March/April 2015 Pellet Mill Magazine

MARCH/APRIL 2015

England’s Second Act UK Renewable Heat Incentive May Benefit US Producers Page 16

Plus: Pellet, Appliance Industry Reacts To New Source Performance Standards

Page 24

AND:

Consumer Attitudes On Pellet Appliances Emerge In Data Page 32

www.biomassmagazine.com/pellets

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Contents »

Pellet Mill Magazine

Advertiser Index

MARCH/APRIL 2015 | VOLUME 5 | ISSUE 2

7 2015 International Biomass Conference & Expo 2 4B Components, Ltd. 20 Agra Industries 36 Airoflex Equipment 14 Airpro Fan & Blower Company 28 AMANDUS KAHL GmbH & Co. KG 27 Andritz Feed & Biofuel A/S 40 Astec, Inc. 39 BBI Project Development 11 Bliss Industries, Inc. 34 BRUKS Rockwood

FEATURES 16

21 CPM Roskamp Champion 26 Evergreen Engineering 23 Gould Equipment/Trans Tech.

30 Industrial Bulk Lubricants

24

15 M-E-C Company 37 Pellets Forum 22 Timber Products Inspection/Biomass Energy Laboratories

10 Tramco, Inc. 18 Uzelac Industries 35 Varco Pruden Buildings 4 Vecoplan LLC

REGULATION

The Clean Warmth of an Engineered, Regulated Fire

The pellet and appliance industry reacts to the the U.S. EPA's long-anticipated refresh of the New Source Performance Standards, outlining a go-forward strategy under new provisions outlined in the regulation.

By Ron Kotrba

13 NESTEC, Inc. 29 SCHADE Lagertechnik GmbH

UK PELLET MARKET

Renewable Heat Wave

Pellet demand for power production in the United Kingdom is largely responsible for the industry’s most recent boost, but the U.K.’s Renewable Heat Incentive is finally gaining traction and its promise for increased demand is starting to be realized.

By Katie Fletcher

19 EBM Manufacturing

12 GreCon, Inc.

Page 16

CONTRIBUTION 32

MARKET RESEARCH

Gauging Customer Likelihood Of Purchasing Biomass Heating

Researchers at the Illinois Institute for Rural Affairs mine data to help appliance manufacturers target likely customers.

By Adee Athimayan

31 Victam International B.V. 38 West Salem Machinery Co.

DEPARTMENTS 05 EDITOR’S NOTE

Dancing With The One What Brung Ya

By Tim Portz

06 INDUSTRY EVENTS 08 TESTING GROUNDS

Controlling Wood Pellet Quality For Residential Heating Markets

By Chris Wiberg

09 INDUSTRIAL INSIGHT

Industrial Producers Eye Global Thermal Markets

By Seth Ginther

ON THE COVER

Building Demand: As the number of installations supported by the U.K.'s RHI increases, a foundation of steady demand is being built that local and foreign producers are watching enthusiastically.

10 BUSINESS BRIEFS 12 NEWS 38 MARKETPLACE MARCH/APRIL 2015 | PELLET MILL MAGAZINE 3

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vecoplanllc.com

(336) 891-0858

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Editor’s Note »

Dancing With The One What Brung Ya

Tim Portz

VICE PRESIDENT OF CONTENT & EXECUTIVE EDITOR tportz@bbiinternational.com

If you’ve spent any time around the Biomass Thermal Energy Council’s Executive Director Joseph Seymour, you’ve likely heard him talk about how often thermal energy is overlooked and underrepresented in broader discussions about energy. I’m paraphrasing, but Seymour reminds us that thermal energy is the third leg on the energy stool and our homes, businesses and industries cannot function without it.

This phenomenon has certainly been evident in the pellet industry in recent years. For decades, hundreds of producers manufactured wood pellets to generate heat for private customers, but pellets had to be used to generate electric power before the general public really became familiar with them. Still, the first and, many would argue, the best use of wood pellets is to combust them to heat a space.

The mainstream media, and even this publication, can and should be forgiven for focusing on the massive, sudden demand for wood pellets introduced into the marketplace when a single power station comes online that measures its annual demand in millions of tons. For comparison, a single residence transitioning to pellet-derived heat will likely consume less than 10 tons of pellets in a heating season.

This edition of Pellet Mill Magazine illustrates that the gradual accumulation of residential, commercial and light-industrial pellet customers must remain a top priority because of the long-term stability these deployments bring with them.

Katie Fletcher’s page-16 feature, “Renewable Heat Wave” investigates how the United Kingdom’s Renewable Heat Incentive is increasing opportunity for producers there. For her story, Fletcher interviewed a number of stakeholders, including Ed Billington, whom I met last year at the European Pellet Conference in Wels, Austria. At the time, the residential component of the policy was in flux and the growth Billington and others were hoping for was slow to come.

