Power shocks

For most of us, electricity falls into the ‘out of sight, out of mind’ camp. Until the power bill arrives, that is. With plenty of evidence to suggest those bills might start to look uglier, especially for commercial users, now could be time to look at options to mitigate this potential.

This is especially true for dairy farmers facing ongoing cost creep and deflating expectations on farmgate milk prices. Interestingly, a survey of options below reveals more to gain from making changes than just cost containment. They could provide a new gateway into positively positioning your farm’s emissions fitness.

First, though, and rightfully first, why are we in a position of needing to contemplate the cost of electricity to the farm, and the prospect of it increasing at pace?

At a high-level, the inflation-led rise in farm production costs over the past 18 months has squeezed margins to the point where ANZ and Rabobank economists have recently indicated farmgate price forecasts will mean some farmers’ costs may eclipse their income. It goes without saying then, that managing costs is increasingly top of mind, and farmers are naturally now focused on what they can do to reduce their outgoings.

There is some limited good news on that front. A Westpac economic bulletin on farm costs published in April noted the key causes of the inflationary spike (feed, fertiliser and fuel) which saw rural cost inflation reach 15.3% at the end of 2022, are in retreat. As a result, overall input cost rises are forecast to be just 4% by the end of the year. However, that’s more or less where the good news ends.

The Westpac analysis concluded by saying that following the price surges, farm cost structures will likely remain permanently higher. One cost component that could increasingly contribute to that is electricity.

In terms of farm input costs, electricity has escaped scrutiny in the conversation on rises that have plagued dairy farmers over the past two years. In its April analysis, Westpac lumped electricity in with ‘dairy shed expenses’, which were reported to be up about 12% annually (proportionally behind costs associated with weed and pest control, freight and animal health). It does, nevertheless, represent a significant and unavoidable fixed cost.

It’s hard to land on an average annual cost of electricity for dairy farms, but DairyNZ has estimated that to be $20,000 while noting some dairy farms use three times more electricity than others for the same milksolids production.

While increases in prices to date have been relatively modest, energy industry commentators are signposting noteworthy surges in the near future, which would contradict the downward price trends expected in other farm expenses.

Multiple influences are conspiring to force electricity prices up. First, there are the costs associated with the anticipated need for new generation and transmission capacity. As well as increasing aggregate demand as the economy grows, simple things like more and more electric vehicles (EVs) won’t be possible without significant upgrades to the network infrastructure. Some recent predictions are for electricity bills doubling in the next five years with lines companies (those responsible for investing) having to increase charges to pay for it.

Electricity Ashburton is one example, where a lines company has been forced to upgrade its infrastructure over the past couple of years, partly because its network was built for cropping and sheep farming where the biggest load of the year was associated with powering the woolshed. That’s been replaced by the daily (rather than bi-annual) demands of the dairy shed. Other networks are faced with adapting their assets to deal with similar types of changes in demand.

There is also deferred maintenance of assets fuelling price pressure. In February, Genesis said it had absorbed cost increases for two years and would need to start recovering that to avoid much sharper increases to energy users in future.

As significant as the need to pay for new energy infrastructure, Treasury has reportedly advised the Government that electricity prices would increase by up to 8% for industrial and commercial users if the current New Zealand carbon price was used to cut emissions. While the Government has appeared reluctant to put full faith in the carbon price to do this, many still believe it will have little choice given our commitment to meet established reduction targets.

So, what can farmers do to mitigate this impending uplift in electricity prices?

First, most dairy farmers will already be evaluating energy efficiency tactics within their operation – principally in the shed where most energy is consumed. It sounds trite, but it’s worth repeating the actions drummed into us on how to save power in the household; make sure all machines, equipment and lighting are turned off when not in use, and incandescent lighting is retired for more energy-efficient systems. Then there’s the less, but still obvious (insulate water pipes, for example) and don’ts (tie hot and cold-water pipes together). Regularly reviewing your tariff and electricity contract reflects good basic business practice.

Beyond taking care of common sense, however, the logical course of action suggests farmers should try and adapt to maximise use of the most cheaply produced source of electricity.

Some dairy farmers have taken this initiative already and invested in producing solar energy onfarm or are in the process of considering it. Solagri Energy chief executive Peter Saunders says his company has seen a recent marked increase in solar. Canterbury-based Solagri Energy’s model is designed to appeal to farmers who have limited means to invest in the infrastructure required to reduce their energy costs but also want to reduce their carbon footprint.

“To do this, we own the equipment that we install on a small piece of the farm’s land, which we license to occupy. Farmers then pay us for the power they use over a 20-year period. At the end of that period, they end up owning the system.”

At the moment, power produced by the solar installation beyond the needs of the farm at the time it is generated goes back to the grid. This means farmers are still reliant on other sources of energy when the sun isn’t shining. And for early morning shed activity, especially in winter, that’s still going to be significant. However, Saunders says within the next two to three years, batteries will be added to the systems, which will mean farmers will be able to use the electricity generated on the farm when it suits them.

While there are a range of reasons dairy farmers are considering installing solar systems, Saunders says resilience (particularly with the prospect of batteries becoming viable components) is the key for most.

