Plantation powers on with European deals

AS the state's timber sector reels following the collapse of two of its biggest and most established private players, a new downstream processor is confident of the future of the industry from which it takes its name.

Plantation Energy uses timber-harvest waste to create wood pellets, which are burned with coal to create power.

One of its raw material supply contracts is with collapsed timber company Great Southern, but Plantation co-founder Dick Allen remains unfazed by the failure, which occurred as the company prepared to open its $25 million wood pellet plant in Albany, the first of its kind in Australia.

It seems it will take a lot more than Great Southern's troubles to spoil the fruits of six years' hard work, boosted by a healthy bit of luck.

Mr Allen said it was his experience at the helm of waste management company Tox Free Solutions that piqued his interest in waste to energy and renewable energy projects.

"I started looking at the resource about six years ago, back in 2003, when there was only APEC harvesting in the Great Southern," Mr Allen told WA Business News.

"As the industry started to grow in the Great Southern it was a resource that was there, but we didn't really know what it was or what it was going to look like or how it was going to be used."

These unknowns created difficulties in raising capital domestically but European markets more familiar with the business were hospitable.

Mr Allen said Delta Capital executive director Tony Brennan and former colleague Matthew Walker were important in raising the first $1 million in seed capital and the second round raising of $3 million.

"Then Tony worked very hard at finding someone to basically make the major capital investment in the company," Mr Allen said.

"He made the introduction to London-based Livitas, Livitas ran with the deal and made the introductions to Denham Capital, who are now our major shareholder."

The initial commitment last October from the US-based global private equity firm, Denham Capital, was $US20 million with a commitment to fund the business up to $US80 million with different growth phases.

"We didn't go to London looking for that sort of scale of money but Denham had a vision of the space; it was far more aggressive than ours and they were prepared to back it," Mr Allen said. "I was quite relieved when I walked out with that term sheet, I must admit."

Plantation now has multiple agreements in place with suppliers, including the state government's Forest Products Commission and Great Southern Ltd to acquire the non-commercial waste from harvesting plantations, which is then ground down, dried and pressed into small wooden cylinders to be used as fuel in power generation.

In May, the company signed its first export deal with two of the world's largest biomass consumers.

The first, with Electrabel NV, a subsidiary of GdF-Suez, Europe's largest power company, was followed by a three-year $60 million agreement with Essent Trading, a merchant energy trading company based in Switzerland.

Mr Allen plans to build five more pellet plants in Australia, one of which is likely to be elsewhere in the state's south west.