The worm has certainly turned. Fletcher reports that, in the last third of 2014, more than 1,200 applications were received for the program representing over 1 gigawatt of new thermal demand. “We have seen a good uplift in the industry this winter,” Billington says.

The United Kingdom is the largest user of wood pellets in Europe and, despite the momentum generated by the RHI, largely uses pellets to make electric power. Italy and Germany are a close second and third, and not 1 ton of the nearly 6 million they consume is used to produce power. As an industry we can’t forget that.

MARCH/APRIL 2015 | PELLET MILL MAGAZINE 5

« Industry Events

Heating the Midwest

Editorial

APRIL 20, 2015

Minneapolis Convention Center, Minneapolis, Minnesota Colocated with the 2015 International Biomass Conference & Expo, being held in Minneapolis, Minnesota, Heating the Midwest is a compelling combination of the right topics being discussed at the right place, at the right time.

866-746-8385 | www.biomassconference.com

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 CONTRIBUTING EDITOR Anna Simet asimet@bbiinternational.com

International Biomass Conference & Expo

NEWS EDITOR Erin Vogele evoegele@bbiinternational.com

APRIL 20-22, 2015

Minneapolis Convention Center Minneapolis, Minnesota 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

COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com STAFF WRITER Katie Fletcher kfletcher@bbiinternational.com

Art

ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com GRAPHIC DESIGNER Raquel Boushee rboushee@bbiinternational.com

Publishing & Sales

International Fuel Ethanol Workshop & Expo

CHAIRMAN Mike Bryan mbryan@bbiinternational.com

JUNE 1-4, 2015

Minneapolis Convention Center Minneapolis, Minnesota The FEW provides the global ethanol industry with cutting-edge content and unparalleled networking opportunities in a dynamic business-to-business environment. The FEW is the largest, longest-running ethanol conference in the world—and the only event powered by Ethanol Producer Magazine.

866-746-8385 | www.fuelethanolworkshop.com

CEO Joe Bryan jbryan@bbiinternational.com VICE PRESIDENT OF OPERATIONS Matthew Spoor mspoor@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

National Advanced Biofuels Conference & Expo

ACCOUNT MANAGER Tami Pearson tpearson@bbiinternational.com

OCTOBER 26-28, 2015

Hilton Omaha Omaha, Nebraska Produced by BBI International, this national event will feature the world of advanced biofuels and biobased chemicals—technology scale-up, project finance, policy, national markets and more—with a core focus on the industrial, petroleum and agribusiness alliances defining the national advanced biofuels industry.

866-746-8385 | www.advancedbiofuelsconference.com

SALES & MARKETING DIRECTOR John Nelson jnelson@bbiinternational.com CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com MARKETING & TRAFFIC COORDINATOR Marla DeFoe mdefoe@bbiinternational.com

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 701-746-5367. 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

6 PELLET MILL MAGAZINE | MARCH/APRIL 2015

COPYRIGHT © 2015 by BBI International

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April 20-22, 2015 Minneapolis Convention Center

Koda Energy/ Rahr Malting Tour LIMITED SEATING

This tour will provide attendees a unique opportunity to see first-hand how biomass energy can complement a host facility, adding value to both facilities. Rahr Malting, one of the world’s largest single-site producers of malt, provides Koda Energy with the byproducts of its malting process. Using these byproducts and other biomass feedstock stream, Koda Energy produces both process heat which is sent back to Rahr Malting and electric power. The tour will begin with a tour of the Rahr malting facility, move to the Koda Energy facility and finish with a drive-through tour of Koda’s off-site biomass receiving and staging facility.

866-746-8385 | service@bbiinternational.com

CO-LOCATED EVENT

HEATING THE

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April 20, 2015

Minneapolis Convention Center Minneapolis, MN

The Midwest relies heavily on fossil energy for heating homes and businesses. Heating the Midwest is a network of thermal biomass advocates working to increase awareness and usage of renewable biomass for heat, which has the potential to greatly reduce the region’s dependence on propane and fuel oil for thermal energy.

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« Testing Grounds

Controlling Wood Pellet Quality For Residential Heating Markets

BY CHRIS WIBERG

Over the past several decades, controlling wood pellet quality for foreign and domestic residential heating markets has been very challenging. For nearly as long as there have been residential wood pellet burning appliances, there has been the knowledge that not just any pellet will yield the best performance of the appliance. Wood pellet burning appliances require fuel that is very consistent in properties such as moisture content, density, and dimensions such as length and diameter to yield well-balanced combustion for a clean and consistent burn. In addition, the pellets must be low in fines and durable to prevent the creation of fines in handling. It is also critical that ash content be as low as possible to assure ease of maintenance and that the pellets are free of contaminants that can corrode the appliance.

