Biofuel projects planned

British biofuel company AEG has switched its focus to Western Canada and the U.S., but is still interested in a biofuel plant for Newfoundland.

By Tony Kryzanowski

British biofuel producer Active Energy Group (AEG) Plc is still interested in building a biofuel production facility in Newfoundland. The plant is backstopped by two commercial timber permits (CTPs) it obtained for areas of the province’s Northern Peninsula in November 2018.

“The Group is currently reviewing the optimal commercial strategy to develop its opportunities in Newfoundland,” the company said recently in response to questions posed by the Logging and Sawmilling Journal. “Recent conversations have presented complementary business opportunities for the Group, in addition to the CTPs. These are being examined with the aim to construct and install a CoalSwitch plant in the province.”

The opportunity provided by AEG could be of significant value to Newfoundland loggers and sawmills because it essentially provides them with a market for their pulp wood material. AEG subsidiary Timberlands International has been granted two five-year commercial cutting permits totaling 100,000 cubic metres annually from two Newfoundland Forest Management districts.

However, the company’s focus now is on Western Canada and North Carolina.

A B.C.-based company, RMD Environmentals, which is a wholly-owned business incorporated by First Nations Grand Chief Ronald Derrickson, has paid AEG $2.4 million for the exclusive right for the sale and commercial development of opportunities to which CoalSwitch technology may be applied in B.C. and Alberta for 20 years. AEG will also receive $5 (U.S.) per tonne of all licensed product that is produced by RMD Environmentals, its clients or partners, for those 20 years. Derrickson is also an AEG shareholder.

RMD Environmentals says that it anticipates building its first CoalSwitch-based plant in Alberta within the next 18 months.

AEG has also signed a deal to establish one of its CoalSwitch biofuel plants in Lumberton, North Carolina. According to the company, the site is to become the new base for all AEG’s CoalSwitch operations in the U.S. and house the first permanent production facility for CoalSwitch. Lumberton is a strategic location close to the American eastern seaboard in the heart of this lumber production region.

The intent is to scale up biofuel production to 400,000 tonnes per year by 2021.

CoalSwitch is the technology developed by AEG that it will use to manufacture biofuel pellets from wood fibre. In November 2018, AEG had proposed to produce between 55,000 and 65,000 metric tonnes of wood pellets annually using its CoalSwitch technology, with wood pellets exported from the port at Hawke’s Bay to a customer in Poland.

In its statement, AEG made no reference to the Newfoundland Northern Peninsula communities of Hawke’s Bay, where it had proposed to install a $19.7 million biofuel production plant, or Roddickton, where the company initially thought it might locate its plant, only to change its mind later for economic reasons.

Using wood fibre harvested in Newfoundland, AEG had proposed to use its CoalSwitch technology to produce between 55,000 and 65,000 metric tonnes of wood pellets annually, with the wood pellets exported to a customer in Poland.

AEG has been granted two five-year commercial cutting permits to its subsidiary, Timberlands International (Newfoundland and Labrador) Inc (TIL), totaling 100,000 cubic metres annually from two Northern Peninsula Forest Management districts. These permits have a shelf life, as it has 2.5 years from November 2018 to remove 40 per cent of its allocation from the permitted area.

The company has informed the Newfoundland government of its ongoing evaluation.

“TIL (NL) has advised us that the company is in the process of updating its work plan, which will be provided in due course,” the Department of Fisheries and Land Resources informed LSJ.

Another 48,000 cubic metres of wood fibre was to be provided to the AEG plant by local loggers. However, some have now threatened not to supply that volume to AEG, upset that the development was announced for the community of Hawke’s Bay instead of Roddickton, where a partially completed sawmill and pellet plant currently sits idle. In Winter 2019, some took to the streets with placards to express their dismay and fear that local sawlogs that could have been used to create local jobs at the incomplete and idled Roddickton sawmill might be shipped out of the area by AEG.

CoalSwitch technology only proposes to use the non-merchantable and pulp wood fibre from the CTP area as its feedstock. According to the cutting permit agreement, half of the sawlogs harvested from these forest management areas have been allocated to the local sawmill industry while a final home for the remainder is still unresolved.

