$25 million FAME loan remains intact despite changes in Millinocket pellet mill plan

Finance Authority of Maine Treasurer Patrick Murphy (far right) feared that the proposed $25 million bond supporting a torrefied wood pellet mill was too risky, while board member and state Department of Economic and Community Development Director George Gervais (far left) supported the plan during a FAME meeting in Augusta on Thursday, Oct. 17, 2013.
Finance Authority of Maine Treasurer Patrick Murphy (far right) feared that the proposed $25 million bond supporting a torrefied wood pellet mill was too risky, while board member and state Department of Economic and Community Development Director George Gervais (far left) supported the plan during a FAME meeting in Augusta on Thursday, Oct. 17, 2013.
Posted March 12, 2014, at 3:39 p.m.
Last modified March 13, 2014, at 6:57 a.m.

MILLINOCKET, Maine — The Finance Authority of Maine hasn’t withdrawn Cate Street Capital’s $25 million bond to build a pellet mill off Katahdin Avenue, but the company will have to answer a lot more questions before it gets the money, officials said Wednesday.

FAME will not void the state loan guarantee despite a significant ― and welcomed ― improvement in the project’s technology and scope, FAME officials said.

The FAME board of directors’ 8-5 vote on Oct. 17 approving the deal is “still valid and approved but it will be a different plan or financing that will have to be reviewed,” said Bill Norbert, FAME’s governmental affairs and communications manager. “It doesn’t vitiate the prior approval but this one is going to be reviewed again.”

“It will be considered a new or second submission” when the board reviews it fully, probably at its April meeting, Norbert said. “It is still early and we are still trying to better understand the project.”

Cate Street Capital’s plans now call for replacing the $70 million microwave torrefaction plant with a $140 million steam-thermal plant. The new plant would employ 50 people instead of 35 and more than triple the amount of pellets created and tree wastes used annually, a company spokesman has said.

FAME’s analysts will be asking for much of the same information that they received in the reviews leading to the Oct. 17 vote, FAME attorney Christopher Roney said. The project is the second approved under FAME’s Major Business Expansion program and the $25 million one of the largest sums FAME has ever agreed to allocate. The allocation is pending the new review.

One independent forest industry analyst again reviewing the project for FAME, University of Maine professor Robert Rice, said he viewed the steam-exploded technology offered by Zilkha Biomass Energy of Houston as a significant improvement over the microwave-based torrefaction process Cate Street originally planned to use. Cate Street announced Zilkha’s replacing Rotawave Ltd. of Aberdeen, Scotland, to FAME prior to the authority’s Feb. 20 meeting.

“I would say hands down that it’s better,” said Rice, who tested steam-exploded black pellets provided by Zilkha in the UMaine laboratories in Orono about two weeks ago. “Black pellets are a proven technology. At their root, and based on testing we have done over years of torrefied wood and black pellets, I would say that black pellets have a distinct advantage.”

Originally used in the 1930s to create Masonite hardboard used in the construction of housing, the steam-exploded black pellets’ technology is proven in the marketplace, unlike Rotawave’s, said Rice, a professor of wood science whom FAME selected to review the new technology.

Steam-exploded pellets are “a much better product than torrefied wood in terms of durability and energy and strength of product,” Rice said. “It’s all pretty much what they [Zilkha and Cate Street officials] say it is.

“It’s all good stuff. This steam-explosion process is a good process. It’s been around for a long time,” Rice said. “It’s particularly good in terms of its moisture resistance, which is a critical item, and its ease of manufacture.”

Steam-explosion technology involves using abrupt changes in steam pressure to eliminate water and other unneeded byproducts from wood to create clean-burning, water-resistant pellets, Rice said.

“I can’t speak for Cate Street but Rotawave hasn’t a plant in operation anywhere in the world nor is there a real demand for torrefied wood anywhere in the world,” Rice added.

Zilkha, meanwhile “has been promoting this technology everywhere,” particularly in Europe and Japan, which have many of the coal-fired electricity plants that would be pellet customers, Rice said.

Rice added a significant caveat to his praise of steam-exploded pellets. He said his review of Cate Street’s plan concerns only its technology and product-testing, not other key factors, such as Thermogen’s ability to secure good contracts from wood suppliers to make the pellets or the marketability of the finished project.

FAME has Stantec, an engineering firm with offices around the country and in Canada, reviewing the project’s engineering. Hilco Valuation Services is analyzing the real and personal property associated with the proposal, Norbert said.

Thermogen will probably face a challenge securing a good price for the green wood wastes needed to make the pellets. Demand for the raw materials used to make pellets and wood pulp that is crucial to the papermaking process is already pretty high, drawing prices of $30-$40 per ton of wood wastes and $50-$70 per ton of the wood used to make pulp, Rice said.

Thermogen’s new product would probably drive prices higher, but the company’s partnership with fellow Cate Street subsidiary Great Northern Paper Co. LLC, which makes newsprint in East Millinocket, would likely give the company some leverage in dealing with wood suppliers, if the mill restarts, Rice said. GNP began laying off 212 of 256 workers early last month after ceasing production on Jan. 23. The company hopes to restart the mill by May 1.

Rice said Zilkha’s partnership with Finland-based Valmet — which describes itself on its website as a “leading global developer and supplier of services and technologies for the pulp, paper and energy industries” — meshes well with Cate Street’s goals. Zilkha and Valmet signed a five-year agreement to bring steam-exploded black pellets to market, according to the company’s website.

Rice described Valmet as a world leader in the manufacture of wood processing and papermaking machinery and said he suspected that Valmet would engineer and build Zilkha’s plant in Millinocket.

“They are a proven worldwide company making paper mills, a very strong company,” Rice said, “and their overall expertise in engineering is really solid.”

Officials in Crockett, Texas, where Zilkha has a sample or testing manufacturing plant, gave the company solid marks for its work.

 

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