Over the years, there have been numerous efforts to control the quality of wood pellets for residential use. In the U.S., the Pellet Fuels Institute developed its first standards in the early 1990s. Remnants of this original standard can still be seen today in the form of a guaranteed analysis block displayed on the bags of many manufacturers. This early standard provided guidance for properties such as moisture content, fines and ash. Several other countries also developed residential wood pellet standards between the late 1990s and the early 2000s. These include standards such as the Austrian Önorm, the German DIN and the Swedish Svenska standards. These early standards provided guidance for physical and chemical properties of the fuel, but they did not provide any guidance for quality management to achieve the standards and there was no enforcement of the standards.

By the early 2000s it became obvious that more was needed to control the quality of the wood pellet supply for the residential heating markets. As a result, various quality management schemes have now been developed that include very robust guidance on chemical and physical properties, quality management, and third-party enforcement. The quality management schemes currently available and their primary areas of use are as follows: Established in 2002, DINplus was the first wood pellet quality scheme to enter the market. It was established by DIN Certco in Germany and gained much popularity in European heating markets. It was based on the German DIN wood pellet standards, which gave it a very regional emphasis, but has since adopted the European Union standards for wood pellets (EN 14961-2) and is now also referencing the newly developed ISO wood pellet standards (ISO 17225-2). DINplus is still used throughout Europe and Russia.

The PFI Standards Program was first published in 2008 as a voluntary consensus-based program, but was revised in 2011 for use within the U.S. EPA’s residential wood heating 8 PELLET MILL MAGAZINE | MARCH/APRIL 2015

standard. The PFI Standards Program has since become the primary quality management scheme used for the domestic heating market, as it covers about half of the wood pellets produced and sold within the U.S. for home heating. To date, the adoption of this program has been largely market driven, however, with the recent prepublishing of the EPA’s updated New Source Performance Standard for Residential Wood Heaters, it is anticipated that the PFI Standards Program will be much more widely adopted within the U.S. ENplus was established in 2011 as a collaborative effort by several European countries under the Pellcert project and is overseen by the European Pellet Council. ENplus is based on the European Union standard for wood pellets (EN 14961-2) and is anticipated to reference the newly developed ISO wood pellet standards (ISO 17225-2) with the next draft. ENplus is largely based on the needs of the European markets and now covers around 60 percent of the European production for residential heating. In addition, several U.S. producers have also certified to ENplus in order to sell production into the European residential heating markets.

Canada has also developed a wood pellet quality scheme called CANplus. The CANplus quality scheme is essentially the same as ENplus in that wood pellet producers first certify to ENplus and then apply to the Wood Pellet Association of Canada for CANplus certification. The primary difference between ENplus and CANplus is that the CANplus quality mark makes use of the Canadian red maple leaf. In addition, both ENplus and CANplus have also been referenced in the U.S. EPA’s prepublished NSPS for Residential Wood Heaters making it possible for producers that rely on these quality management schemes to also gain recognition within the U.S. markets.

While controlling the quality of the residential heating wood pellet supply has been long in coming, we can finally rest assured that highly robust quality management schemes are finally in place. They have gained significant recognition within their intended markets and are now even supported by regulation, at least within the U.S. As such, all entities that operate in the wood pellet sector, both foreign and domestic can finally have a high level of confidence in the quality of fuel that will be available for their use provided they make use of the fuel produced under these various quality management schemes.

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

Industrial Insight Âť

Industrial Producers Eye Global Thermal Markets

BY SETH GINTHER

The wood pellet industry is always looking for ways to grow and expand into emerging markets.

While the pellet heating market in Europe is nothing new, it is emerging as an additional opportunity for North American wood pellet exporters.

The market for pellets for heat in Western Europe has seen exponential growth, going from a 2 million metric ton market in 2004, to a projected 10 million metric ton market in 2014. Pellets provide a low-cost option in the face of increased heating costs across Europe. Pellets for heat are cheaper in comparison to other forms of space heating, such as natural gas, oil, and electricity.

Europeâ&#x20AC;&#x2122;s ability for domestic production to meet the demands of the pellet heat market is waning, however. Italy, the largest and fastest growing pellet heat market, had to import 70 percent (1.75 million metric tons) of its supply in 2013.

Many markets import pellets from other member states with a surplus production, such as Germany, Austria, and many of the Eastern European countries. However, as the pellet heating markets continue to grow, these countries are seeing a reduced amount of surplus supply and are unable to meet the export demand. It is here that North American exporters see an opportunity for additional markets for their product.

While the pellet heat market is not reliant on government subsidies, it is not without its own challenges and vulnerabilities. This winter has seen a major oversupply of pellets in this sector, making it difficult to enter the market right now.

