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Arkansas Teachers invests $25m in biofuel wood processor

The $14.2bn fund is investing in a pellet-producer with a guaranteed supply chain from Weyerhauser to sell to power plants in the UK.

Arkansas Teachers Retirement System has invested $25 million in a wood pellet manufacturing plant that will source its wood from Weyerhauser-owned timberlands, with options to secure more supplies from ATRS forestry assets.

The pension’s stake amounts to 31 percent, and ATRS expects to yield a 14.7 to 15.6 percent return.

The Highland plant, which is set to be in production by the end of this year, has a 10 year agreement to supply the UK’s largest power plant owner, Drax, with more 600,000 tonnes of wood pellets per year. The US is the UK’s main supplier of the material.

Drax supplies 8 percent of the UK’s electricity needs and plans to convert a power plant to burn the material instead of coal, increasing Drax’s demand by 150 percent to 4.5 million tons.

The deal secured between Highland and Drax minimised the risk of changing economic conditions, including currency risk, according to ATRS investment committee meeting minutes.

“The agreement between Highland and Drax provides a 10-year rate that may increase annually based on the consumer price index or local wood prices. This means the Highland contract with Drax provides for a base price that can increase based on any rising costs of the plant’s manufacturing,” reads ATRS’s recommendation.

Weyerhauser will provide all of the wood needed by the processing plant for 10 years.

“In addition to the Plum Creek supply guarantee [made before the merger between Weyerhauser and Plum Creek last year], ATRS has ample supply of timber in the area. ATRS timber holdings in Jefferson, Grant, Dallas, Cleveland, and Calhoun counties may benefit from the increased demand for pulp wood in the area to fulfill the needs of Highland,” according to the recommendation.

ATRS has investments in timberland through RMK Timberland Fund I and Fund II.

The retirement system’s executive director George Hopkins told Agri Investor there is no specified lifetime for the investment. “It will remain an investment until the equity is sold or transferred by ATRS.” The equity investment may be placed in either ATRS’s private equity or opportunistic allocation, according to Hopkins.

The pension lists USAG as one of its two asset managers for its $73 million agriculture portfolio, alongside UBS AgriVest.