South Arkansas Wood Pellet Mills Still On Schedule For 2016 Start

Two full-scale biomass plants in South Arkansas are still scheduled to come online by the end of 2016, just in time for the wood pellet market to gain steam in Europe as industrial power generators switch from coal to renewable fuels.

Top officials for both Highland Pellets LLC in Pine Bluff and Zilkha Biomass Energy in Monticello told Talk Business & Politics that their respective companies are moving forward with land acquisition, environmental permitting and other preparations for Arkansas’ first high-profile entries into the burgeoning renewable energy sector.

According to a U.S. Energy Information (EIA) report released on April 22, 2015, U.S. wood pellet exports increased by nearly 40% between 2013 and 2014, from 3.2 million short tons to 4.4 million short tons. The U.S is now the largest wood pellet exporter in the world, overtaking former global leader Canada in 2012, the EIA said.

Both Zilkha and Highland, both backed by two privately-held, out-of-state investor groups with impressive Wall Street and Silicon Valley ties, announced in the summer of 2014 plans to make use of Arkansas’ huge inventory of unused forest dregs, logging leftovers, imperfect commercial trees, dead wood and other non-commercial trees that need to be thinned from crowded, unhealthy, fire-prone forests.

On July 30, 2014, Zilkha Biomass Energy announced plans to build a $90 million proprietary black wood pellet manufacturing plant in Monticello that company officials said could be easily integrated into the energy grid as a clean energy alternative to coal-powered electricity.

Less than a month after the Zilkha announcement, Highland Pellets LLC announced on Aug. 25 that it was building a 500,000 metric ton per year wood pellet facility in Pine Bluff, about an hour’s drive north from Monticello. In its news release, Highland boasted that its $130 million plant will create more than 35 direct jobs and another 482 offshoot jobs that would provide an $86 million a year financial bounce to local communities.

In a recent interview with Talk Business & Politics, Highland Chairman Tom Reilley said his company has purchased land for his company’s first wood pellet facility project in Pine Bluff, but still has not received Title V air quality permit approval from the Arkansas Department of Environment Quality. Under the federal Clean Air Act, Title V operating permits are legally enforceable documents that allow local and state regulators to issue air pollution guidelines after the source has begun to operate.

Both Highland and Zilkha have boasted that their wood pellet manufacturing mills will convert tons of tree stem and waste wood into tiny pellets that are shipped to Europe and burned in power plants for what is being touted as a renewable form of electricity. But as the industry continues to develop grow, environmental groups and “green energy” advocates are increasing raising questions about the cleanliness and viability of burning wood for power generation.

STILL UNDER REVIEW
According to ADEQ spokeswoman Katherine Benenati, both Zilkha and Highland are currently at different stages of the Title V permitting process, which is the biggest hurdle for both companies before construction can begin on their respective mills.

“The air permitting process is the key fulcrum for moving forward with the next step and so far, everything has been positive,” Reilley said in a phone interview. “That said – if everything goes as planned, we hope to be in business before the end of 2016.”

According to ADEQ records, Highland submitted its original application for approval on Sept. 17, 2014. That initial permit was quickly denied by state officials less than a month later. The Boston-based investor group led by Reilley, a former Senior Managing Director for the now defunct Wall Street investment house Bear Stearns, filed another permit application on Jan. 5, 2015, which was deemed “complete” two days later by the ADEQ staff.

“We received the Highland application … and are reviewing it,” Benenati said of the confidential process. “It can take about 180 days to issue a final decision on such a permit.”

On the other hand, Benenati said Zilkha received approval for a draft permit from the state on May 1, a little over three months after completing its application with ADEQ regulators on Jan. 21. Still, environment groups or other interested parties have until the end of the month to provide comments on the Houston renewable energy firm’s application.

“There’s a 30-day public comment period that started (On May 1),” Benenati said. “We’ll review any comments that come in and issue a response to those comments before making a final decision. I don’t have a timeline for that. It will depend on how many comments we get and the scope of those comments.”

Following Title V approval from ADEQ, both Highland and Zilkha officials say they plan to move forward aggressively with their respective state-of-the-art wood pellet manufacturing mills only 50 miles apart from each other in the middle of the nation’s so-called “wood basket” in southern Arkansas.

Reilley said once Highland gets approval to move forward, it will begin a rigorous onsite training schedule for the about 50 employees that will initially be hired to produce 500,000 metric ton-of biomass feedstock for electric generation each year.

“But we need our (Title V) permit before we pour the concrete,” said the former Wall Street investment executive, adding that support the company has gotten from the Pine Bluff business community and economic development officials “has been incredible.”

And although there are no specific qualifications or technical skills necessary for those who will be hired at the Pine Bluff mill, Reilley said the company has outlined a rigorous and unique training schedule to get workers up to speed in about six months.

He said the Boston-based investment group chose South Arkansas to locate its first wood pellet plant because of its location, which is ideally located to transport the wood pellets by rail or barge from the plant to port in southern Louisiana.

Also, Reilley said the area’s workforce is already familiar with forestry tools and equipment that are necessary for production for wood products. “There is a deep bench of people who are familiar with forestry and the manufacturing industry,” he said.

