Molding the Bulk Market

Solutions are said to be found along the fine line between order and chaos, so perhaps this is where the answer lies to expanding a nascent U.S. bulk wood pellet distribution infrastructure.
By Ron Kotrba | September 24, 2016

“Embryonic,” “very young,” “in its infancy,” “growing”—these are all terms people working to expand the domestic bulk wood pellet distribution infrastructure use to describe its current state. And that’s in the Northeast, the most developed region of the U.S. Elsewhere, the word “nonexistent” is accurate.

When describing how the bulk pellet distribution infrastructure should be modeled, a simple explanation for this complex problem is heating oil. A customer with an oil furnace is confident multiple companies can provide bulk fuel oil deliveries. Conversely, heating oil distributors are assured that enough customers exist to justify storage and truck investments needed for a regional depot. Fuel from a centralized location is delivered to a decentralized storage tank, where trucks load up and drive to nearby customers. The driver unwinds a hose, flips a switch and fuel is dispensed into the customer’s fuel tank as the output is accurately metered. A relatively long-term, hands-off supply of heating fuel is successfully delivered.

For some smaller residential pellet stove users, dumping individual 40-pound bags into a hopper is part of the experience. For larger residential pellet boilers or commercial installations, this would be like having a 1,000-gallon fuel oil delivery come on pallets of 5-gallon pails.

Mimicking the century-old liquid fossil fuel distribution infrastructure is precisely what wood pellet industry stakeholders are trying to do. But important distinctions exist, such as fostering relationships between forests and communities, developing markets for low-value trees while improving forest health, promoting appropriately sized production based on regional demand, boosting local economies by retaining heating dollars in-state while providing green jobs and lowering carbon footprints of communities, one house or business at a time.

Knowing what needs to be done is one thing, but how to go about it is another. For the bulk pellet market, does the demand incentivize buildout of supply, or does adequate, reliable supply help create demand? “This is a classic chicken-and-egg scenario,” says Andy Boutin, the chief operating officer of Renewable Fuels of Vermont, a 30,000-ton pellet mill in West Windsor, Vermont, formerly owned by Queston Inc. Boutin is also founder and general manager of Pellergy, a bulk pellet boiler manufacturer and importer. “If you develop the infrastructure, there’s a much better chance of bringing more customers online,” Boutin says. “If customers have to rely on one company for fuel, or a fledgling operation that doesn’t have much infrastructure behind it, or one mill and one loadout facility, there’s a level of risk investing $10,000 in a new heating system and potentially not having delivery. So by developing bulk distribution on a commercial level—manufacturing and delivery—this gives customers a sense of comfort and lower risk. The dollars are being invested in the right area now, which is infrastructure. Where should that money come from?” 

The industry is looking toward government and renewable energy credit investments in wood pellet heating for a number of reasons, according to Boutin, which include that it’s renewable and provides local jobs, but there is a compounding effect from heating homes with a local fuel source. “Eighty  cents of every dollar from oil goes out of state,” he says. “With pellets, 83 to 84 cents of every dollar stays in state. That’s a huge change in the economic outlook for the Vermont economy. That’s part of the impetus for public investment in bulk pellet infrastructure development. We can see true economic impacts, from homeowners saving money all the way to landowners realizing better profits off managed forestland from low-grade wood.”

Last spring, the Vermont Department of Public Service announced five grant awards totaling nearly half a million dollars from the Clean Energy Development Fund to support bulk pellet infrastructure development. RFV was awarded $48,475 to support a $138,500 project to make bulk pellet improvements at its mill. Boutin says when RFV took over from Queston, the mill lacked enough storage capacity to fill more than one bulk truck in a day’s time. “It was very limiting for us, even though when we first started producing pellets we only had one bulk customer,” Boutin says. “But they wanted to come three times a day, and it would take eight hours to put our production into the silo to fill a bulk truck.”

