Growing and Grilling: The Annual PFI Conference in Review

Two major themes dominated the 2018 Pellet Fuels Institute Annual Conference June 24-26 in Myrtle Beach, South Carolina: Operation 100K, the organization’s mission to boost domestic sales of residential pellet stoves to 100,000 units a year; and the importance of barbeque pellets to increase sales and pellet awareness. Powerpoint presentations were scarce, as the affair was rather conversational in tone with loosely structured panels led by Tim Portz, who joined PFI as executive director six months prior.

Since joining PFI, Portz has visited pellet and stove retailers and producers of wood pellets. He said the U.S. has 13 million tons of installed wood pellet production capacity with PFI members representing 4.14 million tons. Single-factory PFI membership capacity is roughly 1.67 million tons, Portz said, while 2.47 million tons of capacity is represented by multisite producers. “Our organization represents seven different multisite producers,” he said. The capacity of members whose products are certified to the PFI quality standard is 3.21 million tons, while the capacity of members not a part of the standards program is 668,400 tons. Certified capacity of nonmembers, according to Portz, approaches 610,000 tons.

Operation 100K
With about 1 million pellet stoves in operation in the U.S., sales last year were roughly 49,000 units, or just enough to cover the annual retirement of old stoves. John Shimek, senior vice president of dealer sales for Hearth & Home Technologies, said HHT’s appliance sales have been up significantly, especially last year. “And this year has not slowed down at all,” Shimek said. “The No. 1 reason customers buy pellet stoves is for warmth, but they won’t buy them if they don’t look good or aren’t reliable.” Stoves must also be easy to use. “Our role,” Shimek said, “is to make them easier to operate, understand and maintain.” He said HHT is developing a new stove with two hoppers and dual-feed motors to hold 80 pounds of fuel, which can operate untouched for three days. “That’s significant,” he said, “and it’s easy cleaning.” The company is also developing a remote control stove.

HHT has consolidated stove manufacturing in one facility in Halifax, Pennsylvania. “Our facility service call rate decreased 50 percent for the past three years,” Shimek said. “We continue to drive service call rates down.” He said HHT is investing significantly into the facility and hopes construction is completed by next year.

Seth Walker, a senior economist with FutureMetrics, said assuming each pellet stove uses 3 tons per year and 5 percent of stoves are replaced annually, the current market scenario carves out about 140,000 tons of new pellet fuel demand. But if Operation 100K becomes reality, this would provide 6 percent growth and 680,000 tons of new annual demand.

Domestic wood pellet production capacity utilization is 35 percent in the North and roughly 50 percent in the West. “This is still low,” Walker said, “but it’s the best position we’ve been in for a long time. Demand is creeping up after a few warm winters.”

John Crouch, director of public affairs for the Hearth, Patio & Barbecue Association, said, “There is no silver bullet to get to 100K. It needs time to sink in.” Crouch said consumers must be made aware that pellet fuels save money. “Wait, but oil and propane are cheap—balderdash!” he said. “We need to highlight the past five or 10 years and show that over time, consumers save money and they are warmer.” Crouch said consumer interest in global warming issues is on the rise, and as a result, HPBA is spending money defending natural gas in certain markets. “In Vancouver, it is difficult to put natural gas in new apartment complexes,” he said, adding that PFI should be present in such markets to promote pellet heat.

Pellet heat must also be promoted to hearth dealers, Crouch said. Making sure dealers have a certified pellet stove installer on staff is also important. “During the 2000s, it was too easy to sell pellets,” Crouch said. “We need to get back to constantly promoting and selling the brand. What hurts the pellet brand is perceived shortages. If a consumer goes to three places and can’t get pellets, then there’s a shortage.”

Dan Coffey, sales and marketing manager for Canada-based Shaw Resources, said market and demand challenges need to be addressed by the industry, not by individual companies. Shaw Resources has worked with the Wood Pellet Association of Canada to develop efforts to address these challenges, such as funding initiatives for Canadian wood pellet producers that everyone can use—for example, sales aids and promotions like a wood pellet consumer focused website, woodpelletheat.ca, Youtube videos and more. “All of these help levitate the knowledge of wood pellets in the marketplace,” Coffey said.

