Wood pellet plant in Kremmling on the ropes after dwindling demand
Confluence Energy tries to rebound after tough winter for biomass industry
May 2, 2010
Steamboat Springs — About 2,000 tons of wood pellets are bagged and stacked in Confluence Energy's yard in Kremmling, but the only thing moving the material last week was the wind.
A shipping truck was nowhere to be seen.
"We have more capacity than we have utilization of the product," plant owner Mark Mathis said diplomatically. "We've got a little bit of inventory that we're still moving through."
The winter was a tough one for Mathis and, he said, for the pellet industry across the country. When he began production at the Kremmling plant in September 2008, less than two years ago, the market for biomass and alternative energy sources such as wood pellets seemed boundless. Prospects were so good, Mathis said, that he and John Frink, of Rocky Mountain Pellet Co. in Walden, dismissed the idea of consolidating their efforts into one plant. Instead, they each opened for production and business.
Then, regional pellet markets became saturated, heating oil prices dipped — causing consumers to look less for alternative fuel sources — the economic recession struck and a mild winter dropped demand for pellets even further, creating what Mathis called "the worst year (the pellet industry) has ever had."
"I think a lot of people woefully misjudged the strength of the market," he said. "Of the 70 or 80 wood pellet plants (nationwide) that I'm aware of, there's only one that's running right now."
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In January, MaineBusiness.com reported that Maine Energy Systems, a wood pellet startup, was unprofitable while facing the recession and relatively low oil prices. Partner Dutch Dresser recalled better times.
"A couple of years ago, we couldn't answer the phone fast enough," the website quoted Dresser as saying.
Mathis said the exact same thing last week. Confluence Energy employed 34 workers at its peak, in jobs that Mathis said started well above Grand County's average income.
But the market's changes have been crippling.
Mathis laid off some workers in December and nearly all the rest in February. His former bank ended his line of credit. Mathis owes money to "six or seven" logging entities, he said, including two in Steamboat Springs. The total amount he owes loggers is in the tens of thousands of dollars, he said.
"I've called every one of those loggers and apologized … and explained to them exactly where we're at financially," Mathis said.
He intends to pay them back.
"We have great orders this year," Mathis said, citing a pickup in business that should allow him to ramp up production and sales, and bring back some workers, as soon as this month. "We'll be up 25 to 30 percent this year in sales."
But even that increase would allow Mathis to operate at only about 50 percent of the plant's 125,000-ton annual capacity. That means a decreased ability to take logs from loggers and continued ripple effects across the industry.
"The whole fiber industry … in this region has been on the verge of financial difficulty for a long time," Mathis said.
John Twitchell, district forester for the Colorado State Forest Service, said this past winter was "the most uncertain economically" he's seen in his 30-year career.
"A lot of people got laid off right before Christmas," Twitchell said, referring to regional loggers. "The pellet mills had been our only outlet — many guys ended up putting all their eggs in that basket, but they were forced to."
Twitchell said in the face of regional sawmill struggles amid the recession, state and federal grants have been one of few job sources in recent months.
"The state was able to, in a number of situations there, step in and immediately apply some grant dollars we had available and keep those operations going," he said.
Steamboat's Rogue Resources was able to add the equivalent of more than 10 full-time jobs early this year, via a $1 million grant given to the city of Steamboat Springs through the American Recovery and Reinvestment Act and the Colorado State Forest Service. The funding is for removal of trees that present a wildfire risk in the Steamboat area.
Mathis said he is working hard to promote other uses of wood pellets. He's in conversations with Union Pacific to increase rail capacity for shipping and with Xcel Energy to explore mixing pellets into burners at coal-fired power plants.
"We need to find some big appetite for the product out there," Mathis said. "We'll survive; it's just very thin. This is making us all dig down … to create any markets we can to make it sustainable."
Mathis said he's lined up two test fires next month with coal facilities.
On Wednesday morning, one truck did pull up to Confluence Energy. But it wasn't there to ship a load. The pickup carried three people, including Mike Villalon, of Kremmling.
Villalon, a former forklift driver at the plant, said he heard a rumor that the plant was hiring again. He said he had been laid off from the building industry, as well.
Mathis told him to check back soon and stay in touch.
"This has been a great job," Villalon said about the pellet plant. "I sure would like to go back to work."
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