March/April 2016 - Pellet Mill Magazine

March/April M arch/Ap Apri rill 2016 2016

BOXED IN

Low Fuel Oil Prices, Mild Winter Constrain Global Heating Markets Page 16

Plus: Producer Survey

Reects Health of North American Pellet Industry Page 26

AND:

Wood Appliance Data Trends Page 34

www.biomassmagazine.com/pellets

Contents »

Pellet Mill Magazine

Advertiser Index

MARCH/APRIL 2016 | VOLUME 6 | ISSUE 2

12 American International TN LLC 23 Andritz Feed & Biofuel A/S 40 Astec, Inc. 5 BBI Project Development 25 Bliss Industries, Inc. 2 CPM Global Biomass Group 37 EBM Manufacturing 20 Evergreen Engineering 24 FLAMEX Inc. 33 Global Pellet Market Outlook Summit 28 Grecon, Inc. 14 IMALPAL Group 11 Industrial Bulk Lubricants (a Dansons company) 39 International Biomass Conference & Expo 2016 21 NDC Technologies Ltd. 9 ProcessBarron 10 PRODESA 13 RUF Briquetting Systems 15 SCHADE Lagertechnik GmbH 29 Spence Restoration Nursery 18 Timber Products Inspection/Biomass Energy Laboratories 30 Tramco 36 Trinity Packaging Corporation 31 Uzelac Industries 19 Varco Pruden Buildings

FEATURES 16

HEAT MARKETS

Italy’s Wood Heat Swap Meet

The European Progetto Fuoco exhibition brings stakeholders of the wood heating industry together in Verona, Italy, every other year.

By Tim Portz

26 INDUSTRY 2016 Producer Survey Perfect Storm

Pellet producers across North America share just how big an impact unfavorable market conditions are having on their operations.

By Katie Fletcher

DEPARTMENT

34 MARKET A Challenging Cycle: Pellets, Cheap Oil & A Warming Planet

A mild winter and low fuel oil prices challenge wood pellet appliance sales in domestic heating markets.

By Ron Kotrba

32 Vecoplan LLC

04 EDITOR’S NOTE A Tough Season

By Tim Portz

05 INDUSTRY EVENTS 06 TESTING GROUNDS

Making the Best of Hard Times

By Chris Wiberg

07 HEATING MATTERS

What a Difference a Year Makes

By Charlie Niebling

08 GLOBAL PERSPECTIVE

Automatic Pellet Heating: A Tough Nut to Crack Christiane Egger

ON THE COVER MEET FOR HEAT: At the Progetto Fuoco, over 100 pellet producers from across Europe vie for a piece of the nearly 3 million-ton Italian wood heat market.

PHOTO: TIM PORTZ

10 BUSINESS BRIEFS 12 NEWS 38 MARKETPLACE MARCH/APRIL 2016 | PELLET MILL MAGAZINE 3

« Editor's Note

A Tough Season This may very well be the most data-rich issue of Pellet Mill Magazine ever produced.

Faced with the herculean task of placing the current domestic and foreign wood-heating markets into context, our team recognized months ago that a robust presentation of both available and gathered data would be required.

This issue is built upon a sweeping industry survey that we launched and invited producers to take in early February. In just two weeks, 50 producers had answered vital yet sensitive questions about the health of their businesses.

Tim Portz VICE PRESIDENT OF CONTENT & Those responses and the follow up reporting EXECUTIVE EDITOR done by Associate Editor Katie Fletcher for tportz@bbiinternational.com her page-26 feature, “2016 Producer Survey: Perfect Storm,” provide a detailed look that is not available anywhere else at the incredibly challenging marketplace in which producers find themselves. Both her story and a page-34 companion piece, “A Challenging Cycle: Pellets, Cheap Oil & Warming Planet,” by senior editor Ron Kotrba attempt to unravel the knotted combination of low fuel oil prices, an unseasonably warm winter and a strong dollar that is binding North American producers to flat or even negative growth.

A thorough reading of this issue makes it clear that the industry has managed each of the current challenges in turn, but the combination of all of them unfolding concurrently has producers making difficult business decisions and hoping next year provides some relief, somehow. What does relief look like for producers? For me, I don’t think it is an accident that the first challenge Charlie Niebling identifies in his page-7 column is the unseasonably warm winter that is wrapping up in almost every pellet-using market. Niebling reports, “Record warm temperatures across the entire nation bring heating degree days down 20 to 25 percent compared to normal.” Regardless of the price of fuel oil, a contraction in the market for wood pellets in the 2015-‘16 heating season was the unwelcome outcome of these warmer temperatures.

Just before we went to press with this issue, I spent a week in Austria and Italy at the European Pellet Conference and the Progetto Fuoco, respectively.

I outline what I saw and heard in my page-16 feature, “Europe’s Wood Heat Swap Meet.” Most surprising to me was how little I heard about fuel oil prices.

The ultra-low prices pellet producers here find themselves competing with just aren’t a reality in Europe. In most pellet-consuming countries, taxes and tariffs have protected the discount pellet-derived heat enjoys. Instead, like their North American colleagues, European producers overwhelmingly bemoan warm winters and hope next year is much, much colder.

Editorial

PRESIDENT & EDITOR IN CHIEF Tom Bryan tbryan@bbiinternational.com VICE PRESIDENT OF CONTENT & EXECUTIVE EDITOR Tim Portz tportz@bbiinternational.com SENIOR EDITOR Ron Kotrba rkotrba@bbiinternational.com ASSOCIATE EDITOR Katie Fletcher kfletcher@bbiinternational.com CONTRIBUTING EDITOR Anna Simet asimet@bbiinternational.com NEWS EDITOR Erin Vogele evoegele@bbiinternational.com COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com

Art

ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com GRAPHIC DESIGNER Lindsey Noble lnoble@bbiinternational.com

Publishing & Sales

CHAIRMAN Mike Bryan mbryan@bbiinternational.com CEO Joe Bryan jbryan@bbiinternational.com VICE PRESIDENT OF OPERATIONS Matthew Spoor mspoor@bbiinternational.com SALES & MARKETING DIRECTOR John Nelson jnelson@bbiinternational.com BUSINESS DEVELOPMENT DIRECTOR Howard Brockhouse hbrockhouse@bbiinternational.com SENIOR ACCOUNT MANAGER Chip Shereck cshereck@bbiinternational.com ACCOUNT MANAGER Jeff Hogan jhogan@bbiinternational.com CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com Marketing & Advertising Manager Marla DeFoe mdefoe@bbiinternational.com

Editorial Board Members

T.J. Morice, Marth Companies Stan Elliot, Pacific Coast Pellets Thomas Plaugher, Appalachian Wood Pellets Jonathan Kahn, Geneva Wood Fuels Chad Schumacher, Superior Pellet Fuels Lori Hamer, Hamer Pellet Fuel Subscriptions to Pellet Mill Magazine are free of charge—distributed quarterly—to Biomass Magazine subscribers.To subscribe, visit www.

BiomassMagazine.com or you can send your mailing address to Pellet Mill Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-7465367. Back Issues & Reprints Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising Pellet Mill Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Pellet Mill Magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Pellet Mill Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to asimet@bbiinternational.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.

Please recycle this magazine and remove inserts or samples before recycling TM

4 PELLET MILL MAGAZINE | MARCH/APRIL 2016

COPYRIGHT © 2016 by BBI International

Industry Events »

Global Pellet Market Outlook Summit

April 11, 2016

Charlotte Convention Center Charlotte, North Carolina

The Global Pellet Market Outlook Summit will offer attendees a oneday, intensive exploration of the biomass industry’s most dynamic market segment. Fueled by global policies aimed at reducing the carbon intensity of energy products, the market for wood pellets has grown steadily since the early 2000s. While industry forecasts about the rate of growth may vary, the consensus is that global demand will continue to rise for the next decade.

866-746-8385 | www.biomassconference.com

International Biomass Conference & Expo

APRIL 11-14, 2016

Charlotte Convention Center Charlotte, North Carolina Organized by BBI International and produced by Biomass Magazine, this event brings current and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true one-stop shop— the world’s premier educational and networking junction for all biomass industries.

866-746-8385 | www.biomassconference.com

EUBCE 2016 – 24th European Biomass Conference & Exhibition

JUNE 6-9, 2016

Rai Amsterdam Exhibition & Convention Centre Amsterdam, The Netherlands

Join us in Amsterdam for the 24th European Biomass Conference & Exhibition, the leading international platform for dialogue between research, industry, policy and biomass businesses. The EUBCE represents one of the key events on both a European and global scale for companies and professionals operating at the top end of the biomass and bioenergy sector. Held in a different city each year for over 30 years, the EUBCE has successfully combined a highly renowned international scientific conference with an evergrowing industry exhibition. Be part of this leading international Biomass Conference and present your latest results to specialists and decision-makers from around the globe. +39 055 5002280 ext. 221 |www.eubce.com

STRATEGY STRATEGY IS THE COORDINATION OF ALL ACTIVITIES TO ACHIEVE A SHARED VISION

Are You Looking to Develop a Bioenergy Project?

BBI Project Development can provide the information and answers you need to move your project forward whether you are starting from project conception or looking to modify an existing facility. Our experience and knowledge in the conventional and advanced biofuels and bioenergy industries is unsurpassed. After all, Biomass is our Business.

Engineering and Project Development services offered: • Conceptual and Preliminary Designs for Advanced Biofuels • Process Modeling • Technology Due Diligence • Bank/Independent Engineer • Engineering Studies • Feasibility Studies • Business Plans • Project Management • Feedstock Resource Assessments and Procurement Plans • Product and Co-product Marketing Plans • Site Selection and Site Development • EPC Contractor Selection and Contract Negotiations • Coordination of Permitting • Strategy and Assistance for Raising Equity • Assistance in Obtaining Debt Financing • Economic Impact Analysis

Contact Us Today. 866-746-8385 - service@bbiinternational.com

International Bioenergy Conference & Exhibition

June 15-17, 2016

Prince George Civic Center Prince George, British Columbia

Over the three days of the conference, held at the center of one of the largest biomass fiber baskets in the world, there will be many opportunities to learn more about the industry in British Columbia as well as the latest global trends in fiber supply, sustainability, products, technology, policies and other drivers of the future bioeconomy.

www.BBIProjectDevelopment.com

250-961-6611 |www.bioenergyconference.org

MARCH/APRIL 2016 | PELLET MILL MAGAZINE 5

ÂŤ Testing Grounds

Making the Best of Hard Times

BY CHRIS WIBERG

It is amazing the difference a year can make in the pellet fuels industry. One year ago, it was common to hear stories from producers who supply the U.S. residential heating market describe their situation as having their production sold out weeks in advance. This was largely due to a very cold and early start to the U.S. heating season, which led to undersupply in some regions. As pellet shortages can be very damaging to the reputation of pellet fuel and pellet-burning appliances as a reliable way to heat your home, several producers took action to assure that shortages would not be seen in the coming year.

