The Prospects for Pellets

Emissions requirements and changes in energy markets affect the wood pellets industry

By Steve Bennett

A couple of years back, some consumers regarded wood pellets as an attractive and affordable alternative, or supplement, to heating oil. Since then, the prices of oil and natural gas have dropped.

Also, the EPA on Feb. 3, 2015, updated its clean air standards for residential wood heaters, including pellet stoves. The agency said the updated standards make new heaters significantly cleaner and improve air quality in communities where people burn wood for heat. The updates, which are based on improved wood heater technology, strengthen the emissions standards for new woodstoves, while establishing the first-ever federal air standards for previously unregulated new wood heaters. The final rule, known as New Source Performance Standards, phases in emission limits over a five-year period. The standards apply only to new wood heaters and will not affect wood heaters already in use in homes.

For an update on the general state of the pellet industry, Fuel Oil News interviewed John Crouch, director of public affairs for the Pellet Fuels Institute in Arlington, Va.

FON: Manufacturers now must specify the grade of wood pellets to be used in new equipment, and so the pellet industry is implementing a system for grading the quality of wood pellets. How far along is the industry with implementing that grading system?

Crouch: Yes, any new pellet-fired appliance now needs to specify the grade of fuel [to be burned in it]. In the long term, grading is a useful thing for it gives consumers confidence in the quality of the commodity. A number of companies have signed up and are part of the Pellet Fuels Institute’s quality assurance system–they’re authorized by the laboratories that audit them to use a two-part mark. The mark has a line through the center. Above the line are the minimum PFI requirements, and those are audited. Below the line, if the manufacturer wants to make any other claims– and they are audited claims–then they can make their claims below the line.

FON: Who oversees this quality control effort?

Crouch: This whole program is run by the American Lumber Standards Committee. They’re the same people who authorize the grading of lumber. They in turn audit the independent laboratories which audit the pellet producers. PFI organized the system, but we don’t have any day-to-day involvement auditing people’s production.

FON: Is use of the mark growing?

Crouch: Certainly it is growing. What we’ve found is producers will often upgrade their quality control, their quality assurance program and run it in-house for, sometimes, as much as a year before they will step up and contract with an auditing agency because nobody wants to start to have their fuel certified and then lose that certification. So they’re all being very judicious and careful, and that’s appropriate. It’s coming slowly, but surely. We’ll look back at this as a time of rapid change, but within ten years all the dust will have settled and all the fuel in North America will be certified.

FON: Most of the pellet business continues to be bagged product, while the bulk distribution of wood pellets is seen as having growth potential. Some fuel oil dealers, seeking to diversify, have explored the bulk pellets business. What is the state of the bulk market today and what is the outlook for it?

Crouch: The bulk market is growing slowly but inevitably, and it’s growing in parts of the country where consumers are used to buying their energy in bulk–i.e., in fuel oil country. Consumers in fuel oil country are the leading candidates for that kind of transition.

FON: Why do you say the bulk market is growing “inevitably?”

Crouch: Because it’s such a logical next extension. Imagine if everyone bought their fuel oil in barrels and someone came along and said, ‘We’ll put a tank in your yard.’ It wouldn’t happen overnight because of the initial cost, but it would be inevitable because it’s so much more convenient. Fuel oil is incredibly convenient, and pellets in bags are not. That’s why, to me, it’s an inevitable transition. It’s a slow one, because of the additional first costs, but it will come.

FON: Is growth in the bulk segment mostly on the residential or on the commercial/institutional side?

Crouch: There are companies which are focused on residential, but commercial and institutional is growing slowly but surely.  The dorm at Dartmouth College [converted to pellet-fired equipment several years ago] is a great example of institutional use. There are a number of institutions that are looking at biomass because of their own policies related to climate change.

FON: Prices of oil and natural gas have decreased. How does that affect the pellet industry?

Crouch: There’s no question that’s a challenge. Much of the bagged fuel goes to pellet stoves–supplemental room heating–and many of those pellet stoves are in households that have central units that are fired by fuel oil. So as fuel oil goes down in price, much of the angst on price comes off and it can impact use of pellets.

The other issue of course, and where bulk fuels share the same problem, is that when it’s warm in the mid Atlantic states and in the Northeast and there just aren’t a lot of degree days, it doesn’t matter what the price is. People aren’t burning fuel. So that’s a factor as well.

The other thing right now is that so much of the bagged fuel is handled by retailers who are not energy oriented. Lowe’s. Home Depot. They’re great retailers of bulk product. They know how to do that in a heartbeat. They’re very efficient with dry bulk product. But it’s just another dry bulk product for them, and when they’re done they turn off the spigot.

FON: Is there an opportunity for fuel oil dealers to diversify into the wood pellets business?

Crouch: Throughout New England particularly there are a number of fuel oil dealers who have made a business out of being a one-stop shop: ‘Whatever you want, I’ve got it.’ And I see the [pellet] business transitioning over time to those kinds of people who are energy specialists. Again, these transitions will be slow. Over ten years we will see, I predict, businesses that specialize in energy. It’s a continuation of a tradition, which began with coal dealers who converted to fuel oil. These are the guys who understand heat, and understand how to keep people warm. That’s why we think the fuel oil dealers are so important, long-term.