A large segment of pellet stove buyers purchase them for cost savings, while others for warmth, and some for environmental benefits. Certain consumers invest in pellet stoves for the ambiance, Coffey noted, while others for the modern design. There was some disagreement as to the role millennials play in the pellet stove market. Shawn Griffin of Upper Valley Stove Co. said in New Hampshire, most stove consumers are still in the 35-plus range. “In our area, the cost of living is higher, and not many 30-year-olds are buying homes,” he said. Dean Michanczyk of Dean’s Stove and Spa said homebuyers in Connecticut tend to be older as well. Some panelists suggested millennials move around too much and tend to choose electric heat, but Walker, a millennial, said the pellet industry must not ignore consumers under 40 years old. “If you do, pellets will not have a good future,” he said, adding that the industry should target millennials, people predisposed to wood heat and swap-outs in its Operation 100K mission. A pellet stove’s role in a home’s resale value should be pitched to consumers as well, panelists noted. Coffey said more market research is needed to accomplish Operation 100K, which is incumbent upon associations such as PFI to conduct.

Crouch said roughly 12 million wood stoves exist in the U.S., not counting inserts. “Of that 12 million, 9 million are pre-1988 stoves,” he said. Swap-out efforts are localized, but a larger, national effort would help drive new pellet stove sales and conversions from old wood stoves to new pellet appliances. “Cordwood users are our target market,” Coffey said. “They’re predisposed to wood heat and love the ambiance of it but hate the mess. In our market, the price difference between cordwood and pellets is not significant. There is a big opportunity to turn cordwood users over.” With carbon taxes on oil at about 10 cents per liter starting next year in Canada, the environmental market is another big opportunity, Coffey said.

Shimek said HHT has not done a good job at gathering data on why those who bought pellet stoves did so. “It’s not been a major initiative of ours, and I apologize for that,” he said. “If organizations such as PFI and HPBA worked together in gathering this information, we would all be better off.” Coffey said Shaw Resources undertook an electronic market research survey of current and prospective consumers. “We can’t rely on associations, we are masters of our own destiny and we must take ownership,” he said. Crouch said PFI promotions in the 1990s led to an uptick in sales in the 2000s. “In the 2000s, PFI made a determined effort to expand the number of committed pellet stove dealers,” he said. “Specialty retailers create momentum in the market. They are the gatekeepers. Retailers that used to sell pellet stoves need to be proselytized to get back into it.” 

PFI’s Carrie Annand discussed a new ad campaign PFI is undertaking to promote pellet heat. “We’re going to build an ad campaign, and retailers are going to pay for it,” she said, mimicking President Trump’s mission to build a wall and have Mexico pay for it. “We’re going to make pellet stoves cool again.” She said few retailers have incentives to sell pellet stoves over other appliances. The new ad campaign is meant to build awareness so the customer goes to the local store with the mission to buy a pellet appliance. PFI’s ad campaign will focus on social media. “It’s a marketing and analysis tool, all rolled into one,” she said.

Michanczyk said Dean’s Stove and Spa drives traffic to the store by marketing to its huge database of existing customers. “For driving new business, we’ve always used a lot of TV, but that’s evolved and changed so we’re doing more social media now,” he said. “We had to do this on our own because this industry does a poor job of letting people know who and what we are.” Griffin said Upper Valley Stove Co. markets through radio. “It does well for me,” he said, noting in rural areas, customers listen to radio while farming. Griffin and Michanczyk say buyers often don’t know what they want, so trained staff help guide them. “Those who want gas won’t save money and won’t get the same heat output as a pellet stove,” Michanczyk said. Panelists discussed the phenomenon of gas stoves being rated at twice the Btu output of pellet stoves but not putting out as much heat. “I don’t know why this is, but you can’t believe everything you read,” Michanczyk said. “I think big oil and gas skew these numbers.”

Michanczyk said trade-in offers help drive interest in pellet appliances. “They can bring the price of a decent pellet stove down to $1,500 to $2,000,” Michanczyk said. “Once you get them in the store, it’s all over. It’s like a kid in a candy store.” He said if customers want to save money on heat, pellets are the way to go. “But they don’t know this because the marketing is not there.” Griffin pointed out how oil companies have minimum deliveries. With pellets, however, consumers can buy a week’s worth of heat and still have money to pay their other bills.

Michanczyk said having enough properly trained technicians can make or break pellet stove sales. Griffin said Upper Valley Stove services everything it sells. “If we didn’t, we probably wouldn’t sell 50 percent of the stoves we do,” he said.

Ultimately, promoting the pellet brand, dealers and grilling is how Crouch said the pellet industry can fulfill Operation 100K. He said many consumers’ first interaction with wood pellets is flavored pellets for grilling. “It’d be a stretch to [then convert them to] pellet heat, but at least they understand what a pelleted product is.”