With added supply ready, the industry was met this heating season with unusually warm weather and the lowest gas prices we have seen in years. This combination has resulted in severe oversupply causing several producers to scale back or even halt production in the middle of the heating season.

There seems to be continuous change in the export markets as well. While supply to EU power producers remains strong and does continue to grow, export power markets regularly incur strife over changing political climates, sustainability requirements, changing commitments to carbon reduction, global market competition and changing commitment to subsidy schemes. Any one of these issues seems to be able to open or close a market opportunity making it a constant battle for U.S. and Canadian producers to stay ahead of the issues.

Fortunately, these issues are hit head-on by the U.S. Industrial Pellet Association and the Wood Pellet Association of Canada.

A separate issue is the European residential pellet market. Just two years ago, there was a robust opportunity to sell product into Europe (primarily Italy). However, two warm European winters resulted in oversupply, while the strengthening of the U.S. dollar and a value-added tax being applied to pellets entering Italy has resulted in this opportunity largely going away.

But all is not doom and gloom. Pellet fuel markets are still growing on a global basis. It seems that conditions may not be ideal at the moment. For the most part, the producers I have spoken to have indicated that they are weathering the storm well and in some cases I find that producers are using the downturn as an opportunity to address maintenance issues or even to make upgrades to the plant. Related to this, we have seen a substantial upswing in the number of producers who have initiated the implementation of a pellet quality certification scheme, particularly the Pellet Fuels Institute Standards Program. Historically, it has been rare to have producers who serve the domestic heating market engage in these programs during the winter months due to essentially being in the go mode. All hands are needed to continue to produce as much 6 PELLET MILL MAGAZINE | MARCH/APRIL 2016

product as possible through the winter months, and then when things calm down in the spring the focus can be diverted to maintenance, quality management system development and various housekeeping issues. That is definitely not the case this year, and timing couldn’t be better. While the EPA’s new source performance standards took effect on May 15, 2015, appliance manufacturers still had until Jan. 1, 2016 to sell their old stock of uncertified pellet stoves. Now with the turn of the new year, only EPA-certified pellet stoves may be sold within the U.S. and all pellet stoves sold must burn pellets that have been graded under an approved certification scheme. This has no doubt resulted in producers starting to receive inquiries from their customers as to when they will engage one of the approved schemes (PFI Standards Program, ENplus and CANplus). We have even heard word that a certification scheme may become a requirement for some big box retailers. That being said, if you are considering implementing a pellet quality certification scheme, be aware that it generally takes several months to put all of the pieces in place, so it is wise to start the process well before any deadlines for compliance.

Another item that is ripe for attention is safety program development. The pellet fuels industry has long suffered from safety-related issues such as fires and explosions, toxic offgassing from storages, self-heating, as well as safe handling and storage in large- and small-scale operations. Two years ago, ISO Technical Committee 238 added working group 7 to develop standards for safety as it pertains to solid biofuels, primarily in the form of wood pellets. Over the past two years, the working group has collaborated to develop the first draft of several safety-related standards. Currently on the table for review and voting are safety standards for large-scale handling and storage, small-scale handling and storage, offgassing, and safety pertaining to fires and explosions. These documents are currently under review by the U.S. Technical Advisory Group to ISO TC 238, but they have also been forwarded to the technical committees of PFI, Biomass Thermal Energy Council and USIPA for review and comment. If you have interest in reviewing these documents, then we would advise you to become active with any of these technical committees.

For the pellet fuels industry, the current year may not be what had been hoped for, but as long as producers are strong enough to weather the storm there are many ways in which a downturn can be used productively to strengthen operations and the industry as a whole.

Author: Chris Wiberg Manager, Biomass Energy Laboratory 218-428-3583 cwiberg@tpinspection.com

Heating Matters »

What a Difference a Year Makes

BY CHARLIE NIEBLING

Winter 2014-‘15––Record cold temperatures across much of the nation. Third-consecutive year of strong growth in domestic U.S. heating demand for pellet fuel. Spot seasonal shortages of pellet fuel, due to the inability of manufacturers to produce and ship at a rate to meet demand, attract consumer scorn and negative media coverage. Record-high propane prices, due to supply chain distribution bottlenecks, drive strong growth in pellet appliance sales in heavy propane states. Many pellet manufacturers invest new capital in expanded capacity, anticipating continued strong interest in pellet fuel as a mainstream heating option.

Winter 2015-‘16––Record warm temperatures across the entire nation bring heating degree days down 20 to 25 percent compared to normal in some northern states. Sustained low-heating oil, propane and natural gas prices across the nation lead to stagnant growth in pellet stove and boiler sales as cost savings evaporate. Exchange rate with the Canadian dollar at a 12-year low drives stiff competition for U.S. pellet manufacturers in some Canadian border states. Huge bagged-pellet inventories at manufacturer, retail and consumer levels that are not getting used may carry into 2016-‘17 season, straining cash resources. Exchange rate against the euro makes overseas export an untenable option for those manufacturers desperate to move inventory into other markets.

After years of post-2008 recession and a steady climb back to profitability, the winter of 2015-‘16 is a real kick in the shins for the U.S. domestic heating pellet industry. Plants throughout much of the country are responding to a perfect storm of factors that have combined to leave many manufacturers with no choice but to reduce output or suspend operations entirely.

Chief among these factors is the dramatic drop in conventional fossil heating fuel prices, now in its second full year, as global demand stagnates and North American and global supplies reach record inventory levels. When it’s cheap to burn conventional fuels, many folks stop burning pellets, and growth in stove and boiler sales dries up. Layer on top of this the “winter that wasn’t,” and sales of all heating fuels are dramatically off-normal.

To be sure, a “normal” winter and market conditions after the superheated demand of 2012-‘14 was actually welcomed by some manufacturers. It would have helped to settle the market and allow distribution networks to mature further.

It would have brought inflated notions of valuation more in

line with reality and allowed some orderly consolidation to proceed in this industry of many small players.

But no one anticipated or welcomed the perfect storm that has unfolded over the past six months. It drives home just how vulnerable the domestic pellet heating industry can be to factors over which it has little control and is challenged to plan for.

Another warm winter and a shakeout will surely follow.

Manufacturers without the financial wherewithal to operate for extended periods at partial capacity or carry inventory may find themselves facing a very difficult situation. And not just the fuel manufacturers, but the stove and boiler builders (and importers), the installers, the bulk fuel distributors, and the retailers and service industry that was developing as pellet heating continued its welcome transition from niche curiosity to mainstream heating choice.

Having worked the past 10 years to help bring pellet heating to this level of consumer acceptance, it is disheartening to see this happen. So much good progress has been made bringing clean combustion technology, efficient distribution and competent manufacturing to our industry, and educating consumers and policy makers about the environmental and economic benefits of this heating choice.

Veterans of this industry have seen it before. The strong will survive. And, thankfully, more and more consumers are committed to pellet heating by philosophical choice, not economic convenience. The long-term prospects remain favorable for this fuel. Fossil fuels are finite, and ultimately unsustainable—their cost will increase in time. Market forces, and state and federal policy will continue to drive consumers toward more sustainable and climate friendly energy choices, of this, I am sure.

Readers of this column can do one thing right now as we ride out the perfect storm: Clasp your hands, look skyward and pray to whomever you choose for a brutally cold winter in 2016-‘17. Lots of degree days in the next year are urgently needed.

Author: Charlie Niebling Consultant and Partner Innovative Natural Resource Solutions LLC 603-965-5434 niebling@inrsllc.com

MARCH/APRIL 2016 | PELLET MILL MAGAZINE 7

« Global Perspective

Automatic Pellet Heating: A Tough Nut to Crack

BY CHRISTIANE EGGER Like every year at the end of February, over 500 experts from the field of biomass gathered in Wels, Austria, at the European Pellet Conference. Held in the context of the World Sustainable Energy Days, it is the largest annual pellet event in the world.

During the two-day conference, experts vigorously discussed policies, technologies, markets, innovation, finance and sustainability. A key topic was how to increase the market share for pellet heat. Experts from the European Biomass Association (AEBIOM) reported that the EU28 countries consume 18.8 million metric tons of pellets per year—of which almost half is used by the residential heating market. This percentage is due, among others, to automatic pellet central heating systems, which are succeeding in winning over market shares once owned by gas, oil and coal.

The transition from traditional heating systems to automatic pellet heating technology can be achieved, as it has in a number of European countries. There are, incontestably, challenges out there, but those who understand the underlying forces at play and act strategically will be rewarded. Central pellet heating systems require a much larger volume of pellets than stoves; hence, increasing the number of such installations inevitably means an increase in the role of renewable energy sources in the heating market.

Traditional wood stoves will continue to have a place in the heating landscape; however, they come up short regarding user convenience when compared to automatic pellet central heating systems. So why are these not yet being welcomed with open arms in many countries when heating systems are renewed? Is this once again an example of the well-known chicken and egg challenge of building supply and demand? There are potential users out there willing to invest and there is definitely technical know-how and sufficient manufacturers eager to sell their products. So what is missing?

In addition to higher investment costs for the heating appliances, in this case, it is also an issue of a "missing link.” Many markets worldwide still lack the connection between the chicken and the egg—the link on how to get the supply to the demand.

The widespread adoption of automatic pellet heating systems requires that a whole other value chain develops—a value chain based on the new user needs. A key element is bulk delivery of high-quality pellets. This can be achieved with pressur-

8 PELLET MILL MAGAZINE | MARCH/APRIL 2016

ized trucks such as those already used for the delivery of animal feed in many European countries. Automatic pellet technologies have only limited compatibility with the bagged-pellet system.

