By Ryan Dezember
Power producer Drax is scouting locations in the American pine belt to build electricity generators fueled by burning wood chips.
The plan calls for constructing wood-fired power plants in parts of the U.S. South where pulp and paper mills have closed and left timber growers without buyers for those trees unfit for making lumber or poles.
The plants' exhaust will be piped underground instead of out of smokestacks, which generates lucrative carbon credits for which Drax is already lining up buyers.
Plus, there's the electricity. Technology companies are so eager to run their power-hungry AI data centers without fossil fuels that they're trying to restart nuclear facilities.
Drax already burns pellets of compressed sawdust in a converted coal-fueled power plant in its home country. Its towering facility in the English countryside produces about 5% of the U.K.'s electricity. Drax has built pellet mills across the southeastern U.S. and in western Canada to feed that plant as well as other wood-burning plants around the world.
The type of plants it wants to build in the U.S. are known as BECCS, short for bioenergy with carbon capture and storage. They won't be nearly as large as the U.K. facility. But Drax has set up a subsidiary in Houston called Elimini to build several of them, and signed deals with two of the country's largest timberland managers to supply the wood.
"The whole idea is that 24/7 renewable power is going to become increasingly in demand as data centers grow, as AI grows," Drax Chief Executive Will Gardiner said. "There's a huge need for that commodity."
Elimini's staff of roughly 150 is studying about 20 locations and aims to have the first plant up and running by 2030, he said. The size of each could vary, but Gardiner said they will likely cost more than $1 billion apiece to build.
The company is looking for the confluence of carbon dioxide pipelines, pine plantations and a short wait to connect to the grid, said Elimini CEO Laurie Fitzmaurice, a long-time energy executive who has developed wind farms and natural-gas pipelines. It has options on properties and expects to announce a location for the first plant in 2025, she said.
"We don't want to go to the market before we've really kicked the tires on every aspect of a given site," she said.
Biomass power has long been dangled before Southern timberland owners as a potential solution to the glut of pine that has depressed prices and complicated harvests.
Millions of acres of what was once a primeval forest of longleaf pine stretching from southern Virginia to northern Florida and west into Texas and Oklahoma have been replanted with rows of fast-growing loblolly pine, often with government incentive.
The South's pineries are collectively among the world's largest monoculture croplands, planted in roughly 30-year rotations to supply pulp and lumber mills. The former process the smaller trees cut down in periodic thinnings to make room for the best specimens to grow big enough to be turned into two-by-fours and utility poles.
The abundant timber has drawn sawyers to the South and boosted lumber-making capacity in recent years, but pulpwood demand has been declining. The volume of wood that U.S. pulp and paper mills have the capacity to process is down more than 20% since 2011, according to commodity data firm Fastmarkets.
There are limits to how far tree trunks can be hauled before transportation costs outweigh the wood's value. Growers in areas where pulp mills have closed and that are too inland to sell to pellet exporters often have nowhere to sell their smaller logs.
"There's some markets where it's difficult to get a thinning done," said Ashley Harris, vice president of timberland investments at Molpus Woodlands Group, which has agreed to supply Drax from pinelands it manages on behalf of investors.
Besides missing a payday, leaving too many trees on each acre stunts their growth. Timberland owners also rely on pulp mills after clear cuts to buy logs that are too small or crooked for the sawmill, as well as tree tops and other wood left behind after harvest.
On average, the growth-to-drain ratio in the South is about 1.4, meaning that about 40% more wood grows each year than the volume that is cut down, said Tom Sarno, global head of timberland investments at Manulife Investment Management, which has also agreed to supply Drax from the properties it manages for investors.
"The addition of Drax's plants does not stress the forest," Sarno said. "It actually allows working forests to remain forests."
Scientists and environmental groups have raised questions about the climate claims put forth by wood-pellet exporters, including Drax, who say pellets are a renewable energy source since new trees replace those that are cut down. The pellet industry relies on clean-energy subsidies in countries where they are burned. But many scientists say wood-fired plants emit as much carbon as those that run on coal, and that demand contributes to deforestation.
Enviva, the largest U.S. pellet exporter and a supplier to Drax, emerged from chapter 11 bankruptcy protection earlier this month as a closely held company. It kept producing pellets during its bankruptcy, but wiped out shareholders after a wrong-way bet on pellet prices generated a $350 million trading loss.
To sidestep concerns of the U.S. power plants contributing to deforestation, Drax plans to buy wood only from properties managed for timber production, not old-growth stands, Fitzmaurice said.
Nor will the plants need the wood to be ground down to dust and pressed into pellets, which are made to facilitate ocean shipping. The U.S. power plants will only need the wood chipped into small pieces.
President-elect Donald Trump has vowed to roll back President Biden's signature climate law, the Inflation Reduction Act, which boosted tax breaks for sequestering carbon emissions underground.
But Gardiner, the Drax CEO, said he is confident those credits -- important to the planned plants' economics -- will remain intact. For one, there are a lot of jobs and investment at stake in states that supported Trump's re-election, he said.
"Many of the players who are involved and interested in this space are definitely not eco-warriors," he said. "They are people trying to make business propositions out of this."
Write to Ryan Dezember at ryan.dezember@wsj.com
(END) Dow Jones Newswires
December 18, 2024 05:30 ET (10:30 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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