The Thermogen mill wants to use microwaves to cook waste wood to make pellets that would be a cleaner-burning replacement for coal.

But according to the FAME staff report on the proposal, the technology is unproven at a commercial scale, and no established market or price for torrefied wood exists. Pellet Mill Magazine recently quoted Cate Street’s Richard Cyr as saying “there is little to no domestic demand for torrefied pellets.” There may be demand abroad.

The FAME analysis also found Thermogen not creditworthy. Although the project’s assets and mill property will be collateral, “the applicant has not offered a letter of credit or other surety or collateral to mitigate the identified risks.” Cate Street investors will not personally guarantee the loan.

Another shadow over its project: Cate Street had a stretch of delinquency on its property taxes in Millinocket and East Millinocket.

If Thermogen fails, taxpayers must pay back the bank that buys the bonds. The FAME staff concluded there was a good chance the plant wouldn’t be a success, and in the September meeting had urged board members not to give the guarantee.

Not fly-by-night
It’s not that Cate Street is a fly-by-night outfit. Its investors are expected to put $26 million into Thermogen. It runs the once-shuttered paper mill in East Millinocket, although at a small scale. It hopes to soon start up a biomass power plant at another defunct paper mill, in Berlin, New Hampshire. It wants to build a second torrefied-wood mill in Eastport.

After the September FAME meeting, when some board members expressed misgivings about the deal, FAME’s staff engaged in talks with the company and eventually recommended guaranteeing only $16 million in bonds. But the company responded, “It would be a challenge for Cate Street to raise the additional $9 million needed,” according to the October 17 board minutes.

Members of FAME’s board still had misgivings. The vote was 8 to 5 to grant the guarantee. Four of the prevailing eight were state officials.

Board member Patrick Murphy, a Portland business consultant and pollster who voted against the guarantee, said, “I didn’t want the citizens of the state to take the risk.” The legal standard for issuing the bonds, he said, was “a high probability of success.”

Although he’s a self-declared fiscal conservative, the risk to taxpayers didn’t give great pause to Governor LePage. “This is yet another example of the state partnering with industry to create an opportunity for new private investment and job creation,” he said in a statement after the FAME vote.

But another self-declared fiscal conservative, financial analyst William Downes, of Cape Elizabeth, has his doubts. Having spent many years at Bank of Boston financing “big-ticket” energy projects including wood-waste biomass plants, he scoffs at state government getting involved in something as risky as torrefied wood, which he called “a very expensive proposition.”

He thought it was particularly risky because there’s a “limited supply” of wood waste in Maine. Of Thermogen, he said, “the probability of failure is very high.”

He believed banks were better than “political” government agencies in evaluating business prospects. Paying back loans “is all about cash flow,” he said.

And FAME’s staff had serious doubts about who would provide the cash for Thermogen’s pellets. Two of the FAME board members who voted against the guarantee were bankers.

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