Investors build wood-pellet plant in Arkansas, possible spur for northern Minnesota economy

A group of International Falls businessmen will open a brand-new $230 million wood-pellet plant in Arkansas next week that could offer a blueprint for economic development in northern Minnesota.

Highland Pellets will begin churning out 600,000 metric tons of pellets per year for a wood-fired power plant in England. The company is run by, among others, Dennis Wagner, the president of Wagner Construction, and Marty Goulet, its chief financial officer.

A Thursday ribbon-cutting for the factory in Pine Bluff, Ark., will be attended by Arkansas Gov. Asa Hutchinson. Highland's backers have also been in contact with newly re-elected Rep. Rick Nolan, who represents northeast Minnesota and is interested in replicating this type of project in Minnesota. Nolan could not be reached for comment.

For struggling parts of northern Minnesota, where paper mills are flatlining and the iron industry has been gutted, the wood-pellet business is an intriguing possibility. The factories use small trees that aren't big enough to be cut for timber. The product is in high demand in Europe.

The factory in Arkansas will employ 68 people at average pay of $60,000 per year, plus benefits. The plant should indirectly create between 500 and 1,000 jobs, depending on which study you look at, Goulet said. Most of the jobs will be in logging, or transporting the logs.

"People in logging areas understand the impact of something like this," Goulet said.

But for now, Minnesota isn't a good place for such a factory, mostly thanks to geography.

Highland Pellets' sole customer is Drax, a coal and wood-fired power plant in England three hours north of London. Making use of generous subsidies paid to power plants that burn wood from sustainably managed forests, Drax agreed to a 10-year deal with Highland Pellets, which must ship its pellets from southeast Arkansas to a Drax loading station on the Mississippi River near Baton Rouge, La.

Wagner and Goulet, their families and their businesses are firmly ensconced in the International Falls area, and they would like to bring wood-pellet manufacturing to Minnesota, but for now all their expansion plans are in the Southeast, because the cost of shipping from Minnesota is prohibitive.

"We've looked at using the Great Lakes," Goulet said. "You run into issues there where you can't take big enough ships through the locks."

Sending the pellets from Minnesota by train, or some combination of trains and barges on the Mississippi River, also wouldn't work. Also, wood is more expensive in Minnesota, Goulet said, and so is electricity.

Using the deal with Drax as leverage, Highland Pellets secured 10-year rail, electricity and wood deals, Goulet said. Highland had to borrow $145 million from Global Infrastructure Partners to finance construction. That deal closed earlier this year. The company also attracted an investment from the Arkansas Teacher Retirement System.

Goulet said he just returned from a forestry conference in Miami, where many people were interested in the new factory in Arkansas. Construction of the project has gone smoothly, which is rare in the U.S. wood-pellet industry.

"It's a new industry and there's been a lot of failures and it hasn't been professionalized very well," he said.

Wagner Construction's civil engineering background helped keep the project on time, and Highland eventually settled on working with Astec Industries, a firm that focuses on the asphalt business, to build the four wood-pellet production lines. Rather than having different components built by different manufacturers, Astec will be solely accountable, Goulet said.

"The whole industry is looking at how this plays out, because if it works, Astec is going to be really busy," he said.

The biggest challenge for the company is overcoming the perception that logging and the wood-fired power industry are environmentally unfriendly, Goulet said. The wood they use is the low-quality stuff for which there's no market, but which needs to be culled from forests to allow bigger trees to grow and prevent forest fire. And the argument in Europe for subsidizing wood-fired electricity is that if forests are managed appropriately, the fuel is renewable.

The business could work in Minnesota, but only if coal-fired power plants in the Upper Midwest start also burning wood pellets, as they have in Europe.

For now, Highland is looking at new sites in Arkansas, Mississippi and Georgia — closer to ports with better access to Europe or Asia.

"We believe that a couple of years from now, we'll be one of the biggest players in the industry," Goulet said. "That's the goal."

Adam Belz • 612-673-4405 Twitter: @adambelz