PRINCE GEORGE, B.C., February 25, 2008 (Prince George Citizen) — Canfor Pulp is planning to become an electricity producer using wood waste to answer B.C. Hydro's call for green power.

Potentially, the project -- which is being fleshed out now -- could be a big one.

For the past year, Canfor Pulp has been examining a range of projects, but is focusing on a location next to one of its three pulp mills in Prince George.

Canfor Pulp president and CEO Paul Richards said it makes more economic sense to build a project that can utilize the heat that is generated along with the electricity.

Richards provided an update to analysts on the project -- of which there has been little public discussion so far -- during a conference call on the company's year-end financial results this week.

Richards told analysts he still favors a larger project.

"My own desire would be to be bigger than smaller, but I'm being reined in a little," he said. "So, we're looking potentially at another co-gen facility, but there are other options we're looking at as well."

A 60-megawatt capacity co-generation facility -- so called because it generates both electricity and the heat Richards mentioned -- was completed at P.G. Pulp and Paper in 2006. The $130-million project was designed to replace power being supplied by B.C. Hydro, whereas a new project would be designed to provide power to the provincial grid and help meet B.C.'s growing electricity demands.

Richards told analysts that planning for the project has been complicated by sawmill shutdowns from the U.S. housing collapse, which makes it uncertain how much hog fuel will be available to feed the power project.

He noted that Canfor Pulp is working closely with Canfor Corp., which operates sawmills and panel plants, and that a steering team has been put together with senior staff from both companies. Canfor Corp. spun off its three Prince George pulp mills into the Canfor Pulp trust in 2006, but has retained a 50.2 per cent stake in the company.

Richards also noted that recently a project manager was hired to provide expertise. The outside hire is from Poyry, a global consulting and engineering firm.

The merits of this type of project were also laid out at a Raymond James investor conference in New York last fall.

In his presentation, Richards noted there was an "energy opportunity" in the Interior because of available wood fiber, which included material from remaining beehive burners. Richards noted that Canfor Pulp was capable of a significant expansion of power generation and was also optimally located in the heart of the pine beetle epidemic.

Premier Gordon Campbell's bioenergy strategy, released recently in Prince George, highlighted the opportunities from the massive amounts of dead pine that will be left in the wake of the beetle epidemic.

In an interview, Richards said a big issue will be the availability of wood fiber, so the steering committee is examining supply from sawmills, road-side logging debris and standing timber.

He said at the same time the company is determining B.C. Hydro's needs. "If we can give them something that makes sense at 25 megawatts, for them that's OK, but if we can give them 100 megawatts, they would be more favorable to that," said Richards.

They're also examining if the project could be designed to deliver spin-offs to Canfor Corp.'s solid wood side. For example, he said, if a project was built at Northwood Pulp, it may be possible to deliver benefits to nearby P.G. Sawmill.

B.C. Hydro's first call for proposals is expected soon, and Richards said their submission will be fine tuned in the next few months. "They want to make sure our intentions are there, otherwise they're going to look to somebody else," he said.

Richards cautioned though that should a project go forward, it will be two years before it's complete, particularly if a provincial environmental assessment is required.

Forest industry analyst Mark Bishop estimated that depending on the size of the project it could cost anywhere from $25 million to $250 million.

Bishop, an analyst with RBC Capital Markets, said he believes a power project tied to a pulp mill makes sense over stand-alone independent power projects. The B.C. pulp and paper sector has voiced concerns that the province's bioenergy strategy will create new players that will compete for wood residue.

Bishop also noted that power projects would provide another revenue stream for pulp mills, helping stabilize their business in the face of growing global competition.

Canfor's three pulp mills in Prince George employ 1,250 people.