Biofuel Industry on Big Island Fails to Follow Through on Big Plans of 2008

posted in: December 2013, Energy, Forests | 0

Five years ago, state land on the Big Island experienced the biofuel equivalent of a gold rush. Bioprospectors – folks wanting to make a fortune from crops that could be used as feedstock in a variety of biofuel products – were clamoring to enter into leases with the state Department of Land and Natural Resources.

Under a law passed in 2002 that was intended to push Hawai`i in the direction of energy self-sufficiency, the Board of Land and Natural Resources could negotiate leases of state land directly with bioenergy companies. For several years, no one took advantage of this new provision, but in November 2008, two companies – Hamakua Biomass Energy, LLC, and SunFuels Hawai`i, LLC – sought and were granted “approval in principle” to lease thousands of acres of state land on the Big Island.

The Land Board’s action set in motion a chain of events that left few parties untouched and fewer still happy. Ranchers who lease large tracts of state land at a cost of a few dollars an acre per year were up in arms over the prospect of seeing state land withdrawn from their leases. Legislators expressed dismay over the expedited treatment the biofuel companies received – although they were the very ones who had crafted language providing for just such treatment. And other prospective biofuel companies were objecting to the apparent first-come, first-served method that the Land Board employed in doling out its favors.

After several raucous meetings in East Hawai`i attended by vocal representatives of all affected groups, then-Land Board chairperson Laura Thielen committed to involving them all in working out, with the help of the energy branch of the Department of Business, Economic Development, and Tourism, a policy that would lead, eventually, to an equitable, “win-win” solution.

Today, not one biofuel company has obtained a lease of state land under the 2002 law (Chapter 171-95, Hawai`i Revised Statutes). Of the five biofuel companies that expressed an interest in leasing state land for growing energy crops in 2008, two have quietly sunk from sight (including Hamakua Biomass). One ended in bankruptcy. One went out of business – but its principal, phoenix-like, has recently come back to life and is once more promising to use Waiakea timber for a hardwood lumber mill. And the fifth, SunFuels, Hawai`i, LLC, which said it would produce biodiesel through the breakdown of wood fiber, has abandoned that lofty if elusive high-tech goal. While it no longer is a business in good standing with the state, its parent remains active in biomass management on the Big Island.

Meanwhile, Hu Honua, the biomass-fueled power plant being built in Pepe`ekeo, intended as the destination for many of the eucalyptus trees and unsalable wood from the mill, is facing an uncertain future. Among other things standing in the way of its completion are a labor dispute, a pending settlement with the Environmental Protection Agency over its permit to operate, a challenge in 3rd Circuit Court over the Special Management Area permit awarded to it by the Hawai`i Planning Commission, and another complaint in 3rd Circuit Court alleging it has breached terms of its lease with the underlying landowner. Until last month, it also faced legal action in Delaware, where a former owner was claiming the current owners conspired to defraud it of $5.5 million through sham transactions. On October 24, that lawsuit was withdrawn.

SunFuels Hawai`i, LLC, was one of the two entities back in 2008 that received approval in principle for a lease of state land to grow biofuel crops. Although it has not received any state land and is delinquent in its filings with the state Department of Commerce and Consumer Affairs, its parent company, Merica Hawai`i, Inc., lives on and has an abiding interest in biofuels.

Forest Solutions, Inc., is a sister company to SunFuels. Both are owned by parent Merica Hawai`i, which is in turn owned by David Saalfield. Nicholas Koch, its manager, says the company mainly manages stands of timber on land owned by other entities. It is not harvesting any trees at this time, Koch told Environment Hawai`i, but when the Hu Honua goes on-line, some of the trees belonging to the company’s clients may provide fuel for the plant, he said.

