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Unions, CCPA calls for wood pellet monopoly investigation

Prince George wood pellet plant closure prompts call to competition bureau
A Pinnacle Renewable Energy wood pellet export terminal in Prince Rupert -- now owned by Drax. | Submitted

Two forest sector unions, the Canadian Centre for Policy Alternatives (CCPA) and Conservation North are calling on the Competition Bureau of Canada to investigate what they say may constitute a monopoly of the wood pellet industry in B.C. by Drax Group PLC (LON:DRX).

The control of two-thirds of B.C.’s wood pellet production by the British utility – which operates a thermal power plant in the UK that has phased out coal with biomass -- is now costing jobs in B.C., say the CCPA, Unifor and Public and Private Workers of Canada (PPWC).

In mid-December, Pacific BioEnergy Corp. announced it would permanently close its wood pellet mill in Prince George. When the plant ceases operations at the end of March, 55 plant workers will lose their jobs.

The decision to shutter the plant coincided with the announcement that Pinnacle Renewable Energy – which was acquired by Drax last year – would acquire Pacific BioEnergy’s pellet sales contract book, which amounts to 2.8 million tonnes of pellet sales in Japan and Europe.

“The combination of Drax’s purchase and Pacific Bioenergy’s virtually simultaneous decision to close the operations of the Prince George-based company, signifies that Drax’s entree into Canada is reducing competition for wood pellets while concentrating purchasing power in the hands of one company,” the groups say in their letter to the competition bureau.

B.C.’s wood pellet industry has grown over the last two decades, thanks to a growing demand for biomass as a renewable energy alternative to coal in thermal power plants.

But of the 13 pellet plants in B.C., Drax will own or partially control seven of them, according to the application to the competition bureau. The groups estimate that Drax will own or control 62% of the wood pellet production in B.C. They are asking the competition bureau to rule on whether or not that constitutes a monopoly.

“Our estimate is that Drax has an even greater control of pellet production in Alberta at 82 per cent of the provincial total,” the letter to the competition bureau states. “And that in Canada as a whole, Drax controls 44 per cent of the nation’s current estimated pellet mill output.

“We urge you to investigate whether such a level of concentration serves the interests of Canadians, and if it does not whether Drax should be ordered to divest itself of certain assets.”

Just recently, in November, the competition bureau made a ruling that ended with Paper Excellence agreeing to sell one of its recently acquired pulp mills in B.C., after the bureau found that Paper Excellence’s $3 billion acquisition of Domtar would result in a “monopsony” – a type of monopoly in which one company can keep prices of a product it buys – in this case fibre – “below competitive levels.”

The competition bureau found that Paper Excellence’s acquisition of Domtar would result in the merged companies owning 70% of the Thompson-Okanagan wood fibre supply.

“The bureau determined that the proposed transaction is anti-competitive because it would provide Paper Excellence with monopsony power in a large part of southern British Columbia,” the competition bureau found.

“This would enable Paper Excellence to pay lower than competitive prices to sawmills and other suppliers of wood fibre in a region of British Columbia where Paper Excellence already has a high concentration of pulp mills.”

As a result of the bureau’s findings, Paper Excellence agreed to sell a Domtar pulp mill Kamloops to a third party.

Like pulp mills, wood pellet mills also use sawmill waste and pulp logs. When the wood pellet industry first started in B.C., it used mainly wood waste from sawmills. But a wave of sawmill closures across B.C. in recent years has resulted in a decline in sawmill waste, so wood pellet manufacturers have been increasingly using low-value trees -- pulp logs, as they are known in the industry.

“Sawmill closures in the region have reduced the volume of available raw materials and increased their cost significantly,” Pacific BioEnergy CEO John Stirling said in a news release on December 14, 2021, when announcing the planned closure of the Prince George pellet mill.

“Forest fires, landslides, and floods have severely impacted our ability to transport our product by rail to the export terminal in North Vancouver. The impact has been a significant increase in operating costs. Our sales contracts have been sold to Pinnacle to mitigate the impact on our customers.”

Both conservation groups and forest sector unions, like PPWC and Unifor, have raised concerns about harvesting whole, live trees to feed wood pellet plants. They say trees that may have higher value added uses – lumber or plywood manufacturing, for example – should not be used to supply a low-value industry like wood pellet production.

“You don’t build a garbage dump first,” PPWC president Gary Fiege told BIV News. “And that’s what these pellet plants were designed for – to use the waste that other plants couldn’t use. And they’ve somehow morphed into, now, this new reality that they’re actually taking whole logs and turning them into pellets, which is probably one of the lowest job creators out there.”

In Fort Nelson, Peak Renewables acquired tenure from Canfor Corp. (TSX:CFP) for the development of a new wood pellet plant there. That forestry tenure used to support a sawmill and oriented strand board (OSB) plant, so the timber in that region clearly had some value for manufacturing.

“It is possible to turn a lot of this allegedly junk wood into solid wood products,” said Ben Parfitt, CCPA resource policy analyst.

There is strong support in Fort Nelson, including from the Fort Nelson First Nation, for the Peak Renewables plant, because it would provide logging and manufacturing jobs in an area that has seen its forest industry practically vanish.

Parfitt thinks the new pellet plant in Fort Nelson could end up with Drax as its main buyer, increasing its control of wood pellet production in B.C.

“I don’t think it’s a stretch to think that, if that plant materializes, that Drax would be more than interested in acquiring whatever the output was from that plant,” Parfitt said.

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