Grilling
Portz said it was an eye opener to learn between 1 million and 1.2 million pellet barbeque appliances were sold last year. At an average of 200 pounds of pellets per appliance, this equates to 120,000 tons of new demand per year. Bob Robinson, director of outside events at Dansons, a grill manufacturer and seller, said, “The food just tastes better—period. That’s where it starts.” He said barbequing with pellets is much more mainstream than home heating. “Everyone has a barbeque grill,” Robinson said. “Pellets have taken the average barbequer and turned them into backyard barbeque junkies.”

Barbequing makes wood pellets sexy, said Kenny Lisle, sales and marketing manager for Energex American. “This is what’s popular,” he said. “We need to use that energy and transfer it to the heating side.” Robinson argued barbeque pellets is the fastest-growing segment in the industry.

John Weaver of BBQr’s Delight Wood Pellets said the price drop of pellet grills in the past few years has caused his barbeque pellet sales to skyrocket. “It’s a very good business,” he said. Panelists noted that even if barbequers don’t own a pellet grill, they can still use pellets. “Wrap them in foil and poke holes in it,” Robinson said.

Lisle said a boots-on-the-ground strategy can be employed to promote pellets for grilling. “You can feed people directly,” he said. “Let them know they don’t have to taste petroleum anymore.” Robinson said not only does food taste better, but pellet grillers may not even realize they are cooking with green energy. Grilling pellets fetch higher prices than heating pellets because, as Weaver pointed out, consumers are buying them for flavor and convenience, not Btus. Also, with bagged heating pellets, the market is more regional whereas the barbeque pellet market is national and beyond. “The whole world is your market,” Weaver said.

Robinson said with barbeque pellets, consumers care less about brands, and Weaver added availability trumps brands. Robinson said availability affects retailers. “If a consumer goes to a store to buy barbeque pellets and they don’t have it, they’ll find someone who does and stick with them—maybe for the life of the grill,” he said. “So if you sell appliances, you need to have fuel too.”

The panelists say barbeque pellets can help flatten out cash flow challenges as well, since barbeque pellets don’t necessarily have the seasonality issues heating pellets have. “We’ve not noticed a season on barbeque pellets,” Weaver said. Interestingly, one of the biggest sales periods for barbeque pellets is Thanksgiving. 

Policy
There are multiple federal policies that subsidize and promote the use of pellet heat—including the Farm Bill and the Biomass Thermal Utilization Act—but none are more important to Operation 100k than the existing $300 federal tax credit for home heat wood stoves, according to Innovate Natural Resource Solutions’ Charlie Niebling. “PFI should work to ratchet this up in the next authorization,” Niebling said. “It’s impossible if you don’t ask for it, so put forward the case, build a strategy and develop a champion in Congress.” Niebling also said the Biomass Thermal Energy Council and others are working to address a USDA rule change that disadvantaged pellets in the Bioenergy Program for Advanced Biofuels, one of the Farm Bill’s energy titles. “We’d like to direct USDA in a more fuel- and technology-neutral way,” he said. Niebling added he was hopeful the BTU Act, which would provide federal investment tax credit parity with solar and wind, will be introduced again soon. “We’ve been trying since 2009 to shoehorn advanced biomass heating technology into the residential and commercial tax code, and we came close last spring,” he said. “Sen. Susan Collins from Maine, she’s been our champion.”

Jeff Serfass, executive director of BTEC, said, “We’re quite close [to passing the BTU Act], and we expect to reengage [the effort] after midterms. It’s a time of great change in Washington, D.C. Our members are to some extent a little worn out.” He said the BTU Act was successful last year in bringing members of both parties onboard. “We’re cautiously optimistic,” he said. “Momentum is on our side, even in these turbulent times.”

The Renewable Thermal Collaborative was launched because the renewable component of industrial heating and cooling is very low, according to Serfass. He said the RTC, with muscle like Proctor & Gamble, grew out of the Renewable Energy Buyers Alliance. “We need to figure out how to engage, collaborate and develop a common agenda with RTC—that’s where we’ll see some tax benefits and market pull,” Serfass said. “Because of the challenge of reaching modern market penetration, we as an industry need to engage in technical (regulatory) work and advocating government policies.”

On that front, BTEC is trying to engage the American Space Heating Association, since “engineers don’t know much about wood heating,” Serfass said. “They need a lot of education and stumble over greenhouse gases and sustainability in general.” He said a committee has been initiated in ASHA but has yet to be populated. “Cooperation and collaboration are really important for us,” he said. 