The grant stipulated a 137-ton storage minimum. RFV built a 155-ton silo, which can service multiple bulk delivery trucks in an eight- or 12-hour window. The project also included reconfiguring the whole finished product line to integrate the silo in the process. “We installed a new Z conveyor, which transfers pellets horizontally and vertically with one conveyance system,” Boutin says. “And relaying the pellets from the mill to the new bulk silo, we built a whole new layout, which included relocating the pellet cooler, new conveyors feeding the cooler, a new screener, the Z conveyor, the silo, and new outfeed equipment—we put in a new 50-foot conveyor to load out to the bulk hopper.” In early September, RFV proved out the system with two bulk fills in six hours. Now RFV can fulfill the needs of its preexisting bulk customer while adding another—Bourne’s Energy.

Bourne’s Energy is a 70-year-old heating fuel distribution company. Majority owner Peter Bourne has been running the business started by his father for 44 years. Bourne’s Energy distributes biodiesel-blended heating oil and entered the wood pellet market with bagged product delivery about five years ago. Bourne says two years ago, the company began investigating bulk pellet delivery. He says what’s needed to expand bulk pellet distribution is system reliability and customer confidence in mechanical heating systems. “Consumers don’t want something they have to fuss with,” Bourne says. “They want something similar to what they have in their existing systems. When pellet systems get there, that’ll help move distribution forward. Most people have only seen a stove in the basement or living room, they haven’t really experienced central heating systems.” Bourne says the nicer, reliable central pellet heating systems are expensive, so support is needed to incentivize the hefty investment. “If I were replacing an oil or propane heating system, that’s a lot less cost than installing a central pellet boiler,” he says. “That needs to be dealt with, maybe through low financing and better tax breaks. I’m not sure what the answer is. People tend to buy the cheapest heating product. It’s just the nature of the customer. To say we need more federal, state or local investment—I hesitate to go there. But when it comes to getting pellet systems into homes, it’s a financial burden so the customer has to be committed to take that step.”

Bourne says two years ago, he bought a used truck to outfit with pneumatics for bulk pellet delivery. Once converted, it was challenging to drive the truck two hours away in wintery conditions to the nearest bulk pellet silos and back again for deliveries. Bourne’s Energy applied for the CEDF grant in Vermont and was awarded $21,593 to support construction of a $61,693 bulk pellet storage silo nearby, sized at 53 tons. Bourne says he hopes to have the silo functioning late September. Interestingly, Bourne says he does not yet have enough bulk customers to justify its construction, so the grant was instrumental. “We’re in the business and we plan to be for years to come, so we have to invest,” he says. “It’s a dance between the cutting edge and bleeding edge, and we’ve hit the bleeding edge a few times, but we’re willing to take a reasonable risk.”

Bourne’s Energy is now a dealer of RFV’s bagged and bulk Green Mountain Pellets brand. Bourne says if he were constantly scrambling for bulk pellets, he’d build out more. “But I’m not,” he says. “I do have demand, and I want to grow—and I don’t want to float on the edge of chaos driving hours on icy roads to get bulk pellets. So we needed to make an investment to be a significant player in the market.” Author Steven Johnson suggests the line between order and chaos is where solutions are found and innovation begins.

Also in Vermont, Tabitha Bowling is developing a pellet project, Kingdom Pellets, in the three-county region known as the Northeast Kingdom. She and her business partner Chris Brooks, CEO of Vermont Wood Pellet Co. LLC, a 17,000-ton pellet mill in North Clarendon, Vermont, say demand is key to building infrastructure. “Our opinion is not if you build it they will come, but rather demand drives supply,” Bowling says. “What’s standing in the way of growing bulk pellet distribution is people who need bulk pellets—home owners making the switch, or a school or municipal building. Demand will drive the need for more bulk delivery. It’s happening here in Vermont, in pockets. Market trends and forces will drive traditional fuel distributors to broaden their delivery choices. But we need more people to be aware of this option. Awareness is a big part of driving demand.”

“Our consumers are making a statement with their dollars,” Brooks says. “In Vermont, people understand it’s a local guy making the fuel and providing income for local people. And people are also buying because pellets have an incredibly low carbon footprint. The new mill we’re building will use 100 percent hydropower and wood from a 30-mile radius. We’ll use waste heat to make electricity. Pellets are not a blood diamond. They’re not oil from who knows where. They’re not straining the community in an outflow of cash. It’s community based.”

