Tuesday, February 27, 2024

Power prices set to surge for farmers

Avatar photo
No easing on cost forecast until 2025.
By DairyNZ estimates, the average NZ dairy unit is already spending $20,000 a year on electricity. Photo: Wikimedia Commons
Reading Time: 2 minutes

Dairy farmers will have to brace themselves for rises in electricity costs of over 50% this season, with irrigated Canterbury dairy units likely to be hit particularly hard.

Tracey Gordon, Ruralco Energy sales manager, is cautioning farmers that they will be in for a shock when they renew electricity contracts, many of which would have been signed at significantly lower prices during the covid lockdown in autumn 2020. 

“We are seeing clients who had signed on for 8-9c/kWh looking at being on 12-13c/kWh in the Ashburton district. All the retailers are looking hard at the electricity futures pricing profile, and it is not coming down,” Gordon said.

The electricity futures market has prices out for the 2023 calendar year surging even further to touch over 20c/kWh, before possibly easing back to 17.5c/kWh.

It is not until well into 2025 that prices show any indication of easing back to under 15c/kWh.

In the 2020-2021 season the average irrigated Canterbury dairy farm’s operating expenses amounted to $5.25 per kilogram of milksolids. Irrigation costs including electricity were 31c/kgMS, while additional electricity use was 9c/kgMS.

By DairyNZ estimates, the average NZ dairy unit is spending $20,000 a year on electricity, accounting for about 7% of the country’s energy use, and costing farmers on average 15c/kgMS.

This winter farmers looking at hydro lake levels that were 150% of their five-year average capacity could well be scratching their heads at why such increases are occurring.

But Gordon said the longer-term prospects being imputed to prices are a symptom of an ongoing squeeze upon NZ’s electricity capacity, with multiple proposed projects continuing to be jammed up in resource consent processes.

There have been a flurry of new generation projects announced in the past few months, but Gordon said there is caution in the market given many of the projects are still subject to resource management consent. 

Known projects include seven solar sites, five wind sites and two geothermal. All the wind and solar sites are still subject to resource consent approval.

The issue of managing “dry year” base load power supply is also likely to continue to keep prices high. 

The Ministry for Business Innovation and Employment has acknowledged the issue, and the controversial Lake Onslow battery project is one possible solution. 

The Climate Change Commission has also acknowledged the complexity of the Resource Management Act in helping move energy sources, and difficulties dealing with it despite proposed changes which will take several years to feed into more streamlined processes.

In the meantime, farmers and high-use businesses can expect to be locked into prices well above historical levels, with little sign of respite.