AUGUSTA, Maine — The Finance Authority of Maine’s Board of Directors voted 8-5 to approve a $25 million bond on Thursday to build New England’s first torrefied wood pellet mill in Millinocket’s Katahdin Avenue industrial park.

The key to Cate Street Capital’s proposal is a $35 million torrefied wood machine that according to FAME’s analysis will employ as many as 36 people directly and as many as 184 indirectly. If successful, the enterprise could attract as many as 1,500 new jobs to the state, according to its supporters.

If it fails, taxpayers could be on the hook for $25 million, proponents of a lesser bond amount said.

The machine is the first of as many as five in Millinocket and three in Eastport making torrefied wood pellets, which burn hotter than regular pellets and are intended as a cleaner-burning coal substitute. The other machines will likely each employ 20 to 25 people directly and about 100 people indirectly, including logging crews supplying the mills with millions of tons of wood wastes taken from the forest floor, company officials have said.

Gov. Paul LePage and Katahdin region leaders who argued for the bond’s passage during FAME’s Sept. 30 hearing hailed Thursday’s vote.

“This project will position Maine as a true pioneer in a promising new industry,” LePage said in a statement Thursday. “This is yet another example of the state partnering with industry to create an opportunity for new private investment and job creation.”

The bond carries 7 percent interest and quarterly payments of $874,302, according to FAME’s bond analysis. It also carries considerable financial risk, said Patrick Murphy, one of the five FAME board members who voted against the $25 million bond because they preferred issuing a $16 million bond.

The mill’s pellet manufacturing facility is commercially untested technology intended for a “still emerging” market that includes coal burning European and British power plants and American hospitals and universities, the bond analysis states.

Cate Street lacked detailed market projections or estimates on how their Thermogen Industries subsidiary would fare against competing torrefied wood manufacturers as they develop, FAME staff members said.

If Cate Street’s plan doesn’t work, taxpayers will be liable for the $25 million bond, said Murphy, who called the bond “an awful lot of money” for 36 direct jobs.

But Cate Street officials are very comfortable that demand will far outweigh their eventual production of 100,000 tons of pellets per machine annually, spokesman Scott Tranchemontagne said.

A study he cited predicts that total demand for torrefied biomass will reach 70 million tons in 2020. The study predicts that torrefied biomass will displace 13 percent of coal-fired electricity generation in Europe, three percent in Canada and roughly 4 percent in Asia. Only 1 percent of coal usage in the U.S. will be displaced by then, the study shows.

The project is the second approved under FAME’s Major Business Expansion program. That program allows Maine businesses to receive bonds of as much as $25 million, FAME board Chairwoman Susan Snowden said.

Board members argued over whether Cate Street had a “strong likelihood of repayment” as the program requires. That’s a higher standard than most FAME programs, which require “a reasonable prospect” of repayment, said Snowden, who was among those who supported the $16 million bond.

The financial risk created “a very close discussion among the staff,” said Charles Emmons, FAME’s senior commercial loan officer. “It is not a slam dunk.”

“There are some possibilities that there is a slight risk,” Emmons added, “but we [staff members] feel that given the size of the bond and guarantee, and with the understanding that Cate Street and its investors have stood behind their projects across the spectrum, we felt that we could get there,” or get a satisfactory deal in place.

That understanding came after several meetings between Cate Street and FAME staffers after the Sept. 30 meeting, Emmons said.

Cate Street had financial difficulties with its subsidiary Great Northern Paper Co. LLC, which was tardy on about a year’s property taxes on its East Millinocket paper mill and the Millinocket industrial park and the dormant paper machine it owns there.

The pellet mill will add to the paper mill’s sustainability, said East Millinocket Selectman Mark Marston, who attended Thursday’s meeting with several other Katahdin leaders.

Logging crews that collect wood wastes will also be collecting wood for the mills and other industries, creating greater use and revenue for the wood, he said.

“It makes their bottom line stronger,” Marston said.

Millinocket Town Councilor Michael Madore, who also attended, echoed LePage’s support of the project.

“We aren’t going to get old technology here,” Madore said of the Katahdin region. “Our new business is going to come from leading edge stuff like this.”

Tranchemontagne said construction of the machine would begin as soon as possible, but FAME’s 30-day appeal period has to lapse and the company has to finalize its financing, which will occur by Jan. 1.

Machine construction will take 12 months and likely start in the spring, depending on weather, but site preparation would probably start sooner.

Company officials hope that Cate Street subsidiary Thermogen Industries can get the machine operational by the fall, Tranchemontagne said.

Rosaire Pelletier, the forest products industry liaison at the Maine Department of Economic and Community Development, described torrefied wood manufacturing as a new and vital use for Maine’s sustainable forestry.

Pelletier said that several other pellet manufacturers and businesses that support such mills have expressed strong interest in locating in Maine. They would bring 1,100 to 1,500 jobs with them — if Cate Street’s machine works.

“Everybody is waiting for the first test runs to show that this works,” Pelletier said. “When that happens, that’s when it will be nice for us because we will be the first.”