Additionally, some government regulatory uncertainty exists. For example, the Italian government saw a budget shortfall late last year and, within a matter of days, decided to double the value-added tax on the import of pellets and passed this measure into law, increasing the price of pellets by 30 to 35 euros per metric ton. There is a petition to repeal this move, which I encourage you all to sign.

Challenges aside, North America has already established the supply chain necessary to deliver wood pellets to Western Europe. Further, industrial pellet producers in the U.S., such as ENPlus have shown increased interest in the pellet heat market by obtaining the necessary certifications to participate.

Buyers of industrial wood pellets are also paying notice to this industry, with both Drax and RWE diversifying their interests and making recent investments in the pellet heating market.

As an industry, we continually ask ourselves, what does the market look like after 2027 when European subsidies for renewable energies come to an end? The added optionality presented by this market provides additional investment security for producers and buyers alike and we view the pellet heat market as an important pillar in the foundation of the overall wood pellet industry moving forward.

Author: Seth Ginther Executive Director U.S. Industrial Pellet Association 804-771-9540 sginther@hf-law.com

MARCH/APRIL 2015 | PELLET MILL MAGAZINE 9

Business Briefs

PEOPLE, PRODUCTS & PARTNERSHIPS

Rentech announces new leadership Rentech Inc. has announced that D. Hunt Ramsbottom has resigned as CEO and president of Rentech and CEO of the general partner of Rentech Nitrogen Partners LP to pursue other opportunities. Ramsbottom has also resigned as a member of the board of directors for both companies. Keith Forman, a member of Rentech Nitrogen’s board since October 2011, has been appointed CEO and president of Rentech and CEO of the general partner of Rentech Nitrogen. He has also joined the board of Rentech. Forman has a background in master limited partnerships. He previously served as chief financial officer of Crestwood Midstream Partners LP. He also served as senior vice president for El Paso Corp., and chief financial officer of GulfTerra Energy Partners LP. Forman currently serves on the board of Capital Product Partners LP.

JETBELT ™

An efficient system requiring less horsepower than other systems. Used for dry bulk handling requirements in a variety of products.

Viridis Energy renews agreement with Ekman Viridis Energy Inc. has announced its subsidiary, Scotia Atlantic Biomass Co., has renewed its distribution agreement with Ekman & Co. AB for an additional three-year period. Ekman has served as Scotia Atlantic’s worldwide agent, to arrange short-term and multiyear offtake agreements for its industrial wood pellet production, with European power generators that cofire with wood pellets or have fully converted to biomass. The renewal agreement provides for volume discounts on commissions and fees and expanded volumes in Nova Scotia.

Drax appoints executive Drax Group plc has announced the appointment of Philip Cox as a nonexecutive director and chairman designate, effective Cox Jan. 1. He will succeed Charles Berry as chairman following his previ-

Schutte-Buffalo Hammermill under new ownership Martin Berardi has acquired Schutte-Buffalo Hammermill. Berardi, the incoming CEO, is a recent retiree from Moog Inc., where he served in a variety of roles over 34 years.

Ownership of the company has transferred from Thomas Warne and James Guarino, who purchased the company in 2004 following a merger with Buffalo Hammermill Corp.

Terex Environmental Equipment announces new products Terex Environmental Equipment is launching two new products in early 2015, the TDS 820 slow-speed shredder and the TTS 620 trommel screen. The TDS 820 is a versatile slow-speed machine for shredding all types of material utilizing the same shredding tool. The TTS 620 features an efficient

MODEL G

Built standard with 10-gauge construction to accommodate large capacities of free-flowing materials. Provides years of trouble-free service under extreme applications.

TRAMROLL™

Enclosed belt conveyor with innovative features such as self-reloading and self-cleaning tail section and multiple inlets. The heaviest-duty design in the industry.

MODEL RB

Designed for self-cleaning and quiet operation with a u-shaped trough for handling soft stock or materials that are easily crumbled or broken that are easily crumbled or broken.

316.264.4604 tramcoinc.com

ously announced retirement, scheduled for April. Cox previously served as CEO of International Power, where he led the growth and development of a substantial global power generation business.

UK +44 (0) 1482 782666 Euro-Tramco BV +31 33 4567033

BUCKET ELEVATOR

Centrifugal discharge design used for the bulk handling of free-flowing fine and loose materials with small to medium size lumps.

Built-to-last for the toughest requirements.

BULK-FLO™

The heavy-duty chain conveyor designed specifically for processing applications such as wet and sticky product grains, varying sizes and densities, as well as abrasive or corrosive materials.

tramcoeurope.com

The World’s Most Complete Line of Chain and Enclosed Belt Conveyors.

engine and hydraulic drive system combined with advanced material-processing control. It is suited for screening compost, biomass, soil, gravel and waste.

Vecoplan announces V-ECO series of shredders Vecoplan has introduced V-ECO shredders. Shredders in the V-ECO series feature VFD inverter drives, W rotors embedded with five rows of cutters, single or double rows of bed knives, pneumatic assist dropdown screen carriages, hydraulic lift-up cutting chamber floors, and externally adjustable cutting tolerances.

