The Pellet Market from Different Perspectives

Feeding the residential pellet market requires suppliers to strike the right balance between feedstock supply, transportation costs and customer demand, and sometimes to look to others for inspiration.
By Rona Johnson | April 28, 2011

South Dakota’s Spearfish Pellet Co. LLC was built to add value to the byproducts—wood chips, sawdust and shavings—produced at the Spearfish sawmill. 

The plant was originally owned by Pope & Talbot Inc. and was purchased in 2008 by Neiman Enterprises Inc., which also owns three sawmills in the area.

At full capacity, the Spearfish plant can produce 50,000 tons of pellets, which makes it an average-sized plant in the U.S. According to USDA’s “North America’s Wood Pellet Sector” report, the majority of pellet plants in the U.S. produced between 30,000 and 70,000 metric tons (33,000 and 77,000 tons) in 2009.

Unlike some of the new industrial pellet mills being proposed in the U.S. that are being built to supply European biomass power and heating customers, the Spearfish plant, like other plants its size, sells most of its product to residential customers within a 300- to 400-mile radius of the facility, says Todd Carlson, plant manager for Spearfish Pellet Co. “For us to get to the East or West Coast and put pellets on a barge to go to Europe, that’s a long ways,” he says. Carlson says they do move pellets by rail to a few customers on the East Coast, but it takes a while to get the pellets to their destination.

Supply and Demand

Because of byproduct commitments at its sawmill, high diesel prices and other forces impacting the wood products industry, the Spearfish Pellet plant is not currently looking to add many new customers.
“We’ve nearly sold out the last several years, so for us to take in more market share, we would have to increase our production No. 1, and No. 2 somehow figure out how to get these diesel prices back down,” says Everett Follette, sales and marketing for Spearfish Pellet. “The diesel is having a huge effect on how far out I can ship right now.”

Spearfish Pellet shares its feedstock supply with a particle board plant and a pulp mill. “The other two plants have increased their production immensely and want more product than we have,” Follette says. “So right now we’re not able to expand because of contracts with these other two companies. Currently, we are producing at the same rate we did this past season so all our customers should be fine for next season if they don’t wait too long.”

Business is up about 35 percent from a year and a half ago at the particle board plant, Follette says, and the pulp mill has more business because so many other mills have shut down or cut production. “I don’t know if their demand has necessarily gone up, but their supply of wood chips has gone down and maybe that’s why they have been asking us to supply even more.”

If they were able to increase their feedstock supply and increase pellet production, Follette says they would probably look at supplying pellets to big box stores such as Lowes and Home Depot. Pellets from the Spearfish plant mainly go to lumber yards or wood stove shops. “At the time when [big box stores] got into the pellet business we were sold out so we don’t work with very many of the big box chains,” Follette says.

Currently, Spearfish Pellet is holding its own against the big box stores because they provide quality pellets with a higher Btu per pound. “We might not have the cheapest pellets, but our quality will help you get more Btu from the pellets,” he says. Spearfish Pellet uses Ponderosa pine, producing pellets with an average of 8,631 Btu per pound, Carlson says.

Quality and Consistency

Spearfish Pellet satisfies its customer base by providing a high-quality consistent product. When Carlson was looking to add a third pellet mill, he checked out several equipment manufacturers but in the end went with Amandus Kahl, the company that had supplied its other mills.

Carlson says he had two major concerns when he was shopping for another mill: not having to spend a lot of extra money to double his parts inventory and making sure that the quality of the pellets produced was consistent. “Consistency is the name of the game for anything,” he says. “If something isn’t broke you don’t fix it.”

Amandus Kahl uses a flat die pellet mill because it’s an efficient, quiet system and the cost to keep the machine operating is low, says Patrick Clark, vice president of sales and marketing.

“Our die is flat and stationary in comparison to a ring die machine where the die obviously is a ring and it rotates and with their ring die machine the rolls are fixed and in our Amandus Kahl flat die pellet mills our rolls rotate,” Clark says. “So it’s basically 180 degrees opposite of the other technologies. That allows it to grind even though our revolutions per minute (the shaft speed) are at approximately 62 revolutions per minute, what happens is the inside feet per minute or rate of travel is different than the feet of or rate traveling on the outside of that roll shell and as that goes across the die, it gives us the grinding action.”