The state of Upper Austria is often turned to for inspiration on how to develop a strong, local pellet market. Over the past 20 years, the state has seen automatic pellet and wood-chip systems become widespread heating technologies for both households and larger buildings. Today, Upper Austria has a leading position: Not only are more than 25 percent of all modern biomass boilers installed in Europe manufactured by local companies, but it also has one of the highest densities of small-scale automatic heating systems in the world. Over 50,000 automatic heating systems are already installed—more than half of which use pellets. Furthermore, more than one-third of the domestic heating demand is met by modern biomass heating. Stringent emission standards and cutting-edge technologies have contributed to the market development. As a result, biomass energy has emerged as an important economic driver for the state and the biomass heating industry employs more than 4,500 people.

It doesn’t happen overnight. Developing the automatic pellet heating market is a tough nut. However, there are rewards to be had for those who succeed in cracking it. In addition to playing a crucial role in achieving renewable energy goals and moving toward energy independence, increasing the adoption of pellet-fueled systems brings along investments in the renewable energy industry, opportunities for the domestic forest products industry, the creation of local and regional jobs, to name only a few.

To learn more, join our International Training Seminar on Biomass Heating - Market Development and Technologies, held from Sept. 12-15 in Linz, Austria. It offers insight into all aspects of the value chain through a dynamic mix of seminars, site visits and interactive exchanges (further information: office@ esv.or.at). We warmly invite you to come see hands-on how the Upper Austrian biomass sector has developed and gain valuable knowledge on how to help move your own domestic market along.

Author: Christiane Egger Deputy Manager OÖ Energiesparverband, Manager Oekoenergie-Cluster (Energy Agency of Upper Austria) Phone: +43 732 7720 14380 E-mail: christiane.egger@esv.or.at

2770 Welborn Street Pelham, AL 35124 205-663-5330 www.processbarron.com

FUEL | AIR | GAS | ASH

Business Briefs

PEOPLE, PRODUCTS & PARTNERSHIPS

New NREL director appointed The Alliance for Sustainable Energy recently announced the appointment of Martin Keller as director of the National Renewable Energy Laboratory and president of the Alliance, which manages the laboratory for the U.S. Department of Energy. Keller officially joined NREL on Nov. 30. He was previously employed

by Oak Ridge National Laboratory, where he served as the associate laboratory director for energy and environKeller mental sciences, which includes ORNL’s programs in biosciences, environmental sciences, buildings technologies, transportation, climate change, manufacturing, and electrical and electronics systems.

In 2006, Keller was recruited to ORNL from an industrial enzyme discovery and development company to lead the Office of Sciencesupported BioEnergy Science Center, in which NREL is a partner.

AMPH secures funding AMP plc recently confirmed that it has secured a second round of funding for its biomass boiler portfolio through Aggregated Micro Power Infrastructure Ltd., which has completed a capital raise of £ 5.7million ($8.12 million), bringing the total invested by established institutions to £ 12.4million.

RusForest starts up pellet mill in Magistralny, Russia In December, RusForest AB announced the first sales from its new pellet mill in Magistralny, Russia. The 30,000-ton-per-year facility began test runs in November.

Rentech adds CFO Rentech Inc. has appointed Jeffrey R. Spain as chief financial officer of Rentech and general partner of Rentech Nitrogen Partners L.P. Spain will be responsible for overseeing the finance and accounting functions for both companies. He previously served as vice president of finance, accounting and administration for Rentech’s wood fiber group. Before joining Rentech, he was employed by Credit Suisse First Boston, LeadPoint Inc., eNutrition Inc. and Kimberly-Clark Corp.

10 PELLET MILL MAGAZINE | MARCH/APRIL 2016

BTEC elects board of directors The Biomass Thermal Energy Council recently announced the reelection of four members of the board.

At the Nov. 17 Annual Membership Meeting in Washington, D.C., Ackerly all four directors up for election were reelected, including Dan Wilson of Wilson Engineering Services; Christine Donovan, senior advisor for the Biomass Energy Resource Center and director of Business Strategy and Innovation at Vermont Energy Investment Corp.; Andrew Haden, founder and president of Wisewood Inc., and John Ackerly, president of the Alliance for Green Heat.

Global green bank network formed A group of six green banks and two nonprofit groups recently announced plans to establish a Green Bank Network to help increase and accelerate investment in renewable energy and energy efficiency around the world. Green banks are public entities created to partner with the private sector to increase investment in clean energy and bring clean energy financing into the mainstream.

The founding partners of the Green Bank Network include the U.K. Green Investment Bank; the Connecticut Green Bank; N.Y. Green Bank; the Japan-based Green Fund; Malaysian Green Energy Corp., and Australia-based Clean Energy Finance Corp.

The National Resources Defense Council and Coalition for Green Capital have been appointed to spearhead creation of the network. ClimateWorks Foundation has agreed to provide seed funding. The Organization for Economic Co-operation and Development will use its convening power to facilitate the sharing of experience between green banks and countries interested in creating them, building on the OECD-Bloomberg Philanthropies green banks policy guide released in December.

ACORE appoints president and CEO The American Council on Renewable Energy has selected Gregory Wetstone as president and CEO. Wetstone most recently oversaw government affairs as vice president for Terra-Gen Power LLC. He also previously served as senior director for government and public affairs at the American Wind Energy Association, as director of programs at the Natural Resources Defense Council, and as counsel to the House Energy and Commerce Committee. Wetstone played an important role in crafting the 1990 Clean Air Act Amendments.

Stora Enso opens Innovation Center, invests in pellet produciton Stora Enso recently inaugurated its Innovation Center for biomaterials in Stockholm, Sweden. The center will host research, application, business development and strategic marketing. By creating renewable solutions and products from second-generation biomass, such as wood, in order to replace fossil-based products, the center is addressing societal problems such as climate change, increased urbanization, as well as water and land use issues. By the end of 2017, the center is expected to employ approximately 100 people. It covers 4,900 square meters, with an 1,600-square-meter, state-of-the-art laboratory. The company also recently announced it will invest €16 million ($17.61 million) to start pellet production and renew the boiler at its Ala Sawmill in Sweden.

Hamer, Fischbein Americas merge operations Hamer and Fischbein Americas have announced plans to merge operations. The Hamer-Fischbein union combines almost 200 years of industrial bag closing and automated packaging experience. The company will continue to focus on its core businesses, including bag filling, bag closing, automated bagging and robotic palletizing.

AEBIOM elects new leadership, board members The European Biomass Association (AEBIOM) has announced Gustav Melin will serve as president for an additional term, while Didzis Palejs will serve as vice-president.

Melin Petar Curic of the Croatian Chamber of Economy, Vanja Curin of BABH, Martin Lindell of Sveaskog, Annalisa Paniz of AIEL, Ilias Papageorgiadis of ARBIO, Pablo Rodero of AEBIOM, Hannes Tuohiniitty of Bioenergia, and Matthew Willey of Drax have been elected to the board of AEBIOM. In addition, the association has welcomed Fortum and Wild & Partner as new members.

Senate confirms director of DOE Office of Science Cherry Murray was confirmed by the U.S. Senate in December as director of the U.S. Department of Energy’s Office of Science.

Murray will oversee Murray research in the areas of advanced scientific computing, basic energy sciences, biological and environmental sciences, fusion energy sciences, high energy physics, and nuclear physics. She will have responsibility not only for supporting scientific research, but also for the development, construction and operation of unique, open-access scientific user facilities. The Office of Science manages 10 of the department’s 17 national laboratories.

Murray previously served as the Benjamin Peirce professor of technology and public policy and professor of physics at Harvard University.

SHARE YOUR INDUSTRY NEWS: To be included in the Business Briefs, send information (including photos and logos, if available) to Business Briefs, Pellet Mill Magazine, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You may also email information to evoegele@bbiinternational.com. Please include your name and telephone number in all correspondence.

MARCH/APRIL 2016 | PELLET MILL MAGAZINE 11

Pellet News

Supreme Court delays enforcement of EPA’s Clean Power Plan

FAO: Global pellet production set new record in 2014 The Food and Agricultural Organization of the United Nations recently published updated data on the global wood products industry that shows wood pellet production set a new record in 2014.

According to the report, wood pellet production grew by approximately 17 percent in 2014, reaching 26 million metric tons (mmt), up from 23 mmt in 2013. The growth was driven primarily by increasing consumption in Europe.

The U.S. was the top pellet producing nation in

2014, with 6.9 mmt. Germany, Canada, Sweden and Latvia rounded out the top five pellet production countries, with respective production levels of 2.1 mmt, 1.9 mmt, 1.6 mmt and 1.3 mmt.

According to the report, the U.S., Canada and Latvia are also the largest pellet exporters, joined by the Russian Federation and Portugal. Together, these five countries exported 9 mmt, or 58 percent of global exports, in 2014.

The largest pellet importers include the U.K., Denmark, Italy, Republic

Top 2014 pellet producers (million metric tons)

U.S. Germany Canada Sweden Latvia

6.9 2.1 1.9 1.6 1.3

SOURCE: FOOD AND AGRICULTURAL ORGANIZATION OF THE UNITED NATIONS

of Korea and Belgium.

Together, these five countries imported 11 mmt of wood pellets, up 29 percent from 2013, and accounting for 79 percent of global imports.

In February, the U.S. Supreme Court granted a request to delay enforcement of the U.S. EPA’s Clean Power Plan until legal challenges are resolved.

More than two dozen states and a variety of industry groups have filed legal challenges against the program. Oral arguments are currently scheduled to be held June 2 with the U.S. Court of Appeals for the District of Colombia.

White House Press Secretary Josh Earnest issued a statement on the Supreme Court’s decision on Feb. 9. “We disagree with the Supreme Court’s decision to stay the Clean Power Plan while litigation proceeds,” he said in the statement.

“Even while the litigation proceeds, EPA has indicated it will work with states that choose to continue plan development and will prepare the tools those states will need,” he continued. “At the same time, the administration will continue to take aggressive steps to make forward progress to reduce carbon emissions.”

The U.S. EPA plans to hold a workshop on the role of biomass in the Clean Power Plan on April 7.

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12 PELLET MILL MAGAZINE | MARCH/APRIL 2016

Pellet News »

Italian pellet imports (metric tons)

Czech utility buys Lynemouth Power Station

Austria Canada

In January, RWE Supply and Trading announced it has sold the Lynemouth Power Ltd., the operator of the U.K.-based Lynemouth Power Station, to EP U.K. Investments Ltd., a subsidiary of Czech utility company Energetický a prumyslový holding.

