Mercury NZ signs long-term energy supply deal with packaging giant Visy

Mercury NZ has signed a power-purchasing agreement with Visy. Photo / Supplied

Mercury NZ has signed a long-term power-purchasing agreement with Visy, a multinational packaging, recycling and logistics firm.

The agreement spans 10 and 20-year terms and will see Visy purchase about 115 gigawatt hours (GWh) of electricity for the first 10 years before tapering down to about half of this amount in the last 10 years.

A PPA (Power Purchase Agreement) is an electricity supply agreement where a price is agreed for a period of supply, avoiding the volatility risk of buying and selling on the wholesale market.

The deal follows last year’s big price spike, which some big manufacturers blamed for shutting down their energy-intensive operations.

Mercury said the PPA would help power the operation of Visy’s packaging and manufacturing facilities across New Zealand, including in Auckland, Hamilton, Napier, Christchurch and Wellington.

“Deals like this are important in supporting our ambition to deliver more reliable and renewable energy for New Zealand,” Mercury executive GM wholesale, Tim Thompson, said.

“Having a guaranteed buyer of a portion of our renewable portfolio gives us confidence to continue to invest and build more renewables.

“They underwrite our development pipeline, helping us bring future projects to life faster.”

The big power generators are investing heavily in renewable power generation.

Mercury has 1.1 terawatt hours of capacity under construction – about half the total 2.2 TWh under construction in New Zealand.

The company, 51% owned by the Government, aims to deliver a total 3.5 TWh by 2030.

It said PPAs provide long-term energy cost certainty for customers.

“This stability allows businesses like Visy to plan with confidence while also supporting the growth of renewable generation,” Thompson said.

Visy said the agreement supported its long-term commitment to manufacturing in New Zealand.

Exact financial terms of the agreement were confidential, but the rate is comparable to the levelised cost of energy (LCOE) for new wind generation, Visy said.

Between July and mid-August 2024 spot prices hit $820 a megawatt hour, compared with the average $180 between 2018 and 2023.

Two forestry-based industrial electricity users, Winstone Pulp International and Pan Pac, either turned down or halted production in August.

Then in September, Winstone announced the permanent closure of its two mills at Tangiwai and Karioi, while Oji also announced that it would close its Penrose paper recycling facility.

Winstone and Pan Pac have publicly stated that high electricity prices were a big factor in their closures or temporary demand reductions.

The Electricity Authority, in its report on last winter, concluded: “Our analysis found that all three of these industrials had access to a similar quantity of hedges, and that each had access to enough hedges ahead of time to be fully hedged for July-September 2024.”

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.