DCT’s quick-release manifold bracket aids dust suppression Dust Control Technology has introduced a new quick-release manifold bracket, engineered to limit worker exposure to harsh service environments and potential safety

hazards, while minimizing process downtime.

Designed to fit all fan-driven models of DustBoss atomized mist dust suppression equipment, the new bracket design allows removal and replacement of the manifold in about five minutes, with no tools required.

Hurst Boiler launches online CAD solution

Hurst Boiler has announced the launch of its new, userfriendly online CAD download solution, featuring the latest boiler models and plan view configurations. Hurst’s new web-based CAD download solution makes it easy to search for and select the right boiler online.

Featuring an extensive range of Hurst boilers available as BIM-compatible 2D and 3D CAD/Revit objects, users have the option to either download the object in the desired file type or directly import the object into their design/specification software. The application supports most popular file types and CAD software programs.

Fecon adds team member Fecon Inc. has appointed Joe Cox as northeast regional manager. Cox has experience in business development and equipment sales within Cox the mulching industry.

He most recently managed facilities in the Southwest that provide right-of-way, land clearing, and related oilfield services. Cox’s territory includes Pennsylvania, New York, New Jersey, Delaware, Maryland, Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire, and Maine. The previous northeast regional manager, Brian Kile, has accepted the position of western regional manager.

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.

BIOMASS PROCESSING with BLISS. Bliss Industries, LLC is a leading manufacturer of wood and biomass pelleting equipment for residential, commercial and industrial pellet fuel.

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Pellet News Forecast range of pellet, nonpellet wood input demands (million green short tons) Forecast region, product U.S. pellet production U.S. South pellet production U.S. nonpellet bioenergy production U.S. South nonpellet bioenergy production

2015

2020

13 - 38

28 - 46

9 - 27

9 - 49

25 - 56

30 - 68

6 - 21

10 - 29

SOURCE: U.S. FOREST SERVICE

EU pellet demand could increase US forest area A study completed by U.S. Forest Service scientists and published by the Forest Service’s Southern Research Station finds that policies in the European Union and other parts of the world that require the use of renewable and low greenhouse gas-emitting energy are driving demand for wood pellets. This demand could provide new markets for U.S. timber exports, increase wood prices, and lead to increases in forestland area.

Karen Abt, a research economist with the SRS Forest Economics and Policy unit and lead author of the report, and her team used a computer model to simulate timber markets in

the U.S. Coastal South through the year 2040 and model several scenarios, including a business-as-usual scenario that assumes a continuation of the current level of wood production, and an alternative scenario that accounted for continued bioenergy demands for wood.

Results indicate the bioenergy scenario would result in increased pine nonsawtimber prices. While forest area decreased under the baseline business-as-usual scenario by 2040, the bioenergy scenario resulted in an increase in the forest base through 2040, despite the increased harvests.

12 PELLET MILL MAGAZINE | MARCH/APRIL 2015

Zilkha acquires land for Arkansas pellet plant Zilkha Biomass Energy recently closed on the purchase of the last parcel of land to be acquired for its proposed 450,000 metric-ton-per-year pellet plant in Monticello, Arkansas. The 80.99 acres were purchased for $80,500 from the University of Arkansas at Monticello.

The land purchase was made in addition to three other lots situated within the Monticello Economic Development Commission Industrial Park, totaling approximately 110 acres for the total area of the proposed project’s property.

Construction of the pellet plant is expected to begin midyear, with pellet production scheduled to commence during the fourth quarter of next year.

“Locally, our plant in Monticello will promote healthy management practices, and the output of this plant could reduce GHG emissions from coal-fired power generators by roughly 77 percent,” said Stephanie Mire, project manager with ZBE.

Pellet News Âť

Portucel to construct South Carolina pellet plant

Top 2013 pellet producers (Production in million metric tons) U.S.

5.7

Germany

2.2

Canada

1.8

Sweden

1.3

Latvia

1.1

Portugal-based Portucel S.A. has announced plans to build a 460,000-ton-peryear pellet plant in Greenwood County, South Carolina. Construction of the $110 million project is expected to begin early this year, with operations commencing in the third quarter of next year.

According to the South Carolina Department of Commerce, the Coordinating Council for Economic Development has approved a $150,000 grant to assist with the costs of road, site and infrastructure improvements, as well as job development credits related to the project. The facility will be located in the Emerald Road Industrial Corridor.

Information released by Portucel indicates a 10-year fixed-price supply contract is currently in place for approximately 70 percent of the proposed facilityâ&#x20AC;&#x2122;s output.

