Energy fears force Fonterra rethink

Energy fears are forcing dairy giant Fonterra to look at new ways of securing electricity for its plants and factories.

And with some of its dairy factories sited in windy areas, the prospect of using wind turbines is looking increasingly likely.

Fonterra operations director Max Parkin told a forum in Auckland yesterday that the company - the country's second biggest energy user after aluminium-maker Comalco - was being threatened by uncertainty over its power supplies.

Energy prices had risen dramatically in the past four years and there was not enough competition in gas, coal or power transmission.

This included a 23 per cent rise in the price of coal, a 35 per cent lift in the cost of electricity and a 97 per cent jump in the cost of natural gas.

Parkin told the forum, organised by Meridian and the Employers and Manufacturers Association and called "Keeping the Lights on in Auckland", that Fonterra was now paying some of the highest gas prices in the world.

"New Zealand's historically abundant and relatively low cost of energy has been a key ingredient in Fonterra's success," he said.

"[But now] energy uncertainties are threatening Fonterra's low-cost competitive position."

 

If power was lost to one of its sites at the peak of the summer dairy season, Fonterra could lose up to $20 million in a day.

"Milk 24 hours late is worth nothing," said Parkin. There was only limited insurance cover available to cover Fonterra from this kind of loss.

Fonterra is in a special position among big power users, since it also generates a lot of its own electricity through co-generation power stations built into its milk factories.

This means it uses steam generated in the factory to drive a turbine that then generates electricity - which can be used either by Fonterra or sent out into the national grid.

It does most of its milk processing during summer, but New Zealand needs most of its electricity in winter, so a power-generation company working from a Fonterra plant would be able to export a lot of its power during times of high prices.

This "counter-cyclical" nature of its business made Fonterra potentially attractive to electricity generation companies.

Parkin said Fonterra was also trying to improve efficiency to cut its energy use per unit by 10 per cent. There was also the potential to "explore on-farm energy efficiency" with its 12,600 farmer shareholders.

Another move to increase energy independence was improving the ability to switch fuels at plants in tune with lower prices.

Parkin said there had been a 60 per cent rise in gas prices relative to coal.

SWITCHING ON

* Fonterra is NZ's second biggest power user, after Comalco.

* It accounts for 10 per cent of all gas demand and 10 per cent of all coal sales.