Fonterra to convert two coal boilers at South Canterbury plant to wood pellets.

The dairy giant said it is the co-op's biggest decarbonisation investment to date.

The co-op said the investment will cut its overall emissions by nine per cent.

Dairy giant Fonterra has announced a $64 million project to convert two coal boilers to wood pellets in a bid to reduce emissions.

The co-op said converting the boilers at its Clandeboye site in South Canterbury would reduce its manufacturing emissions by 9 percent.

Fonterra, New Zealand's biggest emitter, said it would reduce its emissions by 155,000 tonnes of carbon dioxide equivalent each year.

The conversion was co-funded as part of a previously announced Energy Efficiency and Conservation Authority (EECA) partnership.

Fonterra chief operating officer Anna Palairet said it was a "significant milestone" for the co-op, which has committed to exit coal by 2037.

"This conversion project at Clandeboye is another demonstration of our co-op's commitment to sustainability and climate action and follows successful boiler conversions at our Te Awamutu, and Hautapu sites," Palairet said.

"In making our largest decarbonisation investment to date, we're reducing our environmental impact - while securing operational resilience. This project represents a significant milestone in our journey towards a coal-free future."

EECA chief executive Marcos Pelenur said Fonterra's announcement was "encouraging".

"It is a milestone that once again highlights the central role of biofuel in the clean energy space and the use of clever technology in increasing energy efficiency," Dr Pelenur said.

The conversion of the two boilers would be completed and operational by September 2025.

Fonterra said it would continue plans to transition Clandeboye's remaining boilers.

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