SOURCE: FOOD AND AGRICULTURAL ORGANIZATION OF THE UNITED NATIONS

FOA report illustrates global pellet market Late last year, the Food and Agricultural Organization of the United Nations published updated forest products data, reporting wood pellet production soared to an all-time high in 2013. The growth was driven primarily by bioenergy policies and consumption targets in Europe.

According to the FAO, global wood pellet production grew by 12 percent in 2013, reaching 22 million metric tons. More than half that volume, 13 million metric tons, was traded internationally.

The FAO report indicates markets for wood pellets are dominated by Europe and North America. Europe accounted for 62 percent of wood pellet production and 81 percent of consumption in 2013. North America accounted for 34 percent of production and 15 percent of consumption.

The amount of pellets exported from North America to Europe in 2013 doubled when compared to 2012. Most of those pellets were shipped to the U.K.

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Pellet News 2 wood pellet plants planned in Florida PHI Group Inc. has signed an agreement with AG Materials LLC to establish a 200,000 metricton wood pellet plant in Live Oak, Florida. The joint venture will form Cornerstone Biomass Corp., which will be the entity handling the project.

A separate plant is under development by Enerpellets Group in Hamilton County, Florida.

The Cornerstone pellet mill’s proposed location is on a 15-acre site adjacent to a lumber site in Suwannee County where Klausner Lumber One is constructing a sawmill. The pellet mill’s feedstock would come from the site’s sawmill residue. PHI and AG Materials are also negotiating the purchase of a decommissioned pellet mill in Europe,

and will be relocating that mill to Florida.

Enerpellets is entering the U.S. marketplace after developing two pellet plants in Portugal. Construction on the 250,000 metricton-per-year plant in Hamilton County is expected to begin this year, with pellet production beginning in 2016.

14 PELLET MILL MAGAZINE | MARCH/APRIL 2015

Construction underway on British Columbia pellet plant Pinnacle Renewable Energy and Tolko Industries Ltd. recently began construction of a pellet plant at Tolko’s sawmill in Lavington, British Columbia. The plant is expected to be operational by September.

The facility, with an estimated annual capacity of 250,000 metric tons, will employ a drying technology that features a low operating temperature, resulting in a lower emission concentration and minimized fire risk. According to the companies, the plant will also implement bag house filtration on both the pellet plant and Tolko fiber delivery systems, improving overall air quality in the Lavington area.

“Colocating the plant here at Lavington will bring a number of benefits,” said Troy Connolly, general manager of B.C. lumber at Tolko Industries.

“It will allow us to deal with the excess of sawdust and shavings that has been collecting, on site and at other locations in the valley, since Domtar Kamloops reduced its operations in 2013. It will also help us to create more efficient rail and trucking logistics and improve the level of both emissions and fugitive dust control. This is a good project for the community and the mill, and one that supports the long-term viability of the Lavington sawmill.”

Pellet News Âť

Canadian pellet statistics 2010

2011

2012

2013

2014

1.32

1.45

1.5

1.8

2.18

Imports (million tons)

0

0

0.05

0.02

0.02

Exports (million tons)

Production (million tons)

1.23

1.3

1.37

1.64

2

Consumption (million tons)

0.1

0.12

0.15

0.18

0.2

Number of plants

33

39

42

41

41

2.08

2.9

3.18

3.18

3.18

63.40%

50%

47.20%

56.70%

68.70%

Nameplate capacity (million tons) Capacity use SOURCE: USDA FAS GAIN

Canadian pellet capacity holds steady The USDA Foreign Agricultural Serviceâ&#x20AC;&#x2122;s Global Agricultural Information Network has published an annual report on the Canadian biofuels industry that highlights the current state of the Canadian wood pellet industry.

The report indicates Canada had 41 pellet plants in operation last year, with a combined nameplate capacity of 3.175 million metric tons. That capacity is unchanged from 2013. Capacity use, however, was expected to increase from approximately 56.7 per-

cent in 2013 to about 68.7 percent last year. Canadian pellet producers exported an estimated 2 million metric tons of pellets in 2014, up from 1.64 million tons in 2013.

The GAIN report indicates the province of British Columbia currently accounts for approximately 65 percent of Canadian production capacity, with Alberta, Quebec, New Brunswick, Nova Scotia accounting for the remaining 35 percent of capacity.

EPA finalizes regulations for residential wood heaters In February, the U.S. EPA published a final rule establishing new source performance standards (NSPS) for residential wood heaters. The rule limits the amount of pollution that wood heaters manufactured and sold in the future can emit. Standards will be phased in over a five-year period.

The new rule updates standards that were last set in 1988. It does not affect current heaters already in use and does not replace state or local requirements governing wood heater use. The new rule, however, does set the first-ever federal standards for hydronic heaters, wood-fired forced-air furnaces, pellet stoves and a previously unregulated type of wood stove called a single burn-rate stove.

