Biomass Energy Market Red Hot

Biomass Energy Market Red Hot; Maine's on-Again Off-Again Wood-Fired Electricity Industry is Cooking

Apr 04 - Portland Press Herald

Three years ago, the fires were going out at Maine's multi- million dollar biomass energy industry.

Most of the 11 plants built across rural Maine in the 1990s to generate electricity from waste wood were off line for months at a time. A couple shut down permanently. By 2002, an industry that had generated enough power to light 250,000 homes, employed hundreds of workers and provided a market for low-grade wood was fighting for its life.

Today, all the surviving plants are running near capacity, or undergoing upgrades worth millions of dollars so they can restart. Developers are planning a new $80 million plant with enough capacity for 40,000 homes, in the same location that a smaller biomass plant was dismantled last year.

Soaring oil and natural gas prices, combined with state-mandated markets for green power in southern New England, are restoking investment in wood-fired electricity. It's an unexpected boost to Maine's rural economy.

"It was unthinkable two years ago that someone would build a new plant," said Stephen Hall, plant manager at Stratton Power Station. "The thought was that nobody's going to build in this industry for a while."

Stratton Power is owned by Montreal-based Boralex Inc., which also operates biomass plants in Livermore Falls, Fort Fairfield and Ashland. The company is spending $20 million to retool its plants to compete in the revived market.

But Hall and other experts caution that the current expansion has limits. These plants swallow more than 1,000 tons of a day of sawdust, waste wood and construction debris, so a reliable supply is critical. Also, developers that once before invested in biomass plants based on projected oil prices and expected public-policy initiatives are weighing the risk of being stung again.

It was public policy that brought Maine a biomass industry in the first place.

Foreign oil embargoes in the 1970s prompted the federal and state governments to pass laws encouraging energy production from renewable resources, such as wood and water. That spurred a new industry in Maine and the construction of more than two dozen biomass plants.

Some are at paper mills, where they help supply energy for production. A few are at sawmills for on-site power. The rest, like the Boralex units, are stand-alone wood burners that won lucrative contracts with utilities.

But the market began to change in the late 1980s. The plants had negotiated power rates with utilities on the assumption that oil prices would continue to rise. But in the 1990s, oil prices fell. As customers complained about their electric bills, utilities blamed biomass plants and other non-utility generators for the rate hikes. Finally, Central Maine Power Co. and the other utilities were forced to buy out long-term contracts at prices well above market rates at the time.

The market changed again in 2000, after Maine restructured its utility industry. Wood-fired power couldn't compete with the wholesale prices available from newly built gas-fired power plants across New England. By 2002, five Maine biomass plants were off line and two had shut for good.

Now the market is being transformed for a third time. Natural gas prices are soaring, taking away the competitive advantage from newer gas plants. Meanwhile, government policies aimed at encouraging the growth of environmentally friendly power plants are once again favoring biomass. One boost came last year from Congress, in the form of a production tax credit for renewable generation.

But the biggest push involves financial incentives recently created in Massachusetts, Connecticut and Rhode Island.

Several states, including Maine, require that a percentage of power sales comes from renewable energy sources. Because Maine generates more power than it needs, it can ship excess electricity south. Recently, southern New England states have begun to reward generators who can produce renewable power that meets specific guidelines. They are eligible to earn a premium, on top of the price they are paid for the electricity.

For instance: Connecticut offers a price premium through 2009 for biomass plants that emit lower levels of air emissions. These premiums are so lucrative that plant owners in Maine are investing millions of dollars for less-polluting boilers and other upgrades, so they can qualify.

"It's a good thing for Maine," said Hall, who is president of the Independent Energy Producers of Maine. "We get the benefit of cleaner air, and these plants survive to be part of the economy."

The economic impact of these plants is large in rural Maine, although not widely recognized in the southern part of the state.

Biomass plants often are the largest taxpayers in their communities, according to Hall. Most plants employ 20-25 people directly. Another 75 jobs are linked to wood harvesting and trucking.

Hall provided a more detailed look at the money recently in a report to the biomass trade group. It covered the two Boralex plants in Aroostook County, at Ashland and Fort Fairfield. The plants support 150 full-time jobs and pay $6 million a year in salaries. They pay $600,000 a year in property taxes and more than $8 million for wood fuel. They generated 65 megawatts into northern Maine's energy grid.

This sort of spending and employment disappeared a couple of years ago in Athens, north of Skowhegan. That's where a 13 megawatt plant owned most recently by Boralex shut down. Last year, Boralex dismantled the turbines and sold them to Georgia Pacific, for use in its Old Town paper mill.

So it was a welcome surprise last fall when GenPower LLC of Needham, Mass., came to Athens with plans to build a larger plant on the site. GenPower says it will spend $80 million on a 40-megawatt plant that would start up in 2008. The plant would burn 350,000 tons a year of wood and have 22 full-time employees.

Today's biomass operators are looking for every financial edge to make their projects viable.

In Athens, selectmen agreed to create a Pine Tree Zone to give GenPower tax advantages for locating there.

Tom Emero, director of renewable energy projects for GenPower, said the plant will seek short-term energy contracts for power supplies in New England. It's also being designed to qualify for renewable energy premiums. And like most modern biomass plants, it's being engineered to burn a range of wood waste while controlling air pollution.

State environmental laws allow construction and demolition debris to make up 50 percent of the fuel mix at a modern biomass plant. Maine plants burn demo waste from throughout New England, because it's less expensive than bark and some other wood wastes.

But while cost cutting can help these plants survive, the forces reviving the industry are volatile and unpredictable.

The elements of risk were highlighted in a just-released report on the challenges facing Maine's forest products industry, called the Maine Future Forest Economy Project. A section on biomass electricity outlines specific incentive programs in Massachusetts, Connecticut and Rhode Island. Summarizing a class of incentives in Connecticut, the report stated there was "a strong possibility" that the current prices won't stay in place and "facilities considering investments in order to participate in the (renewable energy certificates) market should carefully analyze future supply and demand risks."

Dave Wilby, executive producer at the Independent Energy Producers of Maine, agreed that no one can predict how the market will evolve. And he suggested that the existence of state-mandated green energy markets is more important to the industry than oil and gas prices. Still, the level of investment taking place in Maine today indicates plant owners are optimistic that biomass can find a niche in New England's wholesale energy marketplace.

"Three years ago, talk of any new biomass facilities certainly never crossed anyone's mind," Wilby said. "It does suggest a different atmosphere for this industry."

Staff Writer Tux Turkel can be contacted at 791-6462 or at:tturkel@pressherald.com

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