EVENT

HELP WANTED

The domestic wood pellet industry met with optimism in Louisville, Kentucky, in early June. Many bright spots are bolstering business, but a nagging issue seems to be plaguing all supply chain segments: employees. BY ANNA SIMET

Strong pellet sales, appliances selling faster than manufacturers can make them, optimal levels of inventory and policy victories—these were many of the positive discussion topics at the 2021 Pellet Fuels Institute Annual Conference held in Louisville, Kentucky, June 8-10.

Tim Portz, executive director of the PFI, began the event with a thorough review of how 2020 stacked up to 2019 and the past five-year average. As for sales, the domestic wood pellet industry exceeded the five-year average, just missing 2019 numbers at about 2.185 million tons. Average monthly inventory equated to about 81,000 tons, compared to about 18,000 tons in 2019. The “right” level of inventory is a number that has been heavily contemplated, Portz said. “But I don’t know what the Goldilocks number is—that’s for you to decide,” he told a room full of pellet manufacturers and other supply chain stakeholders, many who were attending an in-person event for the first time since the pandemic began. Portz said 2020 was overall a solid year, though there were a few valleys with the peaks. While summer sales were significantly high—a buying trend the pellet industry has strongly encouraged its customers to embrace to help prevent spot shortages and help producers gauge demand—October to December saw the lowest average sales in the past five years.

Portz highlighted the fact that the wood pellet industry injected more than $478 million back into the forest products industry. “We do great things for our partners in this sector,” he said, pointing out the incredible amount of wood residuals the industry purchases in a year. “About 14.5 million tons of residuals—that’s trucks lined end-to-end from Anchorage to Orlando.

Portz also pointed to the merger and acquisition activity in the industry, underlining the fact that pellet producers are spending money in this strong, predictable market. “The BTU Act is already having an effect—one retail member reported pellet appliances up 39%,” Portz said. “Efforts to expand the BTU act have already begun, but our question is: How much leaning in and work should our sector do?”

FutureMetrics President Bill Strauss turned the discussion to carbon policy, beginning with a review of EU carbon reduction initiatives. The country has enforced policies that discourage use of fossil fuels, particularly heating oil, and it’s working, according to Strauss. “I think that’s what

Tim Portz, executive director of the Pellet Fuels Institute, welcomed attendees of the PFI Annual Conference, introducing Bill Strauss (center) of FutureMetrics as the first presenter of the event. Charlie Niebling, partner at Innovative Natural Resource Solutions, (left) was also a panelist.

PHOTO: ANNA SIMET

we should be doing here,” he said. In the U.S., there are currently 504 operating coal plants with an average size of 550 MW, and 39 that are less than 15 years old, according to Strauss. He emphasized the high number of jobs a 100% pellet-fueled plant creates: a single 550-MW coal plant converted to wood pellets generates about 3,306 jobs.

The BTU Act was one of the most-discussed topics of the conference, with the first question focused on why the commercial tax credit component of the act did not pass. Charlie Niebling, partner at Innovative Natural Resource Solutions and one of the bill’s most significant proponents, said the consensus is that some anti-biomass NGOs may have played a roll in that provision getting yanked from the bill. Getting that provision instated, along with an extension of the tax credit to 2028, is needed so that the industry can plan and respond. “If you look at solar’s long-term growth, it is consistent with recognition in the tax code year after year,” Niebling says. “The industry responded and built on that 30%. We need it extended; it has to be consistent.”

Moving on to a topic known to have differing views among domestic pellet producers, Strauss and Niebling agreed that it’s time for the domestic wood pellet industry

in invest in resources to combat misinformation. “I don’t think we can be complacent,” Niebling said. “We are up against some fairly formidable sources. And we have a fantastic story to tell—it’s complex, but compelling.”

It’s difficult to be in business today when utilizing a forest resource, but not investing in sustainability initiatives to help people understand the industry, Niebling continued. “I spend a lot of time on Capitol Hill defending our right to do business ... we need to focus on those who have authority and jurisdiction over our industry— they’re in charge. We need to be super tactical and drill down on individual members and their staff, because they’re the gateway to our issues.

“Sustainability is a license to operate,” Strauss added. “It has to be there. In practical terms, who builds a sawmill in an area where they’ll run out of woods in five years? We know it’s built into the business model, but then comes the environmental side ... the more incentives the industry gets, the more NGO attention it will get. [If commercial BTU Act component passes] There will be an immediate mobilization of anti-biomass groups to limit the number of appliances that could qualify, and if that isn’t a threat to your business, then I don’t know what is.”

Appliance and Retailer Perpective

Appliance retailers and manufacturers are feeling the impacts of the BTU Act, with panelist consensus being the policy has influenced store purchasing decisions—pre-ordering models that qualify— and resulting in double digit increases in consumer pellet appliance sales. “We have those who are reinvesting because of the tax credit, as well as new customers—those who were on the fence, but now that they get a quarter of their money back, they’re jumping in,” said Stan Weideman, vice president of Weideman and Electric Inc. Weideman said the company sent out a flyer about the tax credit and early orders ramped up as a result. Ross Schulz, merchandise manager at Coastal Farm & Ranch, said though his store wishes it had known about the BTU Act passing earlier, it promoted it on social media, and pellet appliances are up 30% year-to-date, with pellet fuel sales up 5%. “We’re very pleased,” he said. “We got on top of it, but there is still more to do from a marketing standpoint.”

Karen Smeltz, brand manager of Hearth & Home Technologies, said the company “can’t make product fast enough. Demand is phenomenal. Wood stoves are up the highest, with pellet stoves close behind. If there’s an extension to 2028, we could really start to innovate, introduce new production in 2023 and know it will have traction.”