The coal-fired station has been working with contractors to design a technical solution for a full conversion to biomass. On Dec. 22, the facility announced it had burnt its last coal.

Once the conversion is complete, the Lynemouth facility will have the capacity to generate 420 MW of electricity from wood pellets. The U.K. government intends to support the project in the form of a premium paid on top of the market price of the electricity generated, known as a Contract for Difference. The project will receive aid until 2027 and, according to U.K. estimates, will generate about 2.3 terawatt hours of low-carbon electricity per year.

The plant is due to use approximately 1.5 million metric tons of wood pellets per year, mainly sourced from the U.S., Canada and Europe.

U.S. 2012

Germany

2013 2014

Bosnia & Herzegovina 0

50,000

100,000 150,000 200,000 250,000 300,000 350,000 400,000

SOURCE: USDA FAS GAIN

Growth expected in Italian pellet market A report recently filed with the USDA Foreign Agricultural Service’s Global Agricultural Information Network highlights the Italian wood pellet market, noting Italy consumed 3.4 million tons of wood pellets in 2014. Italy’s consumption of wood pellets was expected to increase, reaching 3.3 million metric tons in 2015 and 5 million metric tons this year.

According to the report, pellets in Italy are mainly used in small-scale private

residential and industrial boilers for heating. Approximately 96 percent of Italian pellet consumption is a result of these heating sectors, with most pellets delivered in bags.

Only 20 percent of pellet demand in Italy is met by domestic production, which reached 350,000 metric tons last year. The remaining 80 percent of pellet demand is met with imports.

C AT C H T H E

The Total U.S. Wood-Burning Appliance Market

MARKET SHARE

(including fireplaces, freestanding stoves, and inserts)

13% Market Share Pellet Appliances*

87% Market Share Briquette-Friendly Appliances*

YO U ’ V E B E E N M I SS I N G

Versati wood and biomass briquettes are quickly becoming Versatile a go g go-to -to biofuel for consumers all over the U.S. They are cclean, lea eaan, af affordable, and can be used in any wood-burning device ffrom fr rom mfi fireplaces replace and stoves to fire pits. Briquettes will open doors to new markets and d growth oppo opportunities for your business, and because they can be made from materials you already process (and then some), it’s simple to get started. Plus, with substantial savings on energy, maintenance, and labor, briquettes are cheaper to make per ton than pellets! What are you waiting for?

For more information call 440-779-2747 or visit www.ruf-briquetter.com and catch the market share you’ve been missing! *Source: Hearth, Patio, & Barbecue Association – based on appliance shipments from 1998-2011.

MARCH/APRIL 2016 | PELLET MILL MAGAZINE 13

« Pellet News

Proposed pellet project awarded tax incentives

Great Britian nondomestic RHI stastics (November 2011 to December 2015)

Vermont-based Kingdom Pellet plans to build a pellet mill at the site of a former paper mill in the state’s Northeast Kingdom. The project was recently approved for tax incentives through the Vermont Employment Growth Incentive program, a job stimulus program run by the Vermont Economic Progress Council.

The company is leasing space at the site of the former Gilman paper mill and will make use of some existing assets, according to project partner Tabitha Bowling.

Bowling described the size of the plant as “community scale. We will pull in material at sustainable levels,” she said.

“The plan is for a 30,000-ton, super premium-grade softwood pellet mill.”

A construction date has not yet been set, as the company is in the midst of financing the project. Vermont Wood Pellet Co., a 16,000-ton-per-year mill in North Clarendon, Vermont, is a partner in the proposed project.

Accredited installations

Capacity of accredited installations

Number

% of total

MW

% of total

11,755

87

1,412.20

64

Medium biomass boiler (200-1000 kW)

992

7

572.5

26

Large biomass boiler(> 1000 kW)

29

0

166.8

8

Biomethane

38

0

0

0

Biogas

37

0

20.4

1

Small biomass boiler (< 200 kW)

SOURCE: U.K. DEPARTMENT OF ENERGY AND CLIMATE CHANGE

Reports evaluate UK RHI programs Reports recently published by the U.K. Department of Energy and Climate Change demonstrate more than 80 percent of applicants to the renewable heat incentive (RHI) are satisfied with their new systems. These government financial incentives promote the use of renewable heat through technologies, such as biomass boilers, both for domestic and nondomestic uses. The government-collected data shows the RHI has had a positive influence in the renewable heat technology

market, helping the U.K. decarbonize heat, while reducing costs.

Between May 2014 and April 2015, 25,568 successful applications were received by the domestic RHI scheme from owner-occupiers, 33 percent of those were new applications. Applicants were asked what triggered their decision to install a new heating system and the most common reason was the availability of a grant or other funding, with 52 percent of applicants who installed biomass systems indicating this was important.

EU investigates UK support for Drax conversion In January, the European Commission announced the opening of an in-depth investigation to assess whether the U.K.’s plans to support the conversion of part of the Drax coal power plant to operate on biomass are in line with European Union state aid rules.

In a statement issued in response to the EU’s announcement regarding the opening of the investigation, Drax Group plc said the commission’s action is the next step in the process for obtaining state aid approval and is in line with expectations. “Drax welcomes the opportunity to work with the U.K. government and the EC to complete the state aid clearance process,” said the company.

A similar investigation was opened on the proposed biomass conversion of the coal-fired Lynemouth power plant last year.

In early December, the European Commission announced that investigation found U.K. support for the Lynemouth conversion was in line with EU state aid rules.

W E

Pellet News » U.K. Q3 2015 renewable electricity generation Electricity generation (TWh)

Percentage change from Q3 2014

Bioenergy (including cofiring)

6.91

+13.6

Solar PV

2.68

+73.2

Hydro

1.04

+33.5

Offshore wind

3.40

+51.7

Onshore wind

3.78

+30.0

17.82

+32.7

All renewables

SOURCE: U.K. DEPARTMENT OF ENERGY AND CLIMATE CHANGE

UK bioenergy production increases The U.K. Department of Energy and Climate Change recently released third-quarter energy statistics, reporting total energy production increased by 11.9 percent when compared to the prior year.

The share of renewables increased by 5.9 percent, reaching 23.5 percent.

Of electricity generated during the quarter, the DECC indicated gas accounted for 34.9 percent. The share of coal dropped to 17.1 percent, while nuclear generation accounted for 21.8 percent.

C O N V E Y

Renewables share of electricity generation increased from 17.6 percent during the third quarter of 2014, to 23.5 percent during the third quarter of 2015.

Renewable electricity generation was 17.8 terawatt hours (TWh) during the third quarter, up 33 percent when compared to the same period of 2014. Bioenergy increased by 16.3 percent, from 5.9 TWh in the third quarter of 2014 to 6.9 TWh during the third quarter of 2015. Renewable electricity capacity was 29.7 GW at the end of the third quarter, up 26 percent from a year earlier.

Q U A L I T Y

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« HEAT MARKETS

SCENES FROM AN ITALIAN WOOD HEAT SHOW: The bi-annual Progetto Fuoco is the largest wood heating conference in all of Europe. Manufacturers across the wood heat supply chain participate in the event. Attendees can find logging and chipping equipment, pellet presses, pellet producers and wood heat appliances at the expansive trade show.

Italy’s Wood Heat Swap Meet

Every other year, for four days, the Progetto Fuoco makes Verona, Italy, arguably the most important place for the wood heating industry in all of Europe.

STORY AND PHOTOS BY TIM PORTZ

16 PELLET MILL MAGAZINE | MARCH/APRIL 2016

HEAT MARKETS »

V

erona, a city of just over 250,000 people tucked into northern Italy’s Veneto region, was immortalized when Shakespeare used the ancient city as the backdrop for his play featuring the star-crossed lovers Romeo and Juliet. The town is rich in history, boasting a first-century Roman amphitheater and many churches filled with frescoes by some of the most important Italian painters of the Renaissance, crowded along the Adige River. Just south of this historic down-

town is the Verona Fiere, a vast fairground that serves as the venue every other year for one of the most important events in the wood heating industry. The Progetto Fuoco, which roughly translates into “fire project,” attracts players along the entire wood heating supply chain, and for producers hoping to capture a share of Italy’s nearly 3 million-ton wood pellet market, has earned its “can’t miss” status.

The Progetto Fuoco sprawls across over 100,000 square meters of exhibition space, and all but the furthest corners of each of MARCH/APRIL 2016 | PELLET MILL MAGAZINE 17

« HEAT MARKETS

DISCERNING BUYERS: Laura Deruma, sales program manager at Stali, answers questions posed by a pair of Italian pellet buyers. The Latvian producer, part of one of Latvia’s largest forest products companies, continues to grow its business inside of Italy.

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the seven halls are filled with exhibitors selling fireplaces, stoves, stove components and pellet storage silos. Technical consultants and densified biomass producers of all types, including dozens of pellet producers, also take up exhibition space. A walk around halls 11 and 12 make it clear that any producer hoping to maintain and grow their market share in Italy has a well-staffed booth at the event and pellet volumes are being bought and sold with regularity. This is widely known amongst producers throughout Europe, and the official conference catalog identified 110 producers of wood chunks, pellets, logs, briquettes and wood chips as exhibitors.

Every wood pellet-producing country in Europe is represented at the Progetto Fuoco including Austria, Germany, Poland, France, Germany, Slovenia, Slovakia, Lithuania, Latvia and many others.

Certainly, the large, multifacility producers like Granuul Invest or global traders like Ekman have a large presence, but just as prevalent are producers with annual production volumes around 40,000 tons and a good handful of producers report annual volumes of less than 20,000

tons. At the Progetto Fuoco however, no one is interested in tonnage. Pellets are bought and sold in truckloads.

Success by the Truckload “There are some customers that will take 100 trucks per year,” says Andrea Marchig, a sales representative for WoodPellet.lt, a Lithuanian company selling pellets produced in Russia. “For some buyers, maybe they’ll buy 40 trucks per year.” Describing his ideal customer, Marching says, “If they speak about 10 trucks per month, for us, this is the perfect size. This leads to a nice portfolio of customers. A portfolio built on lots of small customers is less risky for us.”

Katrina Kalva, sales project manager for the Latvian producer Stali, also sizes up potential clients on the number of trucks they are likely to take during a given heating season. “If they take 10 trucks per week, then just one client like that would be great from this exhibition,” she says. “It would be good, of course, if I could find five clients that would take two trucks per week as well.”

