Power Prices Jolt Pellet Producers

By Anna Simet | March 07, 2014

When I was a kid, a nagging question we would frequently hear from my dad was, “Why are all of these lights on? Do you think I work for the power company?” (As if utility employees get discounts on electricity.)

As an adult, I don’t yet have any kids who are tall enough to reach the light switches, but my husband hears similar things from me, because he loves to leave the lights on. I am the designated bill payer, so I know what electricity costs and how much we use.

The truth is that I really have nothing to complain about. Here in North Dakota—and most of the Midwest—power prices are relatively cheap. According to data from the U.S. EIA, average retail electricity prices in December were 8.03 cents per kilowatt hour (8.55 for residential, 8.18 for commercial, 7.19 for industrial) in North Dakota. South Dakota, Nebraska, Iowa and Indiana all hang around that range.

But it’s quite a different story in the Northeast. In New Hampshire, for example, the average price for all sectors was at 14.72 cents in December. In Rhode Island it was 18.37, in Vermont, 14.63, in Massachusetts 17.19, and Maine 12.68. That must hurt.

(Note: In an earlier post, I had incorrectly used the dollar unit instead of cents!) 

So what got me thinking about this? Earlier in the week I was talking to Jonathan Kahn, president of Geneva Wood Fuels in Maine, and he said pellet producers in the Northeast are being slammed by electricity prices. I had called him for a completely different reason, but I’m glad he mentioned it, because it wasn’t on my radar. Hammer mills, dryers, presses and moving material all require energy, obviously. And it really adds up.

I did some research and couldn’t find much information as to what the average pellet mill spends on energy costs per year, but I did find a several-year-old study commissioned by the Ontario Ministry of Natural Resources that said including electric/natural gas requirements, in eastern Ontario, an average mill’s energy cost would end up around $10 per metric ton of output. There are many varying factors that can change that number, though, including whether a plant is using fibers as a drying fuel, if there’s a grinding operation on the front end, if there’s no natural gas available in the area, and, of course, prices of electricity in the region.

So if you’re talking about a 50,000-ton mill, that’s $500,000 in annual energy costs.

I’m curious as to find out what that number is at today, and how it compares from the average Northeast producer to Midwest to West. Pellet producers work hard and are seemingly very passionate about what they do, and not because they make a pretty penny. Historically, pellet production has been a relatively marginal business, so escalating power prices must take a toll on profits.

Are you a pellet producer and willing to talk electricity prices? Shoot me an email at asimet@bbiinternational.com .