Slow contract commitments delay Zilkha’s $90 million biomass project in Monticello

Officials with Houston-based Zilkha Biomass Energy will delay construction of a $90 million renewable energy project in Monticello because of hitches in obtaining long-term contracts for the sale of the company’s patented “black pellets” used in green power generation, Talk Business & Politics has learned.

“Zilkha Biomass and its development partners remain committed to building and operating the planned 450,000-metric ton (per year) black pellet production facility in the Monticello Industrial Park,” Zilkha’s project manager Joe Sy said in response to queries from Talk Business & Politics this past week. “We own the land, have completed preliminary engineering, have been granted emissions permits by ADEQ, have Letters of Intent with transportation providers, and have eager financial and operational partners.”

Sy continued. “Our team’s focus is now on securing long-term commitments from international power and heat generators to purchase Monticello’s biomass fuel output. We are working this on multiple fronts globally, as this effort is key to not only our business but also for the local community. Once commitments are secured, we will proceed with financing and construction.”

According to minutes from a Monticello Economic Development Commission (MEDC) meeting on June 3, Zilkha was expected to begin construction on the multimillion project this month. Those plans would have made it nearly impossible for the company to complete the facility and begin production by the end of 2016, as was originally planned.

In July 2014, former Gov. Mike Beebe and Zilkha officials announced plans at a Monticello ground-breaking ceremony to build a manufacturing plant that would produce the Houston energy partnership’s proprietary black pellet wood chip, which could then be easily integrated into the energy grid as a clean energy alternative to coal-powered electricity. At the time, Zilkha officials promoted their proprietary black pellets as a cleaner burning alternative to coal, saying their wood-burning manufacturing plants would more easily comply with state and federal clean air regulations. Unlike white pellets, Zilkha says its dark-colored wood chips are water resistant, which allows them to be transported and stored outside like coal.

“Power companies across the globe are looking for renewable energy alternatives and biomass wood pellets stand as one of the most practical and cost-effective solutions,” Jack Holmes, CEO of Zilkha Biomass Energy, said on July 30, 2014. “This plant in Monticello will be one of Zilkha’s largest and will help us capture more of the growing biomass energy market.”

ARKANSAS’ ‘WOOD BASKET’
Zilkha’s project in Monticello is part of the recent surge of interest in Arkansas’ “wood basket” that has brought worldwide attention to the state’s 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.

A month after Zilkha’s announcement in the summer of 2014, privately-held Highland Pellets of Boston unveiled its plans to build the 600,000 metric ton wood pellet facility in Pine Bluff. Recently in town to look at the expansive 200-acre project in Jefferson County, Highland Chairman Tom Reilley said that $200 million project is on schedule to begin production in late 2016 despite recent spring showers that slowed progress.

And although it does not plan to enter the wood pellet market, China’s Sun Paper announced in late April it will invest more than $1 billion to build a bio-products mill in Clark County is also expected to be located at the epicenter of South Arkansas’ vast timber stock, about 90 minutes away from both Monticello and Pine Bluff.

Zilkha was the first out-of-state company to announce it was moving forward with land acquisition, environmental permitting and other preparations for Arkansas’ first high-profile entries into the burgeoning biomass energy sector. According to company officials, Highland and Zilkha’s wood pellet manufacturing mills in South Arkansas 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. A 2015 report by the U.S. Energy Information (EIA) report, 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.

Yet this is not the first time a Zilkha-backed project has run into project delays before completion. The Houston-based energy firm’s plans to renovate and retrofit an idle wood pellet plan in Selma, Ala., into a full-scale black pellet plant took nearly two years more than expected to get to full-production.

Originally set begin operations in 2014, financing and commitment delays pushed the production start of that 275,000 metric ton facility back until late last year. Zilkha officials say the Alabama facility, which is billed as the first full-scale commercial black pellet plant in the world, finally began production in August when the first shipment of the company’s patent waterproof, wood chips were shipped from Mobile, Ala., to France, according to a company news release.

ZILKHA HISTORY
In the renewable energy sector, Zilkha has also been one of the nation’s most successful and longstanding green energy companies in the U.S. The company’s predecessor, Zilkha Renewable Energy, became one of the largest developers of wind projects in the U.S. until Wall Street investment giant Goldman Sachs bought controlling stake in that partnership nearly 10 years ago.

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, company officials have said.

When the Monticello mill was first announced in the summer of 2014, Zilkha officials 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, a company spokesman said.

By contrast, construction on the Highland plant in Pine Bluff is at full swing and company officials have told Talk Business & Politics that the Boston-based energy investment group already has agreements with large land owners in south Arkansas to supply the wood products necessary to sustain the company for years to come. Highland’s Chairman Tom Reilly also said in a recent interview that the company also has long-term commitments from overseas buyers to purchase it products, which will be shipped down river to Baton Rouge, La., and then transported to the United Kingdom and other European markets.

ARKANSAS BIOMASS SECTOR SET FOR GROWTH
Renewable energy analysts say the biomass wood pellet market is ripe for growth, especially in southern states like Arkansas that have vast forest wastes from clearing and thinning, sawmill residues, and urban landscape trimmings.

Last year, nearly half of the electricity generated from biomass in 2015 was at industrial facilities outside of the electric power sector, such as pulp and paper mills, the EIA said. Within the electric power sector, biomass accounted for 6.3% of renewable electricity and 0.8% of total U.S. electricity generation.

One reason Zilkha may be having trouble getting long-term commitments is that an increasing number of biomass manufacturers in the U.S. are also competing for contracts in the U.K., the same market that both Arkansas companies are targeting. Last week, Bethesda, Md.-based Enviva Partners announced the execution of a new take-or-pay off-take contract to supply wood pellets to Lynemouth Power Limited.
Lynemouth Power said it plans to convert its 420-megawatt coal facility in the UK to wood pellet fuel by the end of 2017. Deliveries under this contract are expected to commence in the third quarter of 2017, ramp to full supply of 800,000 metric tons per year in 2018, and continue through the first quarter of 2027.

Sy, on Wednesday, reassured Monticello city and economic development officials that the project will completed, albeit a few months behind schedule.

“We deeply appreciate the patience and support of the people of Monticello and Drew County as we endeavor to bring Zilkha Biomass Monticello into full operation,” he said.

Nita McDaniel, executive director for the MEDC, and state economic development officials referred all comment for this story to Zilkha officials.