Kingdom Pellets applied for five grants, says Bowling, mostly state but some federal. The project was awarded $250,000 from Vermont’s CEDF to support the estimated $4.57 million cost to repurpose a former paper mill. Vermont Gov. Peter Shumlin also announced that $550,000 had been awarded to the town of Lunenburg in community development funds. The town will loan the funds to Kingdom Pellets. Bowling says site work is anticipated to begin next spring with production starting in the fall. “We anticipate providing 6,000 tons for the 2017-’18 season, and the following year 23,000 tons, and we’ll be scaled to produce up to 30,000 tons,” she says.

Rob Riley, president of the Northern Forest Center, weighs in on the bulk pellet market’s chicken-and-egg situation. “You can’t have individual customers until they have distribution of locally produced fuel they can consume,” Riley says. “I’m bullish on customers being the best advertisement for the technology we’re talking about here. They can be a town hall using and promoting it, or an individual consumer. But I believe in the context of our current infrastructure, we need more and more installations—demand illustrating the fuel is good, stable in cost, and providing beneficial returns to the environment. Lots of things have to be in play at the same time—demand, service, installers, supply, all in some coordinated fashion. That’s what we’re trying to do as the industry develops.”

NFC’s goal for 20 years has been to diversify and maintain a vibrant forest economy and communities within that landscape. More recently, the organization has invested resources in wood energy. In partnership with companies such as Maine Energy Systems, NFC has helped develop model neighborhood projects. “We have four of them underway or completed,” Riley says, adding that state rebates and additional financing provided by NFC helped communities like Berlin, New Hampshire, achieve the highest per capita density of pellet boilers in the country. This included 40 residential units and several commercial or institutional installations. Currently, NFC has a project in the Northeast Kingdom of Vermont. “Our goal is to increase the bulk distribution network to create bulk demand for local pellets,” Riley says. In all, NFC has been instrumental in 125 pellet boiler installations across the region. Over the next year, Riley says NFC is working to establish an effective communications front to increase awareness and develop common language to convey the value bulk pellet markets bring to communities.

New York
In New York, the Southern Tier Bulk Wood Pellet Program, funded by New York State’s Cleaner, Greener Communities grant program and executed by Cornell Cooperative Extension, Ehrhart Energy and MESA Reduction Engineering, is working to get the state’s embryonic bulk pellet market off the ground. Cornell Cooperative Extension Tompkins County Energy Team Leader Guillermo Metz says for the bulk market to take off, delivery is essential. “That’s the main thing,” he says. “Our program was built around partnerships with industry. The idea is we were going to help pass money from NYSERDA to companies looking to transition to pellets by getting bulk delivery trucks and building a loadout silo with a local pellet plant in the region.” That pellet plant was New England Wood Pellet LLC, but it recently pulled out of the program. In addition, the program helped develop two demo sites with pellet boilers at a greenhouse and museum.

This multipronged approach, Metz says, intended to infuse actual capital into both the supply and demand side simultaneously. “The residential market is slow to take off, so that alone wouldn’t make a big impact on the delivery side,” he says. “So we thought a couple of commercial anchors and a whole bunch of promotion to entice interest were necessary. Neither one could survive without the other. You can’t put in a large boiler without bulk delivery. A bunch of residential customers alone wouldn’t do it, so we needed a few commercial customers. This has to happen at the same time. So we are fortunate New York State was open to seeing what happens when they throw money at both sides.”

While states like Vermont have developed strong connections between forestry and the thermal biomass industry, Metz says their market analysis shows that in New York there must be greater emphasis on this. “In New York, it’s weak,” he says. “Forestry people here don’t see pellets as viable or anything to be concerned with. We are heavily forested but we have very little harvesting of low-value trees. So until there’s a market for that, and some sort of carbon tax or valuation that disincentivizes fossil fuels so we’re not subject to the whim of oil prices going up and down, the industry here won’t to respond to that kind of insecurity.”

Author: Ron Kotrba
Senior Editor, Biomass Magazine
[email protected]