Stali is a single-facility pellet producer operating on the waste streams produced during the manufacture of doors and windows, the company’s principle business. “We produce about 3,500 tons each month, or roughly 40,000 tons per year,” Kalva says. “About 40 percent of that volume is sold in our domestic market in Latvia and 50 percent we sell in Italy.” For Kalva, Stali’s presence at the Progetto Fuoco is necessary to maintain relationships with existing clients and find new ones. Kalva offers that the bulk of her customers are Italian resellers, but that they do sell directly to end users in certain situations.

For customers of all types, Kalva says, price is the No. 1 concern. “Buyers always ask about price of course.

Everything is about price,” Kalva says.

She continues by outlining the quality metrics Stali’s pellets have achieved. “In Italy, Latvian pellets are not really well known, but buyers appreciate our quality,” she says. “For traders, in my experi-

BUYER EDUCATION: Katrina Kalva, sales program manager for Latvian pellet producer Stali, shares samples with a prospective buyer and outlines their quality metrics.

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MARCH/APRIL 2016 | PELLET MILL MAGAZINE 19

« HEAT MARKETS

HIGH WOOD-HEAT FASHION: The appliance exhibits at the Progetto Fuoco make it clear that for Italians appliance manufacturers must consider both form and functionality. Both appliances and the exhibits that surround them compete for design savvy customers.

ence, the most important factor for them is mechanical durability. Our pellets have a durability index of 98.2 percent. This really helps in transportation. The higher the number, the better the pellets will do as they are shipped and won’t break as easily.” This is particularly important for Stali as their pellets must travel over 1,000 miles before they reach even the northernmost parts of the Italian market.

This year’s Progetto Fuoco was the first that Greek pellet producer Adamo20 PELLET MILL MAGAZINE | MARCH/APRIL 2016

poulos Vasilis’ company Alfa Wood ever attended. Alfa Wood is a 60,000-ton-peryear producer located in northern Greece hoping the event can help them grow their sales in Italy. “Our customers are importers,” Vasilis says. “The bulk of our business is in Greece and Bulgaria, but Italy is worth about 20 percent of our business.”

The use of wood pellets within Greece is growing, despite difficult economic conditions inside the country. “The use of wood pellets to heat homes in Greece has

HEAT MARKETS »

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A COMMON SCENE: Buyers and sellers throughout the trade show interact over staged bags of pellets. The conversations most frequently occur in Italian, but often English is the only language the two parties have in common.

really started to grow in the last three or four years,” Vasilis says. “It’s become very modern. Of course, pellets offer a compelling price for heat. It’s a much better price than fuel oil.” Current fuel oil prices in the United States have, for now at least, completely erased the heating discount that wood pellets have historically offered their customers.

Fuel Oil Economics In Europe, fuel oil prices vary across

the subcontinent and in many markets, because of taxes and tariffs, remain quite high. Analysis performed by Pellet Mill Magazine on fuel oil prices as reported by the European Commission on Feb. 29, 2016, shows that fuel oil in Italy costs $4.24 per gallon. Only homeowners in Denmark pay more ($4.50 per gallon) for fuel oil than Italian buyers. Alfa Wood is well-positioned when looking at fuel oil prices in neighboring countries. In Romania, just north across the Greek bor-

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MARCH/APRIL 2016 | PELLET MILL MAGAZINE 21

« HEAT MARKETS

The World Meets in Wels The European Pellet Conference, hosted each year in Wels, Austria, made clear that thermal energy from biomass is leading Europe’s decarbonization efforts.

By Tim Portz Every year in late February in the Upper Austrian city of Wels, the OÖ Energiesparverband hosts the World Sustainable Energy Days, a broad umbrella under which sit six different conferences and a massive trade show. One of the conferences is the European Pellet Conference which has become a vital annual meet-up for the broader European bioenergy community.

Upper Austria has firmly established itself as an important incubator of policies and technologies that are propelling the more widespread use of biomass-derived heating solutions. Over 30 percent of homes in Upper Austria are heated by biomass, nearly double the next closest source, heating oil. This regional embrace of biomass heating has spawned innovation across the wood pellet appliance sector throughout the area, and now 25 percent of the biomass boilers installed in Europe were manufactured in the region.

Fanny-Pomme Langue, policy director at the European Biomass Association, opened

the event by providing attendees an update on the progress that bioenergy is making in Europe’s overall energy picture. Langue’s presentation reported that consumed bioenergy doubled from 2000 to 2013, and today represents over 60 percent of renewable energy consumed in Europe.

Biomass-derived heat is responsible for the lion’s share of bioenergy’s contribution representing nearly 75 percent of the biomass-derived energy consumed.

While the use of wood pellets for power generation continues to grow, the majority of wood pellets consumed in Europe are used to deliver a heat product. In 2014, 11 million of the 18.8 million tons consumed in pellets were burned in pellet boilers and stoves. Langue’s presentation identified Italy, Germany and Sweden as the clear leaders in pellet consumption for heat with Italy rising above the rest, consuming nearly 3 million tons per year, most of them burned in pellet stoves in homes.

Langue concluded her remarks by making it clear that

22 PELLET MILL MAGAZINE | MARCH/APRIL 2016

EUROPE’S MOST VITAL RENEWABLE: In her remarks at the European Pellet Conference, Fanny-Pomme Langue, policy director with the European Biomass Association, established that without bioenergy, the European Union’s renewable energy goals would be completely out of reach.

PHOTO: TIM PORTZ

the 2020 and 2030 renewable energy goals the European Union has established will not be met without continued growth in the bioenergy sector. Langue called for more ambitious renewable energy goals in the EU, however, and expressed confidence that bioenergy was capable of an even larger contribution. Her presentation made it clear that the policy makers in the region continue to express concern about biomass sustainability and that work toward harmonized sustainability criteria must continue.

The foundation for the EPC and the five other colocated events that make up the World Sustainable Energy Days is the massive Energiesparmesse, with nearly 1,600 exhibitors. Austria’s

pellet appliance industry is on full display with seemingly every manufacturer having a large presence. Both individual homeowners and professional system installers attend, picking over the nearly endless variations of whole log, chip and pellet appliances. Over the course of the World Sustainable Energy Days, nearly 100,000 people visit the Energiesparmesse, making it one of the largest consumer energy trade shows in the world.

Next year’s EPC and World Sustainable Energy Days is scheduled for March 1-3, in Wels.

HEAT MARKETS »

Fuel Oil Prices in Key Pellet Markets ($/gallon) *as of 2/29/2016 $5.00 $4.00 $3.00 $2.00

SOURCES: EUROPEAN COMMISSION, MAINEOIL.COM, U.S. ENERGY INFORMATION ADMINISTRATION, PELLET MILL MAGAZINE

der from Alfa Wood’s production facility, current fuel oil prices are hovering around $3.10 per gallon. Just beyond Romania, in Bulgaria, prices are even higher with fuel oil selling at $3.15 per gallon. These prices have created an attractive opportunity for Alfa Wood. “Every year, as you can see, our turnover is going up and up and up,” Vasilis offers.

While North American producers likely find the fuel oil prices Vasilis and Alfa Wood are competing with enviable, the economic conditions within Greece are not. Eurostat data from November 2015 shows unemployment within Greece hovering near 25 percent. “This year is going to be more difficult for us,” Vasilis says.

“A lot of people in Europe are facing economic difficulties and I think that means things will be more difficult.” Still, with the world’s largest pellet heating market just across the Adriatic Sea, Vasilis has high hopes for a return on the time invested at the Progetto Fuoco, learning the landscape of Italian traders and distributors. “We don’t really know who they are and they don’t know who we are, but after the event, we’ll connect with all of the people who we have met and find out who was really interested,” Vasilis says, who, like his competitors, sizes up his prospects by the number of truckloads they are likely to take on a monthly basis. “I need a buyer to take

M ai ne

Sp ai n Ki ng do m Ge rm an y Ve rm on t Un ite d

Au st ria

Sw ed en Fin la nd

Ita ly

0

De nm ar k

$1.00

much more than 10 trucks per month,” he says. “Otherwise, it is nothing.”

Appliance Amore’ While the discount provided by wood pellets for homeowners in many European countries without a doubt has propelled the industry forward, the Progetto Fuoco’s other exhibition halls make it clear that wood heat and wood heating appliances have become a lifestyle choice across the subcontinent. The number and variety of wood pellet producers at the event is impressive, but appliance manufacturers steal the show. Over 150 exhibitors at the event identify themselves as manufacturers of pellet stoves, another 200 as manufacturers of wood-burning stoves. These numbers don’t include the manufacturers of inserts, fireplaces, wood-burning ovens and barbecues or pellet boilers. Well over half of the exhibition is dedicated to appliance exhibits and virtually every exhibit showcases operating appliances connected to vast ventilation systems. Stacks of bagged pellets dot the exhibit floor and appliance representatives regularly walk prospective customers through their product’s ease of use.

Kalva, Vasilis and their competitors remain busy throughout the Progetto Fuoco.

Pellets take center stage, and potential buyers pick through sample bins rolling pelMARCH/APRIL 2016 | PELLET MILL MAGAZINE 23

« HEAT MARKETS

THE PRODUCT SPEAKS FOR ITSELF: Discerning Italian distributors demand access to product samples. Every producer at the Progetto Fuoco offers prospective clients an opportunity to see and feel their pellets at their booth. Small sample bags are also readily available.

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HEAT MARKETS »

lets through their fingers while reading data sheets that carry quality metrics. Often buyers and sellers disappear into small private offices built into the exhibit spaces to negotiate prices and sign supply contracts. In true European fashion, every visitor is offered espresso and cappuccino in the morning and Italian wines and beer in the afternoon.

As the event winds down, Kalva reflects on the heating season just now wrapping in Europe. “This winter was not very cold in Italy,” she says. “In Latvia, it was a good winter. We still have a lot of snow in Latvia. Business has been good this season, certainly better than previous winters. Still, the weather is not as cold as it should be.” Even though Kalva hoped for chillier conditions, she says sales are going well. “I certainly can’t complain.”

Author: Tim Portz Executive Editor, Pellet Mill Magazine 701-738-4969 tportz@bbiinternational.com

ITALIAN INFLUENCE: The importance of the Italian heating market is made abundantly clear by packaging designs on display throughout the trade show floor. Outlines of the country are popular as are variations on “Fuoco,” the Italian word for fire.

