Business in an Era of Mild Winters

If winter is to remain a shorter and milder affair, pellet producers will need more appliances to fuel if the market for wood pellets is to grow.
By Tim Portz | March 03, 2022

At the Hearth, Patio & Barbecue Expo in early 2018, the Pellet Fuels Institute announced a strategic effort to increase pellet appliance installations. This effort was called Operation 100k, aligning the effort’s name with the stated goal of returning the yearly average of appliance installations to 100,000 units. Measuring the PFI’s progress against this goal was doomed from the start, as sales data from appliance manufacturers is offered on a voluntary basis, and participation is hit or miss. While data exists for pellet appliance sales through 2020, there are varying opinions on how much of the market is represented in that data. Additionally, new installations are only part of the story. Industry observers know that each year, a certain percentage of older appliances come offline. These instances are referred to as retirements. In some instances, retired pellet appliances are replaced with a new pellet appliance, but not always. Together, these factors make it increasingly difficult to calculate how many burn pots are consuming wood pellets in American homes each year. The industry deals in various forms of shorthand, generally referring to wood pellets being a primary heating source for roughly 1 million American homes, but these are little more than educated guesses. Apart from these vague notions of the installed base of wood pellet heating, wood pellet manufacturers are left with just the accumulated data of their past sales, and the sector’s overall sales as reported by the U.S. Energy Information Administration in the widely consumed and studied Monthly Densified Biomass Fuel Report.

Not surprisingly, most wood pellet producers are uncomfortable relying exclusively on their rearview mirror to understand where their businesses may be headed regarding the demand realities of tomorrow’s wood pellet marketplace. Wood pellet manufacturing is a capital-intensive, cash flow-challenged and low-margin business that rewards producers who consistently match production with expected sales. Talk with any wood pellet manufacturer about how their business is going, and in a matter of minutes, you’ll be talking about the depth and length of the current heating season. Wood pellet manufacturers cheer the kind of winter that only heating professionals can love, day after day of below-normal temperatures stretching from the first day of autumn to the very last day of spring. The Heating Degree Day (HDD) has emerged as the go-to unit of measure to quantify space heating demand, and wood pellet manufacturers obsess over these figures throughout the heating season.

This year, the PFI launched its own HDD Index to compare this year’s HDD’s in 12 towns scattered across the pellet burning regions of the U.S. The result is an easy-to-consume, heads-up indicator of how this year’s winter is stacking up when compared to last year and the long-term average. The most recent data shows a heating season that, in two-thirds of the reporting cities, has caught up with—and even surpassed—last year’s winter. For the most part, this year’s heating season throughout the mid-Atlantic and New England are on par or slightly ahead of last year’s data. The truly compelling and worrisome data is reflected in the column that compares this season’s accumulated HDDs with the long-term norm. In all but one pellet-burning location on the PFI HDD Index, this year is lagging the long-term average by more than 10%. The result is lackluster sales, and while the current data available (at press time) via the EIA’s Monthly Densified Biomass Report only captures sales through October, the numbers lag last year’s by almost 200,000 tons. After discussions with producers, it is clear that the sales figures yet to be shared in the publicly available data for November and December were also lackluster, and will likely result in the smallest pellet-selling year since 2018.

Are the past two years and their mild winters the new norm? Will pellet-burning locales consistently deliver 10 to 15% fewer HDDs each heating season? Are we experiencing the new normal in space heat demand? Opinions may vary on the answers to these questions, but what cannot be argued is that driving new pellet appliance installations is every bit as critical today as it was in 2018. If winter is to remain a shorter and milder affair, pellet producers will need more appliances to fuel if the market for wood pellets is to grow.

Author: Tim Portz
Executive Director, Pellet Fuels Institute
[email protected]