Clark says one of the many benefits of using their equipment is that he can take an inexperienced person, who has never been around their machines and teach them to change the roll head and die in less than 50 minutes. “A lot of our experienced guys are doing it in 20 to 30 minutes,” he says, adding that reduced down time, especially for plants that run 24 hours, seven days a week is important.

Building the Pellet Market

While Spearfish Pellet’s mission is to add value to forest residue, Maine Energy Systems LLC (MESys) is working to increase the market share for pellet producers in the U.S. Northeast and it’s doing it European style.

MESys has long-term contracts with premium-grade wood pellet producers and distributes the pellets in bulk to homes and businesses in Maine and New Hampshire. The trick is to make pellet heating as simple and seamless as heating with propane or fuel oil, with which people are already familiar.
According to the “2011 State of the Hearth Industry Report,” only about 5 percent of the 1 million hearth appliances shipped out in the U.S. in 2010 were pellet-fueled, 70 percent were gas-fueled and the remaining 25 percent used cordwood. The study, which was conducted by the Hearth, Patio & Barbecue Association also pointed out that 34 percent of wood or pellet stove owners viewed their stove as a major heat source, 50 percent considered it a secondary source of heat.

MESys aims to increase the percent of pellet fueled heating appliances and to show residents and businesses how they can make pellets their primary heat source. The company has modeled its business after the pellet industry in Europe, and over a year ago partnered with an Austrian pellet boiler manufacturer ÖkoFEN, says William Strauss, who co-founded MESys with Les Otten and Harry “Dutch” Dresser.

MESys chose to work with ÖkoFEN because the company is considered a pioneer in the pellet boiler industry and manufactures one of the leading models in Europe. “It’s the most modern, cleanest, trouble-free, efficient pellet boiler in Europe,” Strauss says. “The homeowner doesn’t even know it’s there, just set the thermostat and you’ve got heat. No bags to deal with no ash removal no cleaning. It periodically has to be serviced like any boiler that’s really it.”

The company offers semi- and fully-automated wood pellet boiler equipment systems, which require bulk storage bins that hold 3 to 4 tons of pellets, a tube or hose that goes from the bin to the boiler and a pneumatic system that automatically moves the pellets to the boiler. 

MESys also offers a product for pellet stove owners who want bulk delivery but don’t have a bulk storage bin and don’t want to lift the 40-pound bags of pellets. “It’s a free-standing bag that holds a little over a ton of pellets and will take bulk delivery,” Strauss says. “It takes up about the same space as a pallet of bagged pellets and it has a little gauge at the bottom where the homeowner can open the gate and fill a bucket full of pellets and then dump those in the pellet stove.”

The company delivers bulk pellets by truck using a pneumatic pellet delivery system. “These trucks are state of the art,” Strauss says. “They are able to deliver rapidly and gently.” He says some companies use modified feed trucks to deliver pellets resulting in loss through breakage and dust creation. “They rip the pellets to pieces.”

Market Fluctuation

When MESys was founded in 2008 and oil prices spiked there was a flurry of interest in pellet heat, Strauss says. Then oil prices went down—equivalent to pellet heat and even lower—and interest died down.

“But right now pellet energy is the equivalent of about $1.95 per gallon of heating oil and heating oil in Maine is about $2 to $3.75, it really is about half the cost for equivalent energy,” he says. A home that burns 1,000 gallons of heating oil in a season will use slightly less than 8 tons of wood pellets. At current prices, 1,000 gallons of heating oil is about $4,000 and 8 tons of wood pellets is about $2,000, cutting annual fuel costs in half.

Strauss expects the pellet market will continue to fluctuate, however, until the public and policy makers understand, support and adopt pellet heating systems as they have in Europe. “In the U.S. 98 percent of pellets are burned in pellet stoves and in Europe 98 percent of pellets are used in pellet boilers,” Strauss says. “In Europe it’s normal to have a home heating system fueled by pellets. In fact, in Austria most new homes are built with pellet systems, but in the U.S. people don’t even know they exist. And they think it is primitive and dirty and requires a lot of attention and that’s just not true.”

Author: Rona Johnson
Editor, Pellet Mill Magazine
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