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NORTH AMERICAN PELLET PRODUCER MARKET OUTLOOK

Regional Perspectives of 2015-'16 Heating Season

75%

of Pellet Plants Operating of Plant Capacity % or Less

100%

75

HAVE NOT Adjusted Inbound Feedstock Prices in the past 6 months

67%

WESTERN CANADA

Decreased Staffing

60%

EASTERN CANADA

Sales Decreased

5% 20+%

WEST

NORTH CENTRAL

NORTHEAST

60%

Decreased in Production Hours

SOUTHWEST

SOUTHEAST

60%

Increased Pellet Prices by

100%

>5%

compared to last year

60%

Sales Decreased

Decreased Staffing

50%

Decreased Pellet Prices by

64%

5% - 5%-15+% 20+%

Believe Main Contributor to price changes is UNSEASONABLY WARM WINTER TEMPERATURES

compared to last year

50+%

50% 75%

74%

60%

of Pellet Plants Decreased Production Hours Operating at Compared to long-term average of Plant Capacity or Less Decreased Staffing

40%

of Producers who Adjusted Inbound Feedstock Price Decreased the Price

5+%

in the past six months

Reported Charging SLIGHTLY to MODERATELY HIGHER PRICES for Pellets this Year Compared to last year

INDUSTRY »

Majority attribute change in prices to primary timber product demand/supply

77%

of Pellet Plants Operating at of Plant Capacity % or Less

85

75%

Adjusted Inbound Feedstock Prices in the past 6 months

2016

Producer Survey

Perfect Storm Unseasonably warm winter weather clouded the success of this year’s heating season for many pellet producers. Coupled with other conditions, the trend may continue.

BY KATIE FLETCHER

56%

of which Decreased Prices

5%-10+%

70%

Adjusted Inbound Feedstock Prices in the past 6 months

86%

P

of which Decreased Prices

5%-10% 60%

Sales Decreased

2015-‘16

20+%

compared to last year

65%

Experienced Decreased 2015-‘16

Heating Season Sales

5% - 20+% compared to last year

NORTHEAST U.S.

60%

Experienced 2015-‘16 Heating Season Sales Down Significantly NORTH CENTRAL U.S.

42%

Experienced 2015-‘16 Heating Season Sales Down Significantly

eople across the U.S. have enjoyed the perks associated with cheap fuel oil and mild winter weather in recent months. Yet, for those whose livelihood depends on producing a product that must not only compete with fuel oil, but also attains its value with cold temperatures, those perks come at a price. Mid-February, over 50 percent of pellet producers reported running their plants at 75 percent or less of its capacity, and by the time you read this story, more producers will likely have ratcheted back production to a trickle or, in some cases, stopped altogether. Well over half of pellet manufacturers decreased their production hours this year compared to their long-term average, and nearly 40 percent decreased overall plant staffing. These disappointing figures come from the producers themselves. A sampling of 50 North American pellet producers responded to an online survey Pellet Mill Magazine distributed in February. The data derived from the 12-question survey surmises how current market conditions are impacting individual pellet operations and, when taken in aggregate, provides a reflection of the overall health of the pellet industry. The 50 survey respondents are representative of the industry as a whole, but the data was self-reported and gathered without random sampling techniques. Respondents represent a variety of plant sizes across every region of North America: 13 North Central U.S., 10 Northeastern U.S., eight Southeastern U.S., five Northwestern U.S., five Southwestern U.S., four eastern Canada, and four western Canada.

Producer Confessions Patrick Curran owns and operates Curran Renewable Energy LLC’s 120,000-short-ton-capacity pellet plant, which utilizes feedstock from nearby sister company Seaway Timber Harvesting located in northern New York along the U.S., Canadian border. “Factors affecting our pellet production today include oil prices, the effects of a strong El Niño and a Canadian/U.S. dollar exchange rate, leading

MARCH/APRIL 2016 | PELLET MILL MAGAZINE 27

« INDUSTRY

to a perfect storm in the pellet world," Curran says. "Fossil fuel prices fell quickly and to a near record low. Couple this with record warm temperatures and an unfavorable exchange rate between the U.S. and Canadian dollar to complicate an already challenging market.”

This isn’t the first time producers have had to weather through a perfect storm of conditions. “We’ve been through this before—this happened at the end of 2009 and all through 2010,” says Northeast producer Mark Wilson, CEO at New England Wood Pellet LLC. “The cliff the industry just hit here in the Northeast—everyone shut down or is hardly running at all.”

The four NEWP plants collectively have a capacity over 300,000 tons annually. NEWP’s financial position has allowed production to continue for the time being, but it has slowed down some. Wilson anticipates ramping up production again late this summer. “I think the market is going to be significantly reduced this year,” Wilson says. “There will be some inventory carryover because consumers did not burn anything in November and December for heat, and oil prices will play a factor in 2016.” Still, Wilson sees value in being prepared with available inventory, “because even if the market is half of where it should be, there is still going to be one,” he says.

Further south resides Turman Hardwood Pellets 28,000-short-ton-capacity plant in Galax, Virginia. “It was a record-breaking spring for us, everything went wide open continually until around the first week in December and then everything slowed down,” says Ruth Elliott, sales manager with Turman. “From what I hear from our dealers, the consumers were buying early, preparing, stocking up, so they wouldn’t be caught without, and then winter just didn’t show up. Retailers stocked their stores, but no one needed the pellets very much, once December arrived.”

Not only producers in the East are having to scale back production. Out West, Chris Sharron with West Oregon Wood Products joins a number of producers who are biting the bullet.

The company’s two pellet production plants in Banks (30,000-short-ton-capacity) and Columbia City (50,000-short-ton-capacity), Oregon, were running half throttle since the beginning of December, and have since wound down to a standstill. “We’ve seen it time and time again,” Sharron says. “There is a soft season for whatever reason—weather is usually the big culprit—so during the cycles, you always have this lag time of wondering what happens from here on out.”

The West has experienced mild weather in recent years, but not to quite the extent as those

in the East this past winter. “Where we’ve had two very mild winters the past two winters and basically a normal to slightly colder winter on the West Coast this year, the majority of the producers out East had a dreadfully warm winter this year,” says Stan Elliot, vice president of Pacific Coast Pellets.

Pacific Coast Pellets 50,000-short-toncapacity operation in Shelton, Washington, emerged as an anomaly in some areas addressed with the survey. “We are fairly unique in that our owner was in the right place at the right time when we purchased our business, so we don’t have the debt load that many of our competitors have,” Elliot says. “I’m certainly aware that not only are there people stressed, there is actually a fairly significant pellet manufacturer out here who has his plants up for sale because of his financial situation.”

Plant size, in some cases, factored into a plant’s stamina against current market constraints. Midwest producer Gene Merkley’s Southern Indiana Hardwood pellet plant produces around 11,000 to 12,000 tons of pellets on an annual basis, which is then distributed, for the most part, through big box retailers.

“We’re just a small company, we’re not one of the bigger players out there,” he says. “Our market hasn’t changed in the past two to three years because we deal with steady customers,

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and really there is very little variation on our markets that we have.”

A number of factors play into the robustness of a pellet operation, and when it comes to market conditions, their influence can vary by region. Regardless of the pellet business and locational dynamics, when taken as a whole, there are few industry stakeholders with product in North American heating markets who will dodge this storm.

Market Manipulators Weather comes to the forefront as the reason for the domestic heating market’s current state. Information collected from the industry survey revealed that 64 percent of producers attributed unseasonably warm winter temperatures to the reason for price changes this heating season.

Virginia-based producer Ruth Elliott of Turman Hardwood Pellets says that, first and foremost, unseasonably warm temperatures factored into the decline this heating season.

“The consumers were buying from our dealers at a fast, steady rate throughput in spring, summer and even early fall,” she says. “Although the oil prices were down even then, they still continued to sell.”

As a pellet boiler owner himself, Northeast producer Curran says, “It is likely that

wood pellet consumers, who heat with pellet stoves or furnaces, were not firing them up this winter due to the warmer than normal temperatures, at least in the Northeast, and reduced oil prices did not necessarily promote anything otherwise.”

Although weather is ascribed as the main offender to the slowdown this heating season, the downward price trend in petroleum products may very well threaten pellet producers’ operations if it continues. In early March, a barrel of crude oil hovered around the mid$30 range, and those filling their tanks paid an average of $1.72 per gallon for gasoline. This year, residential heating oil dropped to its lowest price per gallon since 2005. U.S. Energy Information Administration data from Feb. 29 showed residential heating oil averaging just under $2.09 per gallon, a drop of $1.20 per gallon compared to last year’s price. Residential propane prices averaged nearly $2.03 per gallon on Feb. 29, 34 cents lower than one year ago.

The drop in fuel oil is having more of an impact in regions where pellets more commonly compete with it. “I would say less than 1 percent of the homes in the Pacific Northwest have heating oil as even an option, unlike the Northeast, they have several million people who heat with heating oil,” Stan Elliot says.

“We’re a natural gas, electric or wood heating

market so what happens to heating oil has almost no impact on us good or bad.”

One of the questions the survey prompts producers to answer is to what degree low fuel oil prices impacted production decisions when planning volumes for the 2015-‘16 heating season. Of the 46 producers who responded to the question, 36, or 78 percent, indicated fuel oil prices impacted their decision only a little or not at all and 10 replied quite a bit or greatly. Although competitive fuel oil held little weight this heating season, based on conversations with producers, the sentiment that if low oil prices continue, 2016-‘17’s heating season will tell a different story. “I didn’t factor in oil prices at all into my production decision for 2015-‘16, because, in my opinion, it takes the pellet consumer a year of really consistent low oil prices to have an impact on the pellet market,” Wilson says. “I believe that the reason why November, December and January sales were almost nonexistent is that we didn’t have winter in November and December, and it was purely weather, with little impact if any from oil prices. I thought oil would play a role in February and March when consumers, instead of buying their extra tonnage, will just turn up their thermostat.”

