the cost of power twice that of Australia where prices averaged around $80 to $90 AUD per MWh on Monday.
RNZ has contacted Energy Minister Simeon Brown for comment.