The rule does not cover fireplaces, fire pits, pizza ovens, barbecues, chimineas, or masonry heaters.

In a statement, the EPA said the new rule will result in emissions from new models being reduced by approximately two-thirds.

It will also reduce fine particle and volatile organic compound emissions from heaters covered by the rule by nearly 70 percent, with carbon monoxide emissions reduced by 62 percent.

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MARCH/APRIL 2015 | PELLET MILL MAGAZINE 15

« UK Pellet Market

PELLET FLEET: Distributer Forever Fuels has seen an increase in pellet demand due to the renewable heat incentive uptake. Bruno Prior, managing director, says the company’s growth is about 80 percent year-over-year by volume and 90 percent year-over-year on sales for three years running.

PHOTO: FOREVER FUELS LTD.

16 PELLET MILL MAGAZINE | MARCH/APRIL 2015

UK Pellet Market »

Renewable

Heat Wave

Incentives help pellet use gain traction in the UK, funneling products and services, at least for now, into the heat market.

BY KATIE FLETCHER

P

rice is key. No matter the purchase, ultimately, if the price is right a customer’s inclination to make an investment escalates. This notion holds true when consumers consider their energy source options.

Case in point, three years ago, the United Kingdom initiated an environmental program to support biomass-heat installations and other renewable heat sources through financial incentives. It opened a nondomestic renewable heat incentive (RHI) scheme for applications in November 2011, with a domestic RHI following last spring. The incentives created the right price for many consumers of biomass-heat that qualified under the nondomestic RHI in business, industry and publicsector organizations, and for homeowners, private landlords, social landlords and self-builders under the domestic option.

The RHI, which traces back to the 2008 Energy Act, was introduced in the legislation principally to help meet the U.K.’s goal of generating 15 percent of energy from renewable sources by 2020, as set out in the Renewable Energy Directive. The government has identified indicative contributions of renewable energy from the electricity, heat and transport sectors that would allow the U.K. to meet the overall target as cost effectively as possible. The Department of Energy and Climate Change identified that for heat, up to 12 percent could be generated from renewable sources by 2020, increasing from the approximate 2 percent reported in December.

Although the RHI supports the installation of renewable energy technology other than biomass, biomass plants have achieved the quickest rate of uptake. Other incentivized technologies for both residential and commercial consumers include air-source and ground-source heat pumps and solar thermal systems, and in the commercial sector, water-source heat pumps, deep geothermal plants, biomethane production for injection and biogas plants. Consequently, the uptake has had a sizeable impact on the supply and demand for many of the plants’ sources of fuel, pellets and wood chips. “The renewable heat incentive has caused the wood heating industry MARCH/APRIL 2015 | PELLET MILL MAGAZINE 17

« UK Pellet Market

BIOMASS BOOMS: As of September 30, 2014, 73 percent of the accredited installed capacity for all technology installations under the nondomestic renewable heat incentive scheme is located in England; Scotland is the next highest at 19 percent. The total accredited installed capacity for solid biomass is 98.7 percent, while each of the other technology types are under 1 percent.

SOURCE: OFGEM E-SERVE

to explode in a way nothing else prior to that and probably subsequent is going to,” says Julian Morgan-Jones, Wood Heat Association chairman and managing director of South East Wood Fuels Ltd. South East Wood Fuels transports predominantly wood chips and some wood pellets to commercial and institutional wood heating customers in the South East and London. The industry has grown from about 50,000 tons of A1-grade pellets in 2010 to 240,000 tons projected in the current year, according to Bruno Prior, managing director of Forever Fuels Ltd., a wood pellets supplier in the U.K., and a board member of the WHA with Morgan-Jones. Neil Harrison, co-founder of re:heat and WHA vice chairman, says the RHI is “probably the most generous renewable energy support scheme, if not in Europe, probably in the world, at the moment.” He adds, “The economics are very strong for biomass as a result.”

The RHI can be regarded as one of the key reasons there was a need for the association. “The WHA is there to grow and maintain the wood heating industry in the U.K., and to also do work to improve standards and improve the reputation of the industry,” Harrison says.

The WHA falls under the umbrella of the Renewable Energy Association,

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18 PELLET MILL MAGAZINE | MARCH/APRIL 2015

which was instrumental in lobbying for the RHI scheme. There was a need for an association that reflected the specific needs of the wood heating industry, Morgan-Jones says.

Now, 140 representatives from various companies are members of the association.

While the WHA helps support the wood heat industry as it grows under the RHI, the Office of Gas and Electricity Markets (Ofgem) serves as policy administrator. Ofgem E-Serve publishes guidance materials, receives and assesses applications, makes payments to approved applicants, ensures ongoing compliance with scheme rules and provides quarterly and annual public reports.