Wilson adds that he thinks oil prices will affect how much people buy in the spring and

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summer, and they’re waiting to see what happens in the fall. Recent prices are not only beginning to cause strain in domestic heating markets. “We’ve often sent a pretty good tonnage into the export market, but that’s been very soft the past year or so since fossil fuel pricing has come down significantly,” Sharron says. “Prices have come way down with the strength of the dollar—the competition for $40-per-barrel oil just made that business go away.” Sharron thinks some opportunity may arise in the Asian pellet export market again for them, but right now, the company is still very dependent on the domestic thermal market in the West, and for the most part residential.

Pellets aren’t the only product with near stagnant sales. “New stove sales have been flat for many years,” Sharron says. “In New England, you’re seeing flat stove sales more recently since oil took a dive from $140 per barrel down to $40 per barrel. There is just no incentive for people to put in pellet stoves at this time, and with the weather being a lot milder this year, that’s another nonmotivator for people to move to alternatives. No matter what they’re heating with, they just don’t need that much heat this year. I’m sure the cycle will change again at some point.”

While low fuel oil and unseasonably warm weather take center stage this heating season,

other contributing factors like the value of the dollar and primary timber product demand and supply play a role in the perfect storm. On the survey, producers also attributed pellet price changes to lower in-woods operating costs due to decreased fuel price, a higher level of supply and the expansion of pellet plants globally.

Plant Operations It’s no surprise considering the market climate that a majority of producers reported a decline in this year’s heating season sales compared to last year. The survey found 65 percent of producers, or 30 of the 46 who responded to the question, are experiencing a moderate to significant decline in sales—5 to 20 percent or more. Across all regions of the U.S. and Canada, some sort of downward trend was reported. In the Northeast, 70 percent of producers described this heating season’s sales as down moderately to significantly, with all but 10 percent indicating they are down greater than 20 percent. Other areas of North America with a decline in sales include 58 percent of producers in North Central U.S., 60 percent in the Northwest, 67 percent of western Canadian producers, 100 percent of Southeastern producers who responded to the survey and 60 percent in the Southwest.

Raw material drives pellet prices, and in

certain regions of North America, producers have adjusted the price they pay for inbound feedstock in the past six months. In fact, seven of the 10 producers who responded to the survey from the Northeast reported they have had to adjust their price, and six out of those seven producers decreased the price they pay between 5 to 10 percent. Similar data was reported from the North Central U.S., where nine of the 12 responding producers have adjusted the price they pay for feedstock, with five of those nine decreasing their price 5 to 10 percent or more.

In all other regions, the majority of producers have not adjusted the price paid.

T.J. Morice with Wisconsin-based Marth Companies estimates there will be a decrease in raw material value in his area. “We, and the pellet industry as a whole, have been instrumental in the Great Lakes Region of increasing the value of residuals over the past two decades. Unfortunately, that increase in value has exponentially gone beyond what that material was probably reasonably worth because of what happened to fuel prices,” Morice says.

“You had fuel prices that were heading up in ‘07, ‘08, ‘09, which was when all the capacity came on. In our region, in particular, we have an overcapacity.”

There is a market correction occurring in residual raw material values, Morice says, and

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this year will be significant due to low fossil fuel prices and higher than normal temperatures.

“The raw material values have been higher than they should’ve been the past few years, but with energy down, those raw material values have to come down and quick,” he says.

Out West, Sharron shares a similar perspective, “Prior to ‘07, ‘08, ‘09, ‘10—throughout that time period—we were paying on average about $20 per bone dry ton (BDT) for fiber delivered into our plant, and it shot up as high as $65 per BDT at the start of the recession.

Unfortunately, Sharron adds, “that’s the same time that some new pellet production came into the West, so we were getting squeezed on both ends. We were having to bring our sell price of pellets down to stay competitive, yet our cost went up significantly.” Sharron says as the housing market started to improve in 2012 and 2013 the pricing also improved, and for the past two or three years the company’s average price has come down from in the $60-BDT range to around $40 per BDT. “I think T.J. is right, the overall trend would suggest those prices should be softening a little bit as the Chinese take more and more of that pulp and paper market,” Stan Elliot shares. He adds, when it comes to feedstock, variations are regional, and the survey reflects that. “It could be very beneficial for some folks

and maybe not so much for others.” Through conversations he’s had with fellow producers in the Midwest and Northeast, Elliot says they agree that warm weather in the early winter caused the demand for raw materials to crash because not as many pellets were being produced. “There became not only an abundance of pellets, but also an abundance of raw materials, so those raw material suppliers had to drop their price for those same pellet mills to want to buy their materials from them,” he explains. “I think it’s just the classic supply and demand curve. The raw material suppliers are suffering just as pellet producers are.”

Curran says, “Looking at our operation in general, I think there is going to be a glut of fiber all over the Northeast, and who knows how feedstock prices will be impacted going forward.”

Most producers indicated on the survey that their pellet prices were slightly higher or slightly lower (less than 5 percent) this year compared to the previous year. “We have dropped our prices to most stove shops and box stores,” Curran says. “They currently have inventory that was bought with a growing demand in the market, and I’ve already seen cuts to their prices to liquidate this inventory.”

When in a cycle of oversupply or plenty of supply, Sharron stresses the sensitivity of

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pricing. “You have to be really careful that you’re staying competitive,” he says. “I don’t think anybody is really in the position to increase prices. We might be forced to lower our pricing a bit because whether or not we can gain market share is one thing, but I certainly can’t afford to lose any more market share.”

Of producers, like Sharron, located in the Northwest, 60 percent reported this year’s prices as slightly lower. However, of the 45 who responded to the survey question about the price they were able to charge for pellets, 24 indicated this year’s prices are slightly to moderately higher (5 to 15 percent), and 21 producers’ prices were slightly to significantly lower (5 to 15 percent or greater).

Survival of the Fittest All components of the supply chain get impacted when unfavorable market conditions prolong, and even if conditions improve, it may be hard for the industry to respond. There is currently an excess of inventory in the supply chain, but Sharron says if there is an early winter and the inventory bleeds back down to the producer needing to produce again, how high or low the demand is will dictate the rate it will travel through the supply chain. “Oftentimes, it happens so fast that the reaction time might not be quick enough, depending on the extent of

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the shutdown of a manufacturing plant,” Sharron says. “We’ve already started laying off some people, and when you’re ready to start ramping up again, can you get those people back? Can you get your raw material supply back? Sometimes you’re not able to react quickly enough to those market conditions.”

Sharron isn’t the only one whose curtailed production has led to layoffs. According to the survey, 38 percent of producers have decreased overall plant staffing at their facility in the past

six months. This lends itself to the fact that 27 of 46 producers, or 59 percent, required a decrease in production hours when compared to their long-term average. Only two producers increased production hours and four increased plant staffing.

Producers can only project where industry will go from here. “I firmly believe 2016 is going to be a very challenging year, maybe not for all pellet producers, but I think a lot of us are going to see slow change at the front side of

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this,” Curran says. “If there isn’t a market, no matter the price, you can’t sell them. I don’t see any reason to be building inventory at a time when the market is not stable.” Curran adds that he’ll have a better sense of where the market is going toward July, but for now, “when the sales stop so dramatically in January and February and you travel around the countryside and see inventories built up at different stove shops and box stores, I think we all have to wonder where we’re going to be in 2016 as a biomass/pellet industry.”

Some producers predict the more financially stable may take a gamble and produce volume to take advantage of the market if and when it arrives. “2016-‘17 season will be interesting, as the pellet industry competes with low oil prices as well as more stock in the pellet pipeline coming into spring,” Ruth Elliott says.

“It will, more than likely, be a lean year for this industry. We must work together” She adds that it will be important for the pellet industry to not regress in the progress that has been made over the past few years.

“We must dig in, hold on tight, and look for new ways to continue to grow this industry,” Elliott says. “Sometimes our most creative thoughts and ideas, form in the hard times.

Now is the time to remain focused, and continue the course that is set before us.”

Producers who have been in the industry long enough know all too well the volatility of the domestic heating market, and more than likely have weathered the storm before. “It’s a gut punch,” Stan Elliot says. “Whether the gut punch is a one-year thing or lasts a couple of years, if nothing else, the expansion in some markets will probably slow down to a trickle, if not a little regression, as people struggle to figure out how they sell the extra tonnage we have after a year like this. It’s a tough spot, but as Darwin says, the strong will survive and probably come out the other end stronger.

Unfortunately, we may lose a few folks along the way.”

Author: Katie Fletcher Associate Editor, Pellet Mill Magazine 701-738-4920 kfletcher@bbiinternational.com

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1

2

U.S. Pellet llet Appliance Unit Shipments Ship vs. Crude Crud de eO Oil il Pric Prices 1999 9 9 -2014 -

10,000

120

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Canadian Pellet Appliance Unit SShipments vs. Crude Crud de eO Oil il Pri Prices 1999 9 9 -2014 120

9,000

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60

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60

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U.S. DOLLARS PER BBL OF OIL

U.S. PELLET APPLIANCE UNIT SHIPMENTS (FRESTANDING STOVES & INSERTS)

80 100,000

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Canadian Pellet Appliance Unit Shipments

6

U.S. Cordwood wood Appliance Unit SShipments vs. Crude Crud de eO Oil il Pric Prices 1999 9 9 -2014 120

900,000

Avg. OPEC Crude Oil Prices

Canadian Cordwood rdwood Appliance Unit Shipments vs. Crude Crud de eO Oil il Pri Prices 1999 9 9 -2014 120

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80

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U.S. DOLLARS PER BBL OF OIL

U.S. CORDWOOD APPLIANCE UNIT SHIPMENTS (FIREPLACES, FREESTANDING STOVES AND INSERTS)

100 700,000

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A Challenging Cycle: Pellets, Cheap Oil & A Warming Planet The domestic wood pellet heating market is battling low crude oil prices and warm winters to keep—and grow—its position in the thermal arena.

BY RON KOTRBA

34 PELLET MILL MAGAZINE | MARCH/APRIL 2016

Canadian Cordwood Appliance Unit Shipments

A

Avg. OPEC Crude Oil Prices

t $49.51 a barrel, 2015 saw the lowest average crude oil prices in more than a decade. Couple low crude prices with the fact that the National Oceanic and Atmospheric Administration pegs 2015 as the planet’s warmest year on record and the result of these two converging factors equates to troubling times for the domestic wood pellet heating market.

