Winstone Pulp International and Oji Fibre Solutions cited high energy pricing as part of their reason to close their mills. Photo: RNZ / REECE BAKER
All the North Island wood processors were exposed to high spot pricing in August, but market options were available, a report from the Electricity Authority has found.
Electricity consumers can use the hedge market to manage their exposure to high wholesale prices.
The authority was prompted to investigate after both Winstone Pulp International and Oji Fibre Solutions cited high energy pricing as part of their reason to close their mills.
In September, Winstone announced it would close its pulp mill at Karioi and its sawmill at Tangiwai, and Oji - which has three mills, one in Penrose, and others in Kawerau and Tokoroa, announced it was closing its Penrose paper recycling mill.
"Over July and into the first week of August, fuel scarcity in the electricity system (limited natural gas supply and low hydro storage) pushed wholesale electricity prices from roughly $300/MWh to over $800/MWh. This exposed unhedged energy users, including several pulp and paper businesses, to very high wholesale electricity prices," the EA said.
It found Winstone and Oji along with Pan Pac Forest Productions, which has a plant in Hawkes Bay that also temporarily suspended operations, were all exposed to high spot pricing in August.
But it also found that market options were available to the industrial consumers, and that hedges available tended to be lower than the overlapping average ASX price.
The Electricity Retailers' Association of New Zealand (ERANZ) said it was good to see the EA come out with a report that made it clear market options were available to large energy users.
ERANZ chief executive Bridget Abernethy said its up to electricity consumers to manage their risk, but the review highlighted that hedges were an important part of electricity consumers risk management toolbox.
"While we feel for the families and communities affected, the EA's stress testing regime highlights the risk to large commercial and industrial customers seeking hedges during periods of wholesale market volatility and encourages large users to seek hedges before supply constraints affect wholesale prices," she said.
She said the EA and the Commerce Commission were looking at how to improve those risk management tools and ERANZ were supportive of that.