There are a few challenges right now, one of which is that the supply chain for appliance parts is facing a bottleneck as a result of the pandemic, said Weideman. “It’s really impacting the hearth business, particularly for steel and other parts,” he said. Smeltz said Hearth & Home has eaten some of the cost when it comes to increases in steel prices, but have had to up appliance prices by about 5.5%

“We are also having a difficult time finding team members—we have tried signon bonuses, max overtime—it’s tough to find help who wants to show up every day,” Smeltz said. Schultz added that climbing trucking prices are also becoming an issue.

BBQ Market Momentum

The BBQ pellet market explosion over the past several years is continuing, according to stakeholder panelists, and it does not look to be slowing any time soon. Panelists included Jeff Thiessen, president of Dansons; Alison Snider, vice president of sales and business development at Lignetics, and Stephen DeVoe Sr., chief operating officer at Fiber Energy Products.

Panelists began by discussing development of new and acquisition of existing BBQ pellet manufacturing facilities: Defoe said Fiber Energy Products’ two facilities in Missouri and Arkansas are currently expanding, Thiessen highlighted Dansons’s purchase and conversion of a former Georgia Pacific mill in Hope, Arkansas, which will soon be the largest BBQ pellet facility in the country, and Snider said Lignetics; has purchased Great Lakes Renewable Energy’s BBQ pellet facility in Hayward, Wisconsin.

DeFoe pointed out that there is currently no way to gauge industry growth, as there aren’t any data or numbers on BBQ pellets or customer attachment rates. “The industry is still in its infancy—it’s the fastest growing sector, and we need to make sure customers can get what they want,” he said. Snider added that the domestic wood pellet industry is one to always rise to the occasion, and that she’s confident capacity is adequate to meet rocketing customer demand. “It’s the raw material supply that keeps me up at night,” she said.

So how will the industry know when it’s out of infancy? “Propane tanks will be gone, replaced by pellet displays at stores,” said DeFoe. Thiessen added, “Also, when you can ship a 40-pound bag of pellets and it’s economical to the seller. The customers don’t want to pay for freight, and it’s an issue we need to solve.”

Panelists continued to discuss the intricacies of fiber supply and expanding to different sources like roundwood, as well as lessons learned in fiber procurement. “The complexity of fiber procurement is so much more complex with BBQ pellets than fuel pellets,” Thiessen said. “You need a variety; you get it from all over the country. It’s just not easy. Input costs are all over the place, and how you handle and store it is all different. It’s probably the most difficult aspect of being in this space.”

Brand loyalty tendencies are also different than they are with heating pellets, panelists agreed. “With heating pellets, you find what works and stick with it, but with grilling pellets it’s fun to try new things,” Thiessen added. “Oils, spices, coffee grounds ... the innovation side is very positive and will continue to drive the market.”

Critical Issues

The final panel of the day included five wood pellet manufacturer representatives, all of who said the pandemic brought on some challenges that include transport logistic bottlenecks, steel shortages, lumber prices and varying pandemic regulations across states. All acknowledged the biggest immediate challenge right now is labor. “Business was good [this past heating season], but a lack of workforce is the biggest challenge,” said Darren Winchester, plant

Billy Hoskins, Easy Heat Wood Pellets; Tom Plaugher, Appalachian Wood Pellets Inc.; Darren Winchester, Indeck Energy Wood Pellets; Stephen Faehner, American Wood Fibers; and Brett Jordan, Lignetics

PHOTO: ANNA SIMET

manager at Indeck Energy Wood Pellets in Ladysmith, Wisconsin.

“We have learned a lot of efficiencies,” said Tom Plaugher, vice president of operations at Allegheny Wood Products in Petersburg, West Virginia. “How to get more done with less people—we rolled with the punches.”

Brett Jordan, CEO of Lignetics Inc., said labor is the biggest challenge at every facility. “From the frontline forklift operator to accounting. We have had the worst turnover in the past 30 days. It’s very difficult, and it’s the same outside the industry.”

“Labor is really the key,” added Stephen Faehner, president of American Wood Fibers. “We have 400-plus employees, and have had a 30% turnover rate [in the past year]—142 new hires. That’s a huge problem, getting them in the door and then retaining them. We’re trying all kinds of tricks, but it’s not working. Extra hours of PTO for full shifts completed, bonuses ... and we’re worried about the great group of people who have continued working and made things happen [during the pandemic], because that core group of people who crushed it—they’re tired.”

Plaugher added that even contractors are having these problems, particularly on the logging side of the equation. “And there aren’t a lot of people going into that business—the average age of ours is probably 60, with nobody coming up behind them,” he said. “The most productive logging crews are maybe only as 50% productive as before the pandemic, because they just don’t have the men.”

Finally, producers shared their opinions of the fight against misinformation. While the focus of NGOs and other anti-biomass groups has predominantly been on the industrial wood pellet industry, “We’re next,” said Plaugher. “They’ll come after us, so we can’t keep our heads down. There are lots of organizations fighting this battle, and it would save time and resources to work together to get information out.”

Faehner acknowledged the fatigue of telling the positive stories and countering bad information time after time. “But we need to stay ahead of it—if you’re not doing this, you’re falling behind,” he said. “We just have to keep countering that narrative. We add value to waste streams, we heat houses, etcetera. I don’t know what’s wrong with that story, but we have to keep telling it.”

The industry needs to challenge itself on how to do better, Jordan added. “Ours and related industries should coordinate a methodical and strategic pushback against this opposition.”

Author: Anna Simet Editor, Biomass Magazine 701-738-4961 asimet@bbiinternational.com