The Cost and Value of Quality

“Don’t underestimate the size of the European wood pellet heating market,” says Gordon Murray, executive director of the Wood Pellet Association of Canada. “ENplus certification and the label are essential for trade in Europe now. It’s not legally required, but the market demands it. And if you don’t have it, you effectively can’t sell into that premium market.”

According to the European Pellet Council, 21.7 million metric tons of wood pellets were consumed in the EU28 in 2016. The majority of this went to heat production, representing 13.4 million tons, or nearly 62 percent. The remaining 38 percent was used for power production. Almost 70 percent of the pellets consumed for heat in Europe was in residential applications.

Canada has a unique relationship with the EPC and the ENplus certification scheme. Not only does Murray sit on the board of directors of the EPC, but Canada has its own CANplus certification process and label modeled exactly after ENplus. Furthermore, WPAC is a national licensor of the ENplus label in Canada.

“We have the right to issue the mark in Canada,” Murray says. “There is no such licensor in the U.S. Any of our members that wants the ENplus certification, they apply to us and we appoint Control Union to be our national certification body. Procedures and inspections are set up and, if they pass, then they get certified ENplus and CANplus. If they get one, then they get the other. It’s not either-or—it’s both.”

U.S. pellet producers do not have this luxury, however, since there is no U.S. national licensor of the ENplus label as there is in Canada. “The Pellet Fuels Institute had the opportunity to be involved,” Murray says, “but they chose to go a different route.” The PFI label has credence in the U.S. but is limiting for international—particularly European—sales. Meanwhile, the acceptance and importance of the ENplus label is growing across the globe.

According to Gilles Gauthier, the general Manager of ENplus, there are 478 ENplus-certified wood pellet producers around the world. While a vast majority of these producers are located in Europe, there are 12 in North America, 10 in Asia and seven in South America, among others, according to data on the ENplus website. “ENplus was initially designed for the European residential market,” Gauthier says. “Then the scheme expanded dramatically in Europe and beyond, showing the great need of harmonizing and even improving the pellet quality all over the globe. Today, Europe remains the main driver for companies to get certified, but we notice a growing interest for ENplus in some areas outside Europe, a trend that we obviously support and accompany.”

Some PFI-certified pellet producers in the U.S., like Bruce Lisle of Energex American Inc., are interested in selling their product into the lucrative European market, but only see value in the ENplus label for shipments that would actually go to Europe. According to Lisle, ENplus certification would “basically be an add-on” to PFI certification. “But this means all my production would be subject to royalties back to the EPC, and I find that untenable,” Lisle tells Pellet Mill Magazine. “I don’t need the ENplus label to sell in the U.S. The PFI label is more recognized and it’s been around a lot longer—since the early ‘90s—and in its current form for several years. But if I want to sell into Europe, which I have tried, buyers require the ENplus label. Unless I want to subject all my production to royalties to the EPC, this effectively writes me out of that market. I view it as a trade restraint.”

Gauthier estimates the cost of ENplus certification between 2,000 and 3,000 euros ($2,278 and $3,418). “As a third-party scheme, we do not have control over the certification costs,” he says. “These are entirely at the discretion of our listed certification bodies.” Once certified, royalties for use of the label are 15 euro cents, or approximately 17 cents, per metric ton.

Program Revision
In early December, the EPC announced the launch of a revision process to ENplus. “We have decided to update the system to improve even further the quality of the scheme, its added value to certified companies and its overall management, including the coordination with partnering organizations,” Gauthier tells Pellet Mill Magazine. “Any public or private standard should enter into periodic revision processes to guarantee a high level of quality and performances. The pellet industry is an ever-evolving one, constantly reaching higher levels of performance, regularly witnessing scientific breakthroughs. As the world-leading pellet certification scheme, it is our duty to anticipate and factor in these evolutions. Moreover, the rapid expansion of ENplus did not come without challenges in terms of management. In order for ENplus to consolidate its leading position, it was essential to launch this major overhaul.” Gauthier says no aspect of the program—technical, procedural, coordination or governance—will be overlooked during the revision process. 

The revision process is driven through a multistakeholder approach. “Indeed, it was essential for us to involve the industry as a whole in this process,” Gauthier says. This includes pellet producers and traders to end-users; appliance manufacturers; certification, inspection and testing bodies; national pellet associations; and more. “Concretely, this translates into several rounds of online public consultation, as well as the creation of an editorial and advisory committee that will accompany the revision all along the process,” he says. The EPC has received various inputs, from requests to slightly adapt a specific technical requirement to major strategic changes. “As we are at the early stage of processing those requests, it is too early to share on the specifics here,” Gauthier says. “The multistakeholder approach appears to be key, based on our experience, and the great expansion of the scheme highlighted the need to coordinate at best with the different partnering organizations.”

Now seems like an opportune time for EPC to consider new approaches to how U.S. producers supplying stateside customers with pellets could access the European market without subjecting all of their production to European royalties. Lisle says the solution is simple. “I can easily certify my plants under ENplus, and I’m willing to do it for access to the European markets,” he says. “I can make a specific bag for Europe, and I would pay the EPC royalties on those particular sales.”

When confronted with this, Gauthier says, “We should first bear in mind that ENplus is a voluntary scheme. Indeed, there is no legal obligation for any company to be ENplus-certified. It is then up to any company to determine whether ENplus brings them added value and make the strategic decision to go for it or not. It is worth noting that the decision to become ENplus-certified is often driven not by the acquisition of the seal, but because of the added value it brings in terms of quality management, which means increased profitability at the end of the day.” He says about 15 percent of ENplus-certified companies are located outside Europe. “And while we cannot disclose every detail, we know for a fact that a fair share of them does not export their products to this region,” Gauthier says. “What is even more revealing is the growing aspect of this trend, especially in the past three years.”

