No ‘straight line’ between energy costs and company closures

Friday, 20 September 2024

Soaring energy prices in August are not responsible for the high-profile closures of several pulp companies, Mercury Energy’s chair has told the company’s annual meeting.

Wholesale electricity prices spiked to several times their normal level last month, and many businesses went public with the struggles they were facing as a result.

Pulp companies Winstone Pulp International and Oji Fibre were among them, and both have subsequently announced they would be closing their operations.

Both cited high energy costs as a contributing factor.

Mercury Energy, which recently reported that its net profit had more than doubled to $290 million over the year to June, has previously refuted Winstone’s claims around costs.

But at Mercury’s annual shareholder meeting on Thursday, there were frequent references to the pricing situation that occurred in August from company executives and shareholders.

One shareholder broached the issue more directly, and said that industries closing down because of the high costs of power was a big problem, including when it came to attracting overseas investors.

It was an issue that needed to be acted on quickly, and he wanted to know what Mercury had to say about it, he said.

Mercury Energy chair Scott St John said he was not privy to all the details of two of the businesses that had been cited as examples, Winstone & Oji.

He empathised with the people directly affected by the decisions of those businesses, he said.

But he did not think it was possible to draw a straight line to energy prices in terms of the challenges those businesses have had.

“If they have been losing money for a number of years as has been suggested, there is more going on for them than just energy prices.”

He agreed high costs were an issue, and said part of the solution was to address the problem by delivering more supply options.

When Winstone first announced it was considering closing its operations, Mercury released a statement which said it was factually incorrect to blame high spot prices for the potential closures.

It said the company had been talking with Winstone about their current situation since July, and had provided them with another contract 'to reduce their exposure to the spot market'.

The contract was priced at a similar level to the existing arrangement, but at the time Mercury was still waiting to hear back on it, it said.

August’s surge in prices was attributed to a combination of low hydro levels and tapering gas supply.

But Resources Minister Shane Jones accused the big power companies of profiteering, and said advice was being sought on potential regulatory interventions.

Later in the month, Major Electricity Users Group chairperson John Harboard said the Government looked set to intervene in the electricity market after losing patience with the sector's performance.

Since then, Transpower has reported the hydro lake levels have refilled to above average for this time of year, thanks to heavy rain and melting snow. Spot electricity costs have fallen.

At the shareholder meeting, Mercury executives said they were focused on providing a strong pipeline of sustainable, affordable energy, and that they had an open mind to any solutions and opportunities that would ensure it.