The Kiwi dairy giant announced plans for the duel-fueled plant earlier this week to effectively replace the existing 70MW gas cogeneration facility it jointly owns and operates with Todd Energy.

Fonterra's regional general manager of operations, Steve Morrison, said the gas supply contracts for the existing cogeneration plant expired in 2006 and, Fonterra had to ensure the chosen fuel for the future cogen plant would be in plentiful supply.

Fonterra needed to have an alternative available if it determined future gas supply could be at risk or the gas prices prohibitive. It is known another Fonterra cogeneration facility in the Waikato region has also recently considered a dual gas-coal or totally coal-fired future.

Morrison said Fonterra was seeking resource consents for a 250MW coal-gas plant, while continuing to assess the risks associated with gas supply and future prices. It would not make a final decision on the new project until mid-2004, which would enable it to have that back-up option operating by mid-2006.

Other options besides coal had been considered, but they could not compete in terms of quality and price.