COVID relief bill will be a gamechanger for residential wood heat

By Erin Voegele | December 22, 2020

The $900 billion COVID-19 relief package passed by Congress on Dec. 21 includes provisions of the Biomass Thermal Utilization Act and will enact a three-year investment tax credit (ITC) for high-efficiency home heating equipment that fires wood pellets, chips or cordwood.

Language for the ITC is contained on page 2,448 of the nearly 5,600-page bill. The credit applies to the installed cost of home heating and hot water systems that utilize wood pellets, chips and cordwood at efficiencies greater than 75 percent high heat value. The ITC is for 26 percent in 2021 and phases down to 22 percent in 2022 and 2023.

Charlie Niebling, a consultant for wood pellet producer Lignetics, has been working to enact the BTU Act for more than a decade. He called the ITC for residential wood heaters a “gamechanger” for residential wood heating.

Niebling said the credit has very practical significance to the industry as well as symbolic importance to modern wood heat. “It puts modern wood heat on the same level in terms of recognition by government as solar, wind, geothermal, and other renewables that have benefitted from investment tax credits in the tax code for decades,” he said. “By the government saying efficient wood heat technology is deserving of an investment credit, government is basically sanctioning your technology and your industry—it’s saying its important and it’s recognized. That’s enormously important, I think, to the wood and wood pellet sector.” Niebling explained that much of the explosive growth in wind and solar can be explained by the 30 percent ITC that has existed for years. “The market has responded to that signal,” he said. “Now we have an opportunity to demonstrate our technology can benefit and grow in response to this sanctioning by the government.”

On the practical side, the ITC effectively reduces the cost of modern wood heating for homeowners. A 26 percent credit on a $15,000 pellet boiler installation equates to almost $4,000, Niebling said. On a $4,000 pellet stove, the savings is a litte over $1,000. “That’s nothing to sneeze at,” he said.

To fully capitalize on the growth potential offered by the ITC, Niebling said the pellet industry and the manufacturers of stoves and boilers that meet the efficiency threshold of the ITC will need to invest some real resources in marketing the benefits of the ITC and promoting it to consumers.

The original BTU Act also included a business tax credit for biomass heating systems. That portion of the legislation was not included in the COVID-19 relief package passed by Congress. Niebling said, however, that advocacy efforts will continue to enact those provisions with the new congress and new administration in 2021. The incoming Biden administration is expected to devote a lot of attention to climate and energy and is likely to be more receptive to a business ITC for biomass heating than the current administration is. “We need to make the case that if this is really going to move the market in terms of demand for low-grade wood, jobs and rural economic development, we need a lot more consumption—we need greater demand,” Niebling said, noting that business ITC would benefit companies that want to use biomass to heat manufacturing facilities, warehouses, hospitals, apartment complexes and similar buildings. “Anything and everything that you can heat with gas, propane and oil you can heat with chips or pellets,” he said. “The technology to utilize these [biomass] fuels cleanly is there. We just need to do a better job persuading our supporters in Congress that this same investment credit that exists if a business puts solar panels on their roof or a wind turbine behind their factory ought to extend to modern wood heating as well.”

Niebling also noted that there will be potential in the new Congress to extend the residential ITC beyond its current three years and potentially increase the value of the credit to its original 30 percent. “There is every expectation that the new Congress and [Biden] are going to revisit the suite of clean energy incentives,” Niebling said, noting that there will likley be an opportunity to revisit the authorization period for the ITC and its value.

The BTU Act has been introduced every year since 2009. Several members of Congress were integral in finally getting provisions of the bill enacted. Niebling specifically credits Sens. Susan Collins, R-Maine; Angus King, I-Maine; Jeanne Shaheen, D-N.H.; and Reps. Peter Welch, D-Vt.; Ann McLane Kuster, D-N.H.; Chellie Pingree, D-Maine; Jared Golden, D-Maine; and Richard Neal, D-Mass., with championing the BTU Act over the past decade.

The Biomass Thermal Energy Council has been a driving force in support of the BTU Act. Along with the Alliance for Green Heat, Innovative Natural Resource Solutions, Maine Energy Systems, Orion Advocates, Pellet Fuels Institute, Renewable Heating Solutions, Sustainable Northwest and many other groups, the BTEC has worked with Congress since 2009 to enact tax incentives for biomass heating.

John Ackerly, founder and president of the Alliance for Green Heat, said that wood heaters that meet the 75 percent efficiency requirement of the ITC emit much less CO than those that achieve less than 75 percent efficiency. CO is an important indicator of cleanliness and combustion efficiency, he explained. He also noted that pellet stoves and boilers will be more likely to be eligible for the ITC than wood stoves and boilers. Approximately 60 percent of all pellet stove models meet the 75 percent efficiency threshold, he said, compared to only 40 percent of wood stoves. The ITC is also more likely to apply to catalytic stove models, with only 12 percent of non-catalytic stove models meeting the required efficiency threshold.

“By using 75 percent efficiency as a threshold for eligibility, this legislation also promotes cleaner wood and pellet appliances,” Ackerly said. “Far more pellet models will be eligible compared to wood models.  And, pellet stoves at 75 percent efficiency or more emit an average of five times less carbon monoxide than those under 75 percent efficiency."

Tim Portz, executive director of the PFI, noted those in the wood heating community have been working in support of the BTU Act for years. Most recently, the PFI made the BTU Act its policy focus during a day of advocacy on Capitol Hill in October of 2019. “The inclusion of components of the BTU Act in the COVID relief bill is an incredible development for the wood heating industry, including the manufacturers of wood pellets and wood pellet burning appliances in this country,” Portz said. “Our road to the victory we experienced [on Dec. 21] reaches back more than a decade. I am thrilled for our wood pellet manufacturers, appliance manufacturers and retailers who have worked for so long to bring this to fruition. It is very gratifying.”

“There is no doubt that this tax credit will boost consumer interest in wood and wood pellet alternative home heating solutions,” said Adam Martin, owner and operator of Martin’s Sales and Service, a specialty hearth retailer and PFI member in Butler, Pennsylvania.  “I am excited about the increased momentum this will generate for our industry.”

According to the PFI, the challenge facing the industry is now to build consumer awareness in the available tax credit. “It is important to keep in mind that as an industry we can’t stop at this point,” Martin said. “Our trade organizations, retailers, and manufacturers all need to do their part to inform consumers of the tax credit available to them. Our continued efforts will benefit the entire industry for years to come.”

President Trump is expected to sign the COVID-19 relief package into law this week. A full copy of the COVID-19 relief package can be downloaded from the House website.