“Once batteries are introduced into the solar system, farmers will be pretty much self-sufficient in electricity.”

There are certainly compelling motives for contemplating the potential of going off-grid. This is at least driving the curiosity in solar. However, given that the development of batteries to store solar power is still work in progress, it is unlikely curiosity will tip into widespread adoption in the near term.

Beyond solar, there is an alternative to planting panels that farmers can consider, to reduce both their exposure to escalating electricity costs and their emissions footprint.

Matthew Darby, managing director of EcoChill, a manufacturer of low-carbon refrigeration systems for dairy farms, says first and foremost, we need to remember that 90% of all NZ electricity comes from renewable sources. Therefore, chances are, installing solar on your farm is not going to make a tangible difference to your farms’ carbon emissions profile.

As is pretty well understood, 95% of farm emissions come from cows just walking around and expelling nitrates – not from the power used to run the farm’s machinery. Given that, Darby says it makes more sense to think less about how you can use more environmentally efficient energy, and instead focus on how you can use less electricity when it’s most expensive (and potentially less renewable).

Darby says there’s no getting away from the fact that dairy farmers are most productive (and by implication use the majority of their power) at the same time that the grid is under most pressure – early in the morning and late afternoon. This means prices will always be at a premium as farmers’ electricity needs are greatest when they’re cooling harvested milk and making hot water for cleaning.

So, to help farmers divorce themselves from the tyranny of peak power prices, EcoChill have developed a refrigeration system that uses carbon dioxide (CO2) as the core ingredient to freeze a three-cubic-metre chunk of water into ice during the night when demand for electricity is at its lowest. “This effectively creates a big thermal battery. The farmer gets up in the morning and immediately has three tonnes of ice ready to cool the milk. At the same time as making the ice, the wasted energy is making 800 litres of water pre-heated to 80 degrees.”

Leaving aside the technical merits of this revolutionary system, the concept of sourcing electricity from the

grid when it is cheapest (when demand is at its lowest, and when there is no need to use power generated by fossil gas or coal), farmers have the potential to strike two wins – exposure to lower prices, and confidence the energy they are using is renewable.

Wouldn’t it be good though if, as more pressure comes on farmers to show the efforts they are making to decarbonise their emissions, they could turn this confidence into a proof point?

Well, the potential to do so might not be far away. One electricity solutions provider, Simply Energy, a subsidiary of Contact Energy, is developing a Carbon iQ tool that enables just that – allowing customers to measure and report their emissions by understanding the source of their electricity at any given time.

In a statement from the company in April, head of Simply Energy’s Sustainable Solutions, James Carberry said the Carbon iQ tool can report on the carbon impact on a business from its electricity use by combining a business’s half-hourly consumption data with half-hourly emissions data from Transpower’s Energy Market Services that highlights the carbon intensity of NZ’s electricity system.

“Our analysis shows that shifting electricity use can result in significant emissions savings,” Cranberry said. “For example, at 6.30pm on September 6 last year, our electricity was 81% renewable, increasing to 97% by midnight. Shifting flexible consumption from the evening peak to after midnight on this day would have reduced CO2 emissions by 76%.”

You might say the value of this transparency to a dairy farming business is, at the moment, marginal. Which is a fair assessment, and a view EcoChill’s Matthew Darby sympathises with. He says the industry’s energy emission reduction effort has to be led by, and championed by the processors. “They need to front up and incentivise the adoption of onfarm changes such as this.

“It’s a lot to ask of a farmer to throw money at future-proofing technology and reduce emissions, but not get rewarded for it.”

EcoChill has calculated the aggregate benefits of farmers adopting its own solution for Fonterra.

“We found that rolling out the ECO2Dairy system across all of Fonterra’s 11,000 New Zealand farms would reduce onfarm energy consumption by 37% and deliver 3.7% of New Zealand’s total emissions targets.”

All that said, there will still be a lot of push-comes-to-shove needed to get farmers to change their electricity source and system (whether it be installing solar or new shed technology). It’s a lot easier to continue flicking a switch at the beginning or end of a hard day, and being done with it, than trying to understand the Emissions Trading Scheme or the merits of using a natural refrigerant over a synthetic one.

Then again, why not? Taking up Solagri Energy’s offer means you don’t have to pay anything to play. EcoChill’s solution does require upfront investment in its technology. But they have calculated it can be paid off on a 400-herd-sized farm inside two years. For a 600-herd operation the ROI is about 18 months. That’s not bad for longer-term resilience building.

In terms of what farmers might consider coming in the regulatory space, at this stage, both main political parties are committed to actively decarbonising the economy so broad incentivising shouldn’t be ruled out. In March, the National Party launched its election policy, promising to double the amount of electricity produced from solar, wind and geothermal plants. It said it would do this by changing resource consent rules to get renewable generation built faster. Most of the focus of this announcement was on enabling a transition in fuel uses in the transport sector (matching the government’s existing policy). But any increase in supply of renewable sources should in theory reduce the costs to all commercial users, including farmers.

In the meantime, for those wanting to beat electricity price rises before the Government does, there are options to do so.