Mystery in the Garage
The fall season is here. In fact, it began in July, as it usually does. This time is not to be confused with the “early-buy spring season,” which is largely the domain of specialty pellet retailers and the reason a number of fuel suppliers have found that it pays to stay connected with the stores that can really “sell” pellet heat. Most of the fuel is being moved by the home centers—both nationally and regionally—and they have become the principal channel for pellet fuel distribution in the U.S. The ability of these chains to offer pellet fuel as a major fall bulk delivery item and traffic builder has worked out well for them, and their business has certainly been good for our industry as well. Consumer confidence in sourcing and shopping for pellets has strengthened the sales of pellet stove, furnace, and boiler retailers over the past 10 years, and that will will continue to benefit our industry in the future.
There is an interesting conundrum for the industry as the number of customers grows, however, and that is determining the annual level of tertiary storage. In the two other types of nonelectric, rural home heating fuels—oil and propane—the local dealers carry some inventory, which is known as secondary storage. This is to distinguish it from primary storage, a term for the fuel stored at refineries, import terminals and other major centers. What is unknown is the consumer’s storage, or tertiary storage, in tanks in their back yards. Every once in a while, tertiary storage (or carryover), can be an issue for both of those fuel delivery systems. While the precise nature of the carryover is not known on a national scale, local dealers have a decent idea. Heating oil and propane dealers have long followed their local degree days and have a good sense of the amount of heat their customers use for a given number of degree days. This helps them determine when to send trucks out, allows them to anticipate their customers’ fuel usage, and also gives them a sense of their local market area’s carryover. If the cold weather shuts off suddenly in their market, the best oil and propane retailers can estimate the carryover and the resulting impact on their customers’ uptake of fuel the following year.
Nothing like that exists in pellet land, but for years it hasn’t mattered. Basically, there has been way too much fuel for too few customers, and the presence―or absence―of carryover has been only one of many issues to deal with. Those of you with dreams of creating new pellet mills should keep that in mind and be certain you know who is going to buy your new pellets before moving forward.
In the future, it could be worthwhile to know what the carryover of pellets is, particularly on a regional basis. For instance, if the mid-Atlantic region has an average of 30 bags per major customer versus New England at 10 bags per customer (which might reflect very different spring weather), that could dramatically affect the uptake of fuel in the early summer buying season, and skew the uptake by region in a way that would be worthwhile to understand up front. As the number of households that buy bagged fuel continues to increase, the difference between 5 bags per garage on a national average, and 25 bags per garage, becomes a larger number. For every million households, every 10-bag average carryover is upward of 200,000 tons. As we continue to move more households into full or supplemental pellet heat, the carryover number becomes even more important, and anticipating this number will become much more meaningful to for all of us who care about pellet heat.
Consumer carryover is particularly important in our form of heat, because it is a mystery. Most of our fuel moves through home centers, and even the specialty dealers we have do not tend to monitor degree days or their core customers’ carryover, like the heating oil and propane dealers do. Perhaps when we reach the promised land of universal, European-style direct delivery, this issue will be moot, but we are a long way from that. The vast majority of our customers enjoy the independence of shopping for fuel and are willing to handle bags, since most of them are saving a lot of money over their previous fossil fuel bills.
Make no mistake, as the number of bagged pellet customers grows, the issue of “how many bags are in their garages, as of July 1,” will increasingly become a bigger issue. Our industry cannot rely on our retailers to monitor this for us; they are mostly home centers, and that is not their job. It’s our job, and we’ll have to figure it out, sooner or later.
Author: John Crouch
Director of Public Affairs
Pellet Fuels Institute