When asked whether the council will consider waiving royalties on specific shipments from U.S. producers who become ENplus-certified but distribute stateside, with royalties in effect on any shipments that enter the European market, Gauthier says revising the schedule of fees and related process will, in fact, be considered during the revision process. “The idea of collaborating with some other certification schemes has some merit but, so far, ENplus could not enter in this process mainly because of important technical differences or, in some other cases, because of major professionalism gaps,” Gauthier says.

Lisle says the technical parameters between the two standards are very similar. The latest undertaking at PFI is a metals standard. “We at PFI agreed to adopt this,” Lisle says. “I know at my mills, we have a metals standard. It’s a duplicate of the European one.” While Lisle says the PFI and ENplus standards are close, he points out two major differences. “One is grading,” he says. PFI’s premium grading has several tiers related to ash content: up to 1 percent; from 1 to 2 percent; and utility grading above 2 percent. “ENplus’ A1 grade limits ash content to 0.7 percent,” Lisle says. “There’s a major difference between 0.7 percent and 1 percent.” The second major difference, “which is the critical issue,” Lisle says, is how the standards are applied to the particular producers. “Case in point, with the ENplus standard, producers get one inspection per year—period,” he says. “PFI requires monthly inspections and a sampling every thousand tons initially, and then once a high level of confidence is achieved, the sampling requirement jumps to every 5,000 tons. And our inspections are random audits, not scheduled. The inspectors can show up at any time. This keeps a tighter rein on our producers to maintain the quality of their fuel.”

Gauthier says the EPC supports any professional certification scheme that allows the pellet industry to guarantee quality product, whether that is ENplus or another professional certification. “The inspection regulation of PFI indeed differs from ENplus,” he says. “However, a revision of the inspection requirements and related processes will be considered under the broader ongoing overhaul of the ENplus scheme.”

Combatting Fraud
The EPC is transparent about fraud in the market with respect to its ENplus certification and label. A plethora of information about fraud is available on the ENplus website. More than half of the ENplus fraud cases involve irregular use of the label. The second most common fraud seen is product misuses, including fraudulent use of the ENplus seal on pellet bags. Third is certification falsification. While ENplus management reserves the right to take legal action against any fraudulent use of its registered material, it typically resolves these issues outside of court through a two-step approach. “The first one is to contact the infringing company to try and solve the problem in an amicable manner,” the ENplus website states. “In a vast majority of cases no further action is required, as attested by our resolution rate of 73 percent. However, some cases remain unsolved after this first step. For these, we enter a second phase, more coercive, whereby fraudulent companies see their name and actions exposed in our public registrar, the Blacklist, pending a final resolution of the case.”

Paul McLean, managing partner of Enkarterri Associates, a small brokerage firm in the U.K., tells Pellet Mill Magazine that in December he had two buyers for whom he was trying to locate 100,000 metric tons of ENplus-certified pellets annually. “Every single offer from Latvia and Lithuania has been a scam, except one, which doesn’t currently export to the U.K.,” he says. “The scammers pass themselves off as existing companies and the scam is always the same—to bounce you into sending 50 percent upfront. All large deals are transacted through letters of credit, and that implies they have asset finance behind the deal. Asking for 50 percent upfront pays for the wages and shipping, and it indicates there is poor or no financial backing in these pellet manufacturers.” Mclean says many of these firms lack investment in their systems and procedures to become ENplus-accredited. “The market requires it, and it requires producers to follow policies, processes and auditing,” he says. “Small producers find it onerous to comply, so it’s easier to just pass the pellets off as [ENplus-certified when they are not].”

The first action McLean says he takes when encountering a suspected pellet fraudster is to check the ENplus Blacklist. “It’s the first thing I do as part of my due diligence,” he says. Once the first shipment arrives from companies that pass McLean’s due diligence, he tests the pellets through an accredited lab. As to what might alleviate fraud with the ENplus certification and label, McLean says reduced costs and more inspections may help. “Small producers run tight margins, and the cost of certification is probably prohibitive,” he says, adding that increased inspections would “definitely” help reduce fraud.

“When you only inspect once a year, anything can happen in that time,” Lisle says. “We have only had one PFI fraud case that I recall and we nipped it in the bud.” 

Given that European buyers and end-users require the ENplus label, it clearly has value, Murray says. “And there is a cost,” he says. “It costs the EPC money to manage and update it in order to do quality control, making sure pellets are up to the standard, and it costs money for companies to get certified, set up their own lab and have quality control procedures in place. When unscrupulous companies set up a little pellet plant somewhere and they need this mark to sell product, they try to cheat. To me it proves the value of the mark. There would be no fraud if there was no value. Different countries have different cultures, though. The respect for the rule of law and value of trademarks is not universal.”

Gauther says, “In such a competitive sector as wood pellets, the ENplus certification, as a world leader, is bringing a major marketing advantage to the certified companies, especially since ENplus is required by a lot of traders and end-users. In this context, fraud can occur. In order to protect the well-performing certified companies and to guarantee our brand value, the ENplus trademark is widely protected at an international level, and its use is strictly limited to certified companies. For this reason, consumers are advised to check that the ENplus seal on the products they buy matches the details of a certified company, by consulting our relevant lists for producers, traders and service providers, as well as the procedure, ‘How to detect fraud,’ on the ENplus website.”

The ENplus brand legal protection and fraud tackling procedures are solid, Gauthier says. “But, as for the other aspect of the scheme, we will look for further improvements during the scheme revision. At the moment, the most challenging part is probably raising awareness with all our stakeholders about checking whether the pellets they are buying or using as ENplus-certified are indeed related to a legitimate certificate, and to have them inform us whenever they have doubt. Any case that is reported to us is subject to a follow-up, without exception.”

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