A2 Milk has a 75 per cent stake in the plant and China Animal Husbandry Group (CAHG) has 25 per cent.
New Zealand's first high pressure electrode boiler (HPEB) - will replace all current coal-fired heat duties on the site, thereby reducing carbon emissions by about 22,000 tonnes a year, Mataura Valley said.
The new boiler is due to be commissioned in October, 2023.
Power for the project is coming from Meridian - New Zealand's biggest 100 per cent renewable energy generator.
A2 Milk chief executive David Bortolussi said the project would make a genuine impact on reducing emissions in the region.
Despite coal being a more cost-effective way of creating the large volumes of process heat required to turn fresh milk into powder, HPEB technology has now advanced at scale, he said.
The HPEB process is ideal for nutritional milk powder manufacturing applications, he said.
Mataura Valley had been approved for $5m in co-funding from the Government Investment in Decarbonising Industry (GIDI) Fund, which is administered by EECA.
The GIDI Fund was established in 2020 as part of the Government's Covid Response and Recovery Fund, which aims to drive economic stimulus and job creation through decarbonisation projects.
Separately, Statistics NZ data showed that New Zealand's greenhouse gas emissions increased by 2.1 per cent in the 2019 year, boosted by coal use.
Fonterra - a major coal user, particularly in the South Island - has announced plans to stop using the fossil fuel at its Stirling cheese plant in Otago by August next year.
The co-op plans to stop using coal completely by 2037.
Mataura Valley will be a2 Milk's first foray into infant formula manufacture.
As its stands, Synlait Milk - in which a2 Milk has a 20 per cent stake - is its sole supplier.
Synlait is expected to remain a significant supplier of product to a2 Milk in the years ahead.
In its latest result, a2 Milk said the acquisition of Mataura Valley - completed earlier this year - provided the opportunity to participate in nutritional products manufacturing and the potential to pursue additional China label registrations and product innovation opportunities in the future.
"It strengthens relationships with key strategic partners in China, achieves supplier and geographic diversification, and over time will offer access to insourced manufacturing margins," the company said.
It had previously been expected that post acquisition, Mataura Valley would process additional third-party volumes which is now uncertain in terms of execution and timing.
A2 Milk has now revised down its volume assumptions for product to be transferred to Mataura Valley during the transitional period 2022 to 2024.
As a consequence, Mataura Valley is exploring further business development opportunities and will seek to work with additional third parties to improve the financial performance of the company during the transitional period.
A2 Milk still expects Mataura Valley will return a positive EBITDA during 2025.
