A major Ruapehu business has been forced to implement a two-week "operational standstill" at all its mills. The Karioui pulp mill and Tangiwai sawmill, located between Ohakune and Waiouru on State Highway 49, employ nearly 300 people. Both mills are operated by Winston Pulp International.
Mike Ryan, CEO of Winston International Pulp, said skyrocketing energy prices were the main reason for the move. "Energy prices have increased by more than 600% since September 2021 - from $100/MWh to a futures price expected to average more than $700/MWh in August. Despite the best efforts of the team, energy costs have risen from 15% of our total production costs to more than 40%. We cannot pass these rising costs on to our customers because this is a New Zealand problem. We sell into a commodity market and the price is the price."
Ryan said that overseas competitors pay between $60 and $100 per megawatt-hour. Energy costs are a challenge the company has been struggling with for years, "but this challenge has become increasingly severe. As a business, we have invested tens of millions of dollars in capital expenditures to improve production and energy efficiency. The hard work of the team has enabled us to significantly increase production capacity, while reducing our energy consumption by 20%-30% for every ton of product produced."
He said the company had a historic policy of maintaining high levels of energy price hedging to help manage the risk of price increases and volatility. "However, as these arrangements come to a close, the cost of replacing them is not sustainable in the context of remaining globally competitive."
Ryan said employees at both plants were still working normal hours but were focusing on maintenance and other activities. Ruapehu Mayor Weston Cotton said if the plant closure became permanent it would have a huge impact. "It's a huge number of jobs and it's far more than that, there are small businesses here and a lot of people involved."
Mr Cotton said he believed the government had a duty to the community. "I'm not sure if this is just a stopgap measure. We at the council certainly want to support management and sit down with the government and hear what they think about electricity prices."
Ryan said significant changes to pricing are needed to make manufacturing viable in the long term. That will require "some form of government intervention" or a significant increase in electricity generation, or both. "We need to be able to see long-term energy price stability and affordability. Without that certainty, our options are limited."
Rangitikai MP Susie Redmayne said she would be meeting with Ryan, who would also meet with DoE Simeon Brown. "It's a huge concern for our region because they're obviously one of the biggest employers. At the moment, hopefully this is just temporary and not a more serious issue while they consider their options."
Ryan said a significant increase in generating capacity was not a realistic requirement or solution in the short term. "We have been aware of the risks posed by rising energy costs for some time, and our taking these steps demonstrates the severity of the situation. In addition to rising energy costs, market prices for pulp and wood are relatively low and under pressure."
Mr Cotton said it was impossible to reduce energy prices overnight. "We need to talk to our energy suppliers. I guess it's a case of wait and see and hope they get back up and running." Redmayne said her priority was to "engage with Winston International Pulp's concerns" and talk to all the parties involved. "It may not be a quick solution but our government is working fast to put in place policies to ensure that doesn't happen and provide affordable and reliable energy for homes and businesses."
She said the closures would have a trickle-down effect on the local economy. "These are people who live nearby and spend money in town. It affects restaurants and supermarkets, it affects everyone." But the option is still hypothetical and "we shouldn't rush it."
Previously reported, packaging giant Prince Fiber Solutions' Penrose waste paper recycling plant may be another victim of the energy crisis, with wholesale electricity and gas prices soaring. In addition, New Zealand's state-owned Genesis Energy even said that importing liquefied natural gas from overseas may be an option to consolidate energy supply. CEO Malcolm Johns told The Washington Post that the current pressure on the energy system is due to a combination of factors such as low water levels in hydro lakes, low wind power and natural gas shortages.
"LNG is a relief option, as is more gas. Genesis will be an off-taker for one or both," he said. "New Zealand will continue to have low winter solar and wind generation for the next few years, and we will have years of drought and low hydro generation in the future."
John Cash, chief executive of industry group Energy Resources Aotearoa, said onshore infrastructure to receive LNG could be built faster and cheaper than in the past. "Given the situation we are in, we need to consider all options. But the fastest way to get more gas into the system is through our existing gas producers."
