Tony Clifford: Pan Pac Forest Products Managing Director on the impact of high electricity costs on their their export pulp production

Pan Pac Forest Products says part of its operations could be on hold for another two months.  

The Napier mill says a major spike in electricity prices since Saturday has made its export pulp production unviable.  

Managing director Tony Clifford says the business can't generate profit with the cost of electricity at the current level.  

He told Heather du Plessis Allan either it has to rain a lot for more hydro power, or Taupo's Tauhara plant needs to come online - which might not be until October.   

He says Pan Pac has a power purchasing agreement with Tauhara and currently it's having problems, so Pan Pac is fully exposed to the wholesale electricity market. 

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Episode Transcript

Speaker 1 (00:00):
Afternoon. Well, the issues with the country's power keep on coming.
Another mill is shuttered. This time it's pan Packs pulp
mill near Napier, which has stopped production until power prices
fall again. It says the energy crisis has become so
bad now it's actually cheaper to stop working rather than
produce at a loss. Pan Pack's managing director is Tony Clifford.

Speaker 2 (00:17):
Hey, Tony, Hello Heather.

Speaker 1 (00:19):
How long do you expect you'll have to keep this.

Speaker 2 (00:21):
Production on Holt for Ah, That's a very good question,
you know. I just want to emphasize that we've at PMPEC.
We've still got our forestry and lumber business running at
one hundred percent, but it's the energy intensive side of
our business. It's making mechanical pulp that we've had to
halt since Saturday. Power prices went through the roofline on Saturday,

(00:44):
and we just cannot generate profit when prices are as
they are. But how long, I've said to my staff
there's a couple of things that had to happen. Either
it has to rain a lot in the South Island
and the hydroc catchment areas, or we have to have
the commercial operation of the Tihara plant in Topol come

(01:06):
online where we have a power purchasing agreement with that
company and currently they are experiencing problems. And so yeah,
we're at the moment one hundred feet exposed to the
also electricity market.

Speaker 1 (01:17):
What do you reckon? What's your outlook? I mean, Winston's
talking about being downing tools for two weeks. Are you
guys looking at this kind.

Speaker 2 (01:23):
Of period, It's at least two weeks. You know, we
are expecting Tahi potentially can't come online until October, and
you know maybe in that time that's two months, yes,
and then we're talking here. The point I may deal
with ministers in our meeting on Wednesday that this is

(01:44):
just not a pan PAC issue. This is all energy
intensive and particularly energy intensive trade exposed businesses, because there's
absolutely no hope that we can pass on escalating power
prices through to our customer, our international customer. We're competing
against supplies from all around the world and they just

(02:04):
are not exposed to these type of electricity prices. So
the other message I'm really trying to get people get
through is that this is not just a one year event.
You know, low hydro situations do happen every seven to
ten years. But we've been experiencing escalating electricity prices at
the wholesale level since twenty eighteen. And what we've got

(02:26):
now is a shortage of gas, and a shortage of water,
and recently shortage of wind and some and those things
that will come together to just give exceptionally high spot prices.
And yeah, so what we believe it is solvable. This
as it said to people, this is not a This
is not like a transmission tower falling over or someone

(02:48):
digging up a gas line. Those are hard engineering problems
that have to be fixed. This is a market design issue.
The way the market works is that the half hour
spot price is set by the peak supply price in
any one half hour, and the assumption for the market
design has been that there is gas and coal available

(03:09):
for firming other options under normal conditions, and that that
gas supply has just been gradually getting less and less,
and that's been putting the price of electricity up more
and more. And you know, we've we've got a probably
you know that one of the solutions that could be
done temporarily is breaking that connection between the cost of
gas and the cost of electricity, because there is no

(03:31):
ongoing shortage of electricity while it is an ongoing shortage
of gas.

Speaker 1 (03:36):
All right, listen, Tony, is there any possibility that you
may in fact shut down some of your production permanently?

Speaker 2 (03:44):
I would, I would hope not. That's not on my radar.
We believe Do you believe.

Speaker 1 (03:52):
That the gent tailors are price gouging or profitearing?

Speaker 2 (03:56):
I don't beat up on the generators. The generators are
operating their business under the set of rules that are
given to them, and that's to maximize this year holding
for their for their maximizing profit for their yearholders. To
the best of my knowledge, in the last ten years,
has only been one generator who've got a bit of
a slap on the risk for not for wasting water

(04:17):
when it could have been going into generation. But for
the most part that hasn't been able to be proven. Again,
you know, the market design doesn't encourage lots of generation
to be brought onto the market. It does encourage a
degree of scarcity, and that that again, that has to
be reviewed. And the other problem is, you know, everyone

(04:40):
knows that gestation period to build a power station in
New Zealand is measured in years, not months, and so
you know we're not going to fix this problem overnight.
It's the short term solution. I believe we have to
break this connection between the gas price and electricity price.
The long term solution is, you know, we need more generation.

Speaker 1 (04:58):
Yeah, totally listen Tonally, thank you for very much for
your time and best of luck dealing with this. It's
Tony Clifford, pan Pack's managing director. For more from Hither
Duplessy Allen Drive.

Speaker 2 (05:06):
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