Wood pellet appliance sales appear to have a significant correlation with oil prices when looking at the historical data. In general, as oil prices trend up, U.S. wood pellet appliance unit shipments do the same, according to appliance data provided by the Hearth, Patio & Barbecue Association, OPEC crude oil average yearly prices from Statista, together, which were compiled by Pellet Mill Magazine. The divergence from the trend in 2014, how-

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3

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U.S. Gas as Appliance Unit Ship Shipments vs. Crude Crud de eO Oil il Pric Prices 1999 9 9 -2014 -

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U.S. GAS APPLIANCE UNIT SHIPMENTS (FIREPLACES, FREESTANDING STOVES, INSERTS, FIREBOXES & GAS LOGS)

2,500,000

Canadian n Gas Appliance Unit Sh Shipments vs. Crude Crud de eO Oil il Pric Prices 1999 9 9 -2014 -

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20 20,000

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Avg. OPEC Crude Oil Prices

2008

Canadian Gas Appliance Unit Shipments

8

U.S. Cordwood & Pellett Appliance App lia ian n ce Unit Un Shipmentss - Stacked 1999 9 9 -2014 -

900,000

800,000

2009

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2011

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2013

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Avg. OPEC Crude Oil Prices

U.S. Pellet Appliancee Unit Un itt Shipments SSh hipments vs. U.S. Av Average Temperature (Jan. n .-March in Lower 48)

160,000

42

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40

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DEGREES FAHRENHEIT

700,000 U.S. PELLET APPLIANCE UNIT SHIPMENTS (FREESTANDING STOVES & INSERTS)

U.S. CORDWOOD & PELLET APPLIANCE UNIT SHIPMENTS

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U.S. Pellet Appliance Unit Shipments

ever, may likely be attributed to a sharp decline in crude oil prices in the fourth quarter of that year (Graph 1). “After reaching monthly peaks of $112 per barrel (bbl) and $105/bbl in June, crude oil benchmarks Brent and West Texas Intermediate fell to $62/bbl and $59/bbl in December, respectively,” stated the U.S. Energy Information Administration. The same general trend can be seen in Canadian wood pellet appliance unit shipments (Graph 2).

Conversely, the unit shipments of gas appliances trend down as crude oil prices increase (Graph 3), even though Kate Fritz, the market research director at HPBA, cautions against drawing much of an inference from this. “From a statistical perspective, I would caution against trying to correlate gas appliance unit shipments to fuel prices,” she says. “There are too many

2007

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YEAR U.S. Pellet Appliance Unit Shipments

variables to draw a straight line between the two series.” Again, the same general trend can be seen in gas appliance unit shipments and oil prices in Canada (Graph 4).

Interestingly, there seems to be less of a correlation between cordwood appliance sales and oil prices—or even almost an inverse correlation (Graphs 5 and 6). This could be because the cordwood appliance data include not only wood stoves but also fireplaces, which may provide more of an ambiance factor in addition to a home improvement modification rather than a straight-functioning heat utility. These numbers could be tied to the housing construction market as well. One might also argue this may be due to pellet appliances increasingly taking share away from cordwood, but in Graph 7, we see this really isn’t the case.

U.S. Temperature Avg. Jan.-March

In Graph 8, the U.S. pellet appliance unit shipments are graphed against the average temperature in the lower 48 states from January through March of each year using data obtained from NOAA. While it would be more effective to graph regional pellet appliance shipments to regional U.S. cold season temperatures, HPBA only had aggregate data and was unable to provide historical regional shipment information.

Since weather is such a big factor, what one could expect to see is higher pellet appliance shipments correlated with lower average temperatures and vice versa. This is seen in 2001 as the average temperature dropped and sales of pellet appliances spiked. Conversely, in 2002, the average temperature rose and pellet appliance shipments declined. Again, in 2003, the temperature fell and pellet appliances increased.

MARCH/APRIL 2016 | PELLET MILL MAGAZINE 35

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The divergence from this trend in 2004-’06, when increasing average temperatures saw an increase in pellet appliance sales, could be for a number of reasons, including crude oil prices continuing an upward trajectory, or better, cheaper and more pellet stove options entering the market, to name a few. In 2008, oil prices peaked, temperatures dropped, and what we see is the largest number of pellet appliance unit shipments in the 15-year period displayed.

Furthermore, in 2012 the average temperature spiked to the highest point in the time period and pellet appliance shipments dropped back.

Then, in 2014, the temperature fell to the lowest average in the 15-year period and pellet appliance sales soared again.

The 25C tax credit available for biomass stoves should also be factored into trends in pellet appliance shipments. First passed in October 2008 retroactive to the first of the year, the credit for 75 percent efficient wood and pellet stoves began as a $300 credit. In early 2009, it was passed again, this time for $1,500 and extended through 2010, but the banking crisis of 2008 followed by the prolonged recession years afterwards had an adverse effect on pellet appliance shipments in the ensuing years.

From 2011 onward, the tax credit was scaled back to $300, and the retroactive extensions of the credit, like many renewable tax credits, likely hampered its incentive as originally intended.

“Tax credits are supposed to be an incentive to purchase, not a gift to those who have already bought a wood or pellet stove,” says Rachel Feinstein, HPBA’s manager of government affairs. “The retroactive nature of the tax credit extensions is why it’s so difficult to determine if this tax credit has an impact on sales— it makes it very difficult to establish a trend.”

Stephen Faehner, chairman of the Pellet Fuels Institute and CEO of American Wood Fibers, says the 23 state incentives for pellet and wood stoves are more help than one federal tax credit. “Robust state programs have been in effect for several years,” he says. “The most aggressive program is in New Hampshire, a 30 percent rebate up to $6,000 for an automated, bulk-fed boiler system. Maine has a robust program, a $5,000 rebate for pellet boilers and a $500 rebate for stoves. Maryland has a $700 rebate through the Maryland Energy Administration for pellet stoves. There’s a number of aggressive state programs throughout the country to encourage conversion to pellets.”

John Shimek, the senior vice president of new product development at the nation’s largest cordwood and pellet appliance manufacturer, Hearth & Home Technologies, says the 25C tax credit has been favorable in driving sales. And given the fact that the credit was not only passed this December retroactively back to Jan. 1, 2015, but also forward through this

year, Shimek is hopeful of its positive effect on 2016 sales. “While it’s too soon to tell, our team feels really good about it,” he tells Pellet Mill Magazine. “The forward-facing reinstatement allows us as a manufacturer to get ahead of it and know which appliances qualify. At the same time, it helps consumers understand the value and benefit of the credit, and that will be very positive long-term.”

While trends have been laid out from 1999-’14, information for 2015—the first year in many when record temperatures and sustained low crude oil prices have dominated— is lacking. HPBA only publishes hearth data every other year. “2014 shipment data is the most current we have to release,” says Carrie deGuzman, HPBA’s senior manager of communications. “Although we have collected 2015 data, we have not calculated the aggregated figures for publication and release.” She adds that consumer data is available every other year to members. “So the 2016 report is in the planning stages,” deGuzman says. In the “offyears” for hearth data, HPBA publishes barbecue shipment information.

“Low fuel prices have certainly impacted pellet appliance sales, which are lower than in previous years,” Shimek says of 2015 pellet appliance sales. “However,” he adds, “wood stove sales seem to be stable.”

“They’re off across the board,” Faehner

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says of 2015 pellet sales at his company. “That is consistent with most suppliers in the market place. Sales are off a good 20 percent compared to years past.” But given the warm winter, comparing the off sales of a soft year to higher sales of some of the tougher winters is dangerous, he says. “If you were to normalize it, it’s not as bad.”

While 2015 appliance data for the U.S. was unavailable at press time, Deutsches Pelletinstitut GmbH (DEPI), or the German Pellet Institute, released data for the German market in 2015, and the numbers were not good. “Instead of the projected 40,000 new pellet boilers and stoves, only 16,000 pellet boilers and 16,500 pellet stoves were sold nationwide,” DEPI stated in a release earlier this year. “That is compared to the weak year in 2014 (38,500 furnaces), a further decline by about 10 percent.”

Faehner says the EU is coming off its third straight warm winter, and in the U.S., although this winter is warmer, the previous two were much harsher. “It’s a cycle,” Faehner says.

“It’s a challenging cycle and it’s not for the faint of heart. You have to have some pretty thick skin—and deep pockets—to make it through some of these cycles.”

Shimek says a few factors influenced wood appliance sales last year, but the U.S. EPA’s release of its New Source Performance

Standards wasn’t one of them. “Weather always has an impact, and the mild winter—especially in the South Central U.S. and East Coast—certainly played a role,” he says. “At this point, the new NSPS had minimal impact at the consumer level. And while weather is always the biggest factor and is difficult to predict, we are optimistic about the wood appliance market in 2016.

We anticipate it will be stable and potentially even stronger this year.”

For pellet production, Faehner says 2016 will be a year when “a lot of folks are scrambling to stay viable,” noting early indications are pointing to some producers reducing production plans already. “There’s instability in global pellet markets and some not-so-healthy trends are appearing,” he says. “Also, the strong U.S. dollar limits exports and helps Canadian producers export more to the U.S. But if we can keep promotion of this business moving forward, and consistent policy, it’s a good solution for renewable energies. I’m optimistic about this year but not overjoyed.”

“The biggest challenge we face is increasing awareness with consumers,” Shimek says.

“There are so many options today and current appliances are much better than in years past— these are not their parents’ and grandparents’ stoves. We need to continue to help them understand that there are alternatives to natural gas and fuel oil.”

“These are pretty dramatic times,” Faehner says. “We have a climate change issue. There are going to be years where there are positives and negatives, in general. We have global warming, I get that. But stability is one thing people are after. Pellets provide a stable solution to heating needs. Oil, while low now, will not stay low. It will fluctuate and go back and forth. But pellets are darn reliable. They may move a little, but over time it’s a very stable product. We have to reach more consumers. Our history in the U.S. has been with freestanding stoves and inserts, but there’s a whole other market for house boilers, forced air or hydronic, and that’s an untapped market here in the U.S. In a climate where oil is cheap—historically cheap—we’re stable, and fossil fuels have not been.”

Ironically, the wood pellet industry, a sector positioned to help combat climate change, is dampened by both a low-priced product that heavily contributes to climate change (crude oil) and the effects of climate change (warmer winters).

Author: Ron Kotrba Senior Editor, Pellet Mill Magazine 218-745-8347 rkotrba@bbiinternational.com

MARCH/APRIL 2016 | PELLET MILL MAGAZINE 37

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