Similarly, Zilkha has also closed on a huge land purchase near the University of Arkansas at Monticello where it also plans to begin production by the fourth quarter of 2016. The company, which is partly backed by renewable energy investors Selim and Michael Zilkha and billionaire and former Microsoft co-founder Paul Allen’s Vulcan Capital, has set aside a total of nearly 110 acres for the planned wood pellet mill, officials said.

“Our most recent purchase from UAM was the last parcel of land for our project and we purchased it for $85,000,” said Zilkha spokesman Jonathan Ohueri.

When the Monticello mill was first announced in the summer of 2014, Ohueri said the project would be financed with a combination of new market credits and bond financing. Hourly wages for the 52 new jobs at the planned 450,000 metric-ton-per-year pellet plant will be between $15 and $18 an hour, he said.

He reiterated that the company is on schedule to begin construction, but that is contingent on Zilkha receiving final approval for its pending air permit application. “Construction of our plant in Arkansas will begin after final approval of our permit applications and once an offtake agreement is made for the output of that plant,” Ohueri said.

DESTINATION EUROPE
Once in production, officials at both companies said they will be ready to quickly get up to full operational mode with interested buyers and commitments already in place from European sources. According to the EIA, almost three-quarters of all U.S. wood pellet exports were delivered to the United Kingdom (UK), mainly for the purpose of generating electricity.

Overall, the U.S. International Trade Commission says that the U.S. wood pellet exports accounted for more than $500 million of trade in 2014. Wood pellets can be used for heating homes and businesses and as fuel for small-scale industrial boilers, but in the United Kingdom, Belgium, and the Netherlands, wood pellets are used predominantly for utility-scale electricity generation.

The main driver for growing wood pellet consumption in Europe is the European Commission’s 2020 climate and energy plan, which aims to reduce greenhouse gas emissions and increase the contribution of renewables to total energy consumption in the European Union, according to the EIA.

Individual member states are assigned national renewable energy targets. The United Kingdom’s plan states that 15% of energy demand must be met by renewable sources by 2020. A renewables obligation credit (ROC) program has caused plant operators of large coal-fired power plants to retrofit existing units to either cofire with wood pellets or convert to dedicated biomass.

According to data from the UK Department of Energy and Climate Change, electricity generation from plant-based biomass (which includes wood pellets) increased 47% from 8,933 gigawatthours (GWh) in 2013 to 13,138 GWh in 2014, driven by the continuing conversion of the huge Drax power plant in north-central England from coal to biomass.

In 2014, the North Yorkshire, England-based plant, which has the largest generating capacity of any power station in the United Kingdom and Western Europe, accounted for more than 80% of all of the United Kingdom’s wood pellet imports from the U.S., and almost 60% of all U.S. wood pellet exports to all countries.

The Drax plant is made up of six units that together are rated at nearly 4 gigawatts (GW) of electricity generating capacity. One of the first of six units was converted to dedicated biomass in 2013, and biomass provided 1.8 million short tons of fuel supply that year. A second unit was converted in 2014, and biomass supplied to the plant increased by more than 150%, providing 4.5 million short tons of fuel. There are plans to convert a third unit by 2016, close to the time the Highland and Zilkha mills are expected to come online.

To facilitate large volumes of pellet imports from the U.S., Drax Biomass, a wholly owned subsidiary of the Drax Group, owns and operates the Amite Bioenergy and Morehouse BioEnergy plants in Mississippi and Louisiana, respectively. Those wood pellet plants have a combined annual capacity of nearly one million short tons, about the same as the two Arkansas mills. According to the EIA, Drax plans to own or operation additional pellet mills in the southern U.S. in the future.

Reilley specifically mentioned the U.K market as key to his company’s future, and said that Highland is poised to grow immediately once in production. He said Highland will ship its wood pellet down river from Monticello to Baton Rouge, La., where they will then be shipped to the United Kingdom. He said jokingly that Highland was essentially a logistics company that transports wood pellets from Arkansas to England.

“We are taking something from the forest and shipping it across the pond into the furnace,” he said. “The issue of concern is taking something that is grown in this area, then taking the residues and shipping it to the UK, and have it come in below a certain carbon footprint. We meet both those substantial requirements and the great thing is that the Arkansas fiber basket is growing.”

Ohueri also said that Zilkha is ready to make a grand entrance into the wood pellet marketplace in 2016. Currently, the Houston-based renewable energy producer is close to completing construction on a 275,000 metric ton mill near Selma, Ala., which company officials say will produce its proprietary, water-resistant “black” wood pellet that burns like coal without the harmful side effects.

Zilkha has also filed air permits and applications to build similar wood pellet plants in Maine, New Hampshire, Hawaii and Texas, Title V permitting records show, but those mills never got off the ground floor for different reasons.

“We do have potential customers who are very interested in the production output of our Monticello project, and we are currently in negotiations for its eventual supply,” Ohueri said of the $90 million Arkansas project. “(But), no long-term offtake has been signed for the plants supply.”

Meanwhile, as the U.S. wood pellet market continues to see double-digit growth, the EIA filed its proposed new Densified Biomass Fuel Report survey with the Federal Register on Dec. 31, 2014. The survey will track domestic pellet manufacturing, and is expected to begin data collection in 2016, about the time Zilkha and Highland mills are expected to come online.