Niebling said pellet plants are wonderful photo opportunities for politicians. “The machinery, sawdust, people working and producing something from the land,” he said. “If you haven’t done that, take the time to develop a relationship with whoever represents you.”

Stephen Faehner, president and CEO of American Wood Fibers, said PFI needs to be in touch locally as well as federally. “The needle can be moved just as well locally,” he said. “Twenty-six states have biomass tax credit and rebate programs. Find a blueprint and work with legislators in your state.”

Standards
Stan Elliot, general manager for Pacific Coast Fiber Fuels and outgoing chairman of PFI, said originally he did not see the value in certifying his pellets to any standard. “I didn’t see the value in a quality mark no one was asking for or knew about,” he said. Then, in 2016, key retailers weren’t demanding certification but strongly suggesting it, he said. “They wanted protection that the product was third-party inspected,” Elliot said. “ENplus, CANplus—others were doing it and it was clear this was coming, so I decided to get onboard and use it to legitimize what I was claiming and as a competitive advantage.” Elliot said contrary to his earlier thoughts, he did not find the cost burdensome at 45 cents a ton. “The advantages outweigh the slight cost,” he said. “Now, in 2018, I am glad we got PFI-certified and I would not go back. More people are asking for it.”

Canada’s pellet standard, CANplus, is not original, said WPAC Executive Director Gordon Murray. “I’ll be the first to admit that,” he said. “We wanted a standard in Canada, but we didn’t want the EU governing it. So we made an agreement with the European Pellet Council. CANplus is exactly the same as ENplus.” The PFI quality standard, however, is unique to the U.S., and Murray pointed out it is not accepted elsewhere. “I don’t understand why you have different standards here than the rest of the world,” Murray said. “In terms of consumer satisfaction, ENplus is virtually complaint-free.” Bruce Lisle, president and CEO of Energex Corp., said a big trade restraint for U.S. pellet producers who would like to use the ENplus certification is a royalty requirement on all production, even though some may be going to Idaho vs. the EU. Furthermore, Lisle said, about 25 percent of the ENplus quality marks at the consumer level is fraudulent. Murray said, “Fraud is huge, and the fact that there is a dedicated fraud department points out the success of the label. People copy it because they want it.”

Easy Heat is a pellet producer utilizing old pallets for pellet production. Billy Hoskins said when EPA’s New Source Performance Standards came out, his company’s product was immediately excluded even though Easy Heat passes every specification in the standards, including metals. “We are not against standards,” he said. “I like the PFI certification standard and we continue to support the PFI. But we can’t participate. It’s a Catch-22.”

Darren Winchester, the safety, quality and logistics manager for Wisconsin-based Indeck Ladysmith LLC, said there is no question certification helps internally. “It translates to consistency in production and product going out the door,” he said, adding the return on investment is real. “And for the bigger box stores, they’re starting to use it as a qualifier whether they’ll consider you. It’s a healthy thing.”

Incoming PFI Chairman Don Wagner, general manager of Appalachian Wood Pellets, said standards and third-party inspections provide the marketplace with assurance that certified producers are “good actors.” The other pool of uncertified producers includes good and bad actors. “Tests show it’s a high percent of bad actors,” Wagner said.

What’s Next
The conference concluded with thoughts and suggestions on where PFI priorities should lie. Wagner said the organization must develop a strategic plan to give clear direction. Brett Jordan, CEO of Lignetics, echoed the fact that PFI has lacked clear direction and leadership. “The bullet points on the PFI website explaining who we are should receive a failing grade,” he said. “We must update that.” Jordan said the organization should lay out what it plans to accomplish annually and every three to five years. Ben Rose, CEO of Michigan Wood Fuels, said PFI clearly needs a strategic plan, an important part of which is communicating the value of the standards program to dealers and big box stores. “Frankly, we’ve done a weak job of that,” he said.

Lisle said the No. 1 takeaway is the importance of Operation 100K. “We cannot sustain growing an industry that is doing nothing more than replacing retirements,” he said. “We need to get back to promoting.” Jordan said, “I think the pellet barbeque user is an interesting path identified for us to increase awareness, in general. Barbeque pellets open the door, and there are interesting new appliances out there such as pellet pizza ovens and patio heaters. As consumers become more exposed to pellets, it all benefits the heating side—so we need to ride that wave.”

Wagner said at the fall board meeting PFI members will work with Portz to develop a pinpoint plan with no more than three specific initiatives—achievable goals that can be monitored and tracked—and provide resources to accomplish them.

Author: Ron Kotrba
Senior Editor, Pellet Mill Magazine
218-745-8347
[email protected]