Hawai`i Island Hardwoods is a limited liability company whose members are four separate entities: Delta Investments, LLC, Waikii Ventures, Inc., J. Quinn Company, LLC, and Koaaina Ventures, Ltd. For several years, it had a license to take timber from 1,095 acres within the state’s Waiakea Timber Management Area, just south of Hilo. Last May, however, the Land Board agreed with a request from HIH that its license be transferred to Tradewinds Hawaiian Woods, LLC, which had purchased the assets of Hawai`i Island Hardwoods. According to a report to the board prepared by the staff of the Department of Land and Natural Resources’ Division of Forestry and Wildlife, HIH had not performed on its license for five years.

Tradewinds Hawaiian Woods, LLC, is now the sole entity holding a license to log the eucalyptus and other trees planted on the Waiakea timber area. When the Land Board transferred HIH’s license to Tradewinds, however, the company did not yet exist. It filed papers with the Delaware Secretary of State’s office only on May 28 of this year, 18 days after the board approved the license transfer, and was registered with the Hawai`i Department of Commerce and Consumer Affairs on June 3.

Although Tradewinds Hawaiian Woods might be new, the company representative making its case to the Land Board was a familiar face. Don Bryan, Tradewinds’ chief executive officer, had been the principal of Tradewinds Forest Products, LLC, the company that had had a license to take logs from the Waiakea timber area for a decade. That license was terminated by the board on July 7, 2011. At that time, Tradewinds had paid $758,500 in license fees to the state, but still owed $210,000, which the Land Board forgave.

On May 10, Bryan told the Land Board that he has a new investor, Dan Fuller of Fuller Management, and that with the new capital, construction on a “full, commercial-scale sawmill” would start in the summer of 2013 and would be completed by mid-2014. Bryan has experienced further delays.

Tradewinds Forest Products, LLC, has the same name as the company that Bryan founded and headed for years but now claims no relationship with the original company. In 2009, when the original Tradewinds was seeking capital to finance its construction of a veneer mill, a couple of events occurred. On December 21, the original Tradewinds changed its name to TRR Investments, LLC. On the same date, a new company, also called Tradewinds Forest Products, LLC, registered with the Department of Commerce and Consumer Affairs. Five days earlier, it had filed papers announcing its formation with the Delaware Secretary of State.

In October 2009, the Land Board had approved transferring Tradewinds’ license from the old company to the new one, which involved not only Bryan, but also Scott Harlan of Rockland Capital and Bob Saul of a firm called GMO Renewable Resources. (GMO, Saul explained to the board, referred not to genetically modified organisms but to three partners in a Boston asset management firm: Grantham, Mayo, and van Otterloo.) GMORR, in turn, was involved in Long Horizons Fund, which, Saul explained, owned the lease held by Hamakua Plantations on about 14,000 acres of land owned by Kamehameha Schools. (Technically, the lease is held by a subsidiary of Long Horizons Fund: LHF Lopiwa, LLC. The two managers of that entity, in turn, are GMO Long Horizons Manager, LLC, and GMO Renewable Resources, LLC.)

Despite Land Board approval of the license transfer, the transfer never did happen. As Harlan explained in a letter to the Department of Land and Natural Resources’ Division of Forestry and Wildlife in July 2011, the license transfer “was contingent on the newly formed Tradewinds getting financing for plant construction (which unfortunately did not happen).” In fact, the relationship between Bryan and the new investors had soured a year earlier, according to Harlan: “In mid-2010,” he told DOFAW admistrator Paul Conry, “we suspended development activities while we awaited market improvements and investigated other business opportunities for the use of our timber resources. At that point, we terminated the employment of the development team at Tradewinds,” a team that included Bryan.

Today, Tradewinds is harvesting many of the trees from the KS land. Last year, the company shipped some logs to O`ahu, to see if they could be used as fuel in the AES power plant at Barber’s Point. That did not work out. Since then, the logs have been shipped to markets in Asia. Last month, some 18,000 eucalyptus trunks that had been stockpiled on vacant land mauka of Kawaihae Harbor were loaded up and set sail for China, according to Bill Stormont of American Forest Management, the firm that oversees the forestry operations for Tradewinds on the KS lands.

Leave a Reply