Confluence Energy, in Kremmling, Colorado, now primarily a wood pellet producer,  was originally designed to house a wood power plant, an ethanol plant, and a small micro-sawmill.

Mark Mathis, President of Confluence Energy, spoke about his company at the Pacific West Biomass Conference earlier this year.

"Most pellet mills grew up out of utilizing residue from sawmills," he said, "but Confluence Energy began as a wood utilization facility, separating out high grade material from timber harvested in forests affected by the mountain pine beetle."

Confluence Energy plans to produce about 140,000 tons of wood pellets in 2010 and ramp up to about 250,000 in 2011. The company also sells dry and green wood chips to local customers, house logs and sawlogs. It operates its own in-woods grinding systems and runs its own trucks, selling by truck and rail and shipping pellets in bags and bulk.

Currently 70 percent of the pellet business is in the bag market and 30 percent in bulk but the company is striving for a 50-50 mix.

"The industry is very rooted in the residential bag market and I have a hard time with the concept that we're claiming green, renewable energy aspects and then we're taking and putting the product in 40 lb. plastic bags, wrapping the pallets with shrink wrap or a top sheet and spending the money to get them to the retailer," Mathis explained. "There's a disconnect there."

He added that there have been some driving components in the industry trying to get in into more bulk applications, as in Europe where a lot of pellet fuel is bulk delivered.

Fiber supply
One issue in Colorado, said Mathis, is that the forests affected by the pine beetle are quickly deteriorating, putting homes, power lines, watersheds, ski areas and wildlife at risk from fire.

Confluence Energy came up with the idea, a partly socially and politically pleasing solution, of what to do with these forests. They were not expecting much federal funding to procure material off federal lands because of "the overall bureaucracy", said Mathis. 

85 percent of the bug kill trees are located in the middle of a national forest  and it's hard to get access to material.

"People drive by and think its must be so easy to get," said Mathis, "but the truth is it's a long hard struggle with layers of bureaucracy." he noted that in about 10 years in 100 percent lodgepole pine areas, nothing but grey snags will be left.

"Taking the material from stump to truck to plant is cost prohibitive unless there's a higher value partner , that is, a sawmill covering some of the costs," Mathis said.

He explained that another of the big issues is lack of consensus among stakeholders. Should the process be to go in and clearcut is the tough question.

"From a silvicultural standpoint, the treatment for lodgepole pine forests is basically a clearcut," he explained. "Unlike ponderosa pine, where forest thinning is possible, the prescription on lodgepole is clearcut. That's the natural way the forest rejuvenate."

The problem is perception because clearcuts are "ugly".

"It's hard to get consensus to cut 100,000 acres so we're doing it in dribs and drabs, a thousand, 4,000 and 5,000 acre projects that don't create as large an environmental issue," said Mathis. 

The consequences of not doing anything is potential fire of catastrophic size or a big blowdown where the wood "ends up piled like toothpicks - nothing can get through it except a chipmunk and a lynx."

Getting consensus comes with social license - environmental groups, US foresters, state foresters, local communities, state, local and fed politicians have to agree.

Co-operation
Confluence Energy works together with a sawmill on these logging projects. Only a certain amount of the harvest is valuable for dimensional lumber so Confluence Energy takes the checked and cracked logs for pellets and the sawmill gets the large material with higher value.

"Working together makes logging more affordable," said Mathis.

Mathis estimates that 20 percent of the material coming into his facility is higher grade house logs and sawlogs.

Co-location
Confluence Energy designed its plant as a co-located application, similar to a few that are online in Europe, making ethanol as the primary product and creating a solid fuel wood pellet, or lignin pellet, for utility applications.

"We designed our facility to accommodate that back when oil was $120 to $130 a barrel," Mathis says. "Right now it's hard to make cellulosic ethanol competitive when oil is $60 to $80 a barrel."

So the company moved forward on the densified fuel application as well as putting up a small sawmill facility.

"We were looking at as far as a product mix that was about 45 percent solid fuel, some form of densified fuel, about 30 percent in transportation fuel, and the rest of the material coming in was going to be used for dimensional lumber," said Mathis. "What we liked about our model was that we designed it to have flexibility. This model is designed to be tweaked to ramp up the ethanol fuel production or ramp it down and make more fuel pellets, depending on what the market is, and the same with the dimensional sawmill. You could move that pie chart around to achieve certain things."

"We really liked the model and other than the fossil fuel energy complex collapsing and not making it very financially viable, we still like it and we're still trying to move forward," he added.

What Confluence Energy also likes about its business model is that it allows them to spread the feedstock cost over two or three businesses.

"Our bench tests showed that we're able to get about 60 gallons of ethanol from a bone dry ton of wood (wood chips from pine beetle kill) and about 1000 lb.. of densified fuel from the same amount," Mathis explained.

Some of the infrastructure cost is also shared between the product sectors. The dryer waste stream heat can be used in the ethanol process, for example.

"There are also some labor savings and some significant savings on the  front end of the plant," he said.

Pellet market stimulus
Confluence Energy runs its own half million BTU steam boiler system and convectional system that uses bulk fuel and services about four other medium industrial boiler systems in the area.

Mathis explains that Confluence Energy "baited the hook" to get other facilities to install those systems. "We offered some very attractive pricing and did medium term contracts with them to incentivize them to put these systems in."

Emissions addressed
Mathis commented on concerns about emissions that is slowing pellet use in some regions, noting that emissions from wood pellet stoves are a fraction of what's released through forest fires every year.

"Forest fire emissions produce about 6.65 percent of carbon emissions into the atmosphere each year," he said. "If we were to grow the pellet industry tenfold it would still be one of the lowest emissions producers in the United States. Pellets have extremely low emissions ratings compared to other wood heat."

California restricts pellet use on no-burn day but Colorado regions have excluded wood pellets from no-burn restrictions.

Wood pellet supply and demand
"The pellet industry has had boom and bust cycles from its inception," Mathis noted. "The industry is made up of mom and pop (including us) producers. A handful of people own more than one plant in this country and the other sixty or seventy plants are all individually owned, producing from 5,000 tons/year up to 100,000 tons/year."

He added that there is a lot of overcapacity in the industry right now and  capacity is increasing. "We'll see what happens. We're suggesting that we'll be at 200,000 to 250,000 tons per year in our area and that would be a sustainable number for us."

Mathis ended with a quick comment about BCAP, the Biomass Crop Assistance Program, that characterizes the independent thinking and resourcefulness that founded Confluence Energy.

"BCAP won't be around for long so building it into a business model may not be the best idea," he said.

www.confluenceenergy.com

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