While indicating a continued interest in Newfoundland as a whole for an investment, AEG has experienced the loss of Richard Spinks, a major proponent and negotiator for the company for the CTPs in the Northern Peninsula. He relinquished the role of Chief Executive Officer, which has been assumed by Michael Rowan. Spinks stepped down as an Executive Director of the Group in October 2018.

When contacted by LSJ, Spinks confirmed that he was no longer involved in AEG management. He has since resurfaced as a consultant to RMD Environmentals, and has worked closely with the company to facilitate its licensing deal with AEG.

Spinks says whether a biofuel project ultimately proceeds in Newfoundland will be up to AEG.

In an extensive interview from his home in the Ukraine, Spinks explained to LSJ why the decision was made during his tenure as CEO to move the biofuel plant from Roddickton to Hawke’s Bay.

Because Roddickton already has a partially constructed sawmill and pellet plant originally proposed by a company called Holson Forest Products, it felt that it was first in line for the AEG development. Spinks says he had visited the community and met with local loggers on several occasions.

However, ultimately, AEG chose nearby Hawke’s Bay, and although it was a better financial option for the company because of the availability of a staging site for their equipment right next to a port and offering better logistics for wood deliveries, it was not the initial reason why AEG opted for Hawke’s Bay over Roddickton. Spinks says that it was something entirely different and unforeseen until close to the end of cutting permit negotiations with the province.

The sticking point had to do with the money spent by the Newfoundland government to kick start the Roddickton sawmill and pellet plant project back in 2009. According to the Newfoundland government, there was a $10 million investment in Holson Forest Products of Roddickton, under the Forest Industry Diversification Fund of the Department of Natural Resources. The company received a $7 million non-interest term bearing loan to be repaid over a 15-year period, as well as a $2 million grant. The Department of Environment and Conservation also invested $1 million under its Green Fund toward the establishment of a wood pelletizing facility. However, this was not enough money to complete the facility, and Holson shut down in 2012.

Spinks says that according to government officials involved in the latter part of cutting permit negotiations with AEG, this funding would be considered a subsidy. So lumber produced at the sawmill could not be exported to the United States under the terms of the now expired Softwood Lumber Agreement without it being considered a breach of the agreement. Given this restriction, it was not economically viable for AEG to purchase and complete the sawmill and pellet plant to establish itself in Roddickton.

“It became un-investible because it would be perceived as a subsidized plant,” Spinks says. Even though there was widespread local support for AEG’s plans for a biofuel plant and nothing but good faith negotiations between the Newfoundland government and AEG, “that particular plant became an issue.” He emphasizes that the government wanted it to work for Roddickton and directed the company to consider an investment there, but the government itself was blindsided by this subsidy issue.

AEG then turned its attention to nearby Hawke’s Bay, primarily because it had a location available to establish the company’s biofuel production equipment close to a shipping port.

That raised the issue of what would happen to the sawlogs harvested by AEG within its CTP area. The concern of Roddickton area residents was that they would either be used by AEG in its CoalSwitch process or shipped outside the region. They wanted the sawlogs to be used locally, and preferably at the Roddickton sawmill.

The sawlog allocation issue continues until now. Spinks says during his tenure in AEG management, the company had no intention of using the sawlogs, but would make them all available to the Roddickton sawmill, if it were to open, or on the open market, perhaps even on a trade basis—sawlogs for residual and pulp wood to feed their plant.

“I’m fully supportive of them getting that sawmill going,” says Spinks, “but we couldn’t do it.”

He adds that the opportunity provided by AEG is of significant value to Northern Peninsula loggers and sawmills, because it essentially provides them with a market for their pulp wood material, which currently does not exist, to gain access to valuable sawlogs.

“We were kind of a dream come true if you are a forestry operator in Newfoundland,” Spinks says, and everyone was keen to see the AEG biofuel project proceed.

While AEG continues to evaluate its options in Newfoundland, it is under some time pressure as there is that requirement to harvest 40 per cent of its allocation from its permitted area by about the middle of 2021.