Each RHI scheme has its own tariffs, but similar conditions, rules and application processes. Applicants must fill out online applications under both schemes. Installations for the nondomestic scheme are provided subsidies payable for 20 years to eligible renewable heat generators. These tariffs are available at a different rate depending on the size of the boiler.

The tariff levels for boilers up to 999 kilowatts (kW) are based on a two-tier payment structure: tier-one payments up to 1,314 peak load hours of operation (15 percent annual heat load) and tier-two payments for operational hours above this. This tariff structure operates on a 12-month basis, starting with the date of accreditation or its anniversary. Small biomass boilers up to 199 kW receive 6.8 pence (p) (10 cents) per kWh for tier one and 1.9 p per kWh

STAYING INLAND: Verdo Renewables produces pellets in the U.K., and Richard Smith, managing director, says since the market has grown in response to the renewable heat incentive. The company cut back on exports, and other manufacturers have stopped exporting, or itâ&#x20AC;&#x2122;s a much smaller proportion of their raw sales.

CREDIT: VERDO RENEWABLES LTD.

in tier two. These tariff rates will be revised on April 1, 2015. The eligible-sized medium biomass boilers between 200 kW and 999 kW receive a tier -one payment of 5.1 p per kWh and 2.2 p per kWh for tier two. A single tariff level of 2 p per kWh is available for boiler capacities of 1,000 kW and above.

The residential RHI has a single tariff of 12.2 p per kWh, payable quarterly for seven years, although a recent reduction in the tariff

to control the budget, or degression, decreases the payment to 10.98 p per kWh for applications submitted after the first of the year.

The biomass technology covered includes biomass-only boilers and biomass pellet stoves with integrated boilers. Although there is no limit on the capacity of the product, it must be certified by the Microgeneration Certification Scheme or an equivalent scheme. Besides this certification, the renewable technology must

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ÂŤ UK Pellet Market

be listed as eligible on the Product Eligibility List, have an Energy Performance Certification for the property and meter the heating systems to receive payments in certain situations, among a number of other credentials. RHI applicants for both schemes must also be below certain emission levels. As of September 2013, all applicants with a biomass boiler are required to submit an RHI emission certificate or environmental permit. The maximum levels for biomass boilers are equal to 30 grams (g) per gigajoule (GJ) particulate matter (PM) and 150 g per GJ nitrogen oxide (NOx).

Doubling The Industry

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There is no denying that biomass installations have risen above other renewable energy technology covered by the RHI. According to a recent Ofgem E-Serve quarterly report, 7,258 installations are accredited in the nondomestic scheme and more are expected. Between September and December 2014, 1,203 new, full applications and three preliminary applications were accredited, or an increase of 130 percent since the same quarter in 2013. These installations and other RHI technologies amount to over 1 gigawatt (GW), which was the reported installed capacity as of Aug. 15 last year. Even with the exclusion of residential applications until last year, around 6,500 biomass installations have been approved as of mid-February, according to Ofgem accreditation reports.

DECC releases forecast expenditures on a monthly basis based on data provided by Ofgem. DECC estimates the cost of RHI payments over the 12-month period following the assessment date, which assumes that all installations that were accredited or had registered full applications by that date would receive payments from the start of that 12-month period. As of Dec. 31, ÂŁ153.6 million (British Pounds) ($236.7 million) is the forecast expenditure for all nondomestic biomass applications, including combined-heat-andpower systems. Small boilers up to 199 kW account for ÂŁ110.5 million of the forecast amount. The total forecast expenditure, i.e., expenditure for the scheme as a whole over the next 12 months, is ÂŁ270.4 million. Biomass leads all other technology with these budget commitments by a ratio of 19 to 1, truly proving dominance within the scheme. A similar theme can be found in the residential market, with total forecast expenditure for biomass plants as of Dec. 31 at ÂŁ17.02 million, a staggering comparison to the combined total of ÂŁ3 million for all other technology under the domestic RHIs. Increased expenditures to biomass installations have naturally translated into growth in the wood fuel industry. Edward Billington grew his pellet distribution business, Billington Bioenergy, over the years, and now it has recently been acquired by the Drax Group.

This partnership resulted as Drax hopes to help transform the U.K. heat market in the same way they've transformed the power market. Billington believes this opportunity will help develop the marketplace for the long term. Billington estimates that Billington Bioenergy serves about 2,000 approved RHI applicants. â&#x20AC;&#x153;We have seen a good uplift in the industry this winter, with a good number of installations going in, both domestic and nondomestic,â&#x20AC;? Billington says. â&#x20AC;&#x153;The growth has been encouraging, and certainly manageable to date. However, it has been so slow in starting, and coming from such a small starting point, that the U.K. needs to sustain these growth rates at least for the next few years, or even to accelerate

UK Pellet Market »

them a bit more, to build a truly sustainable wood pellet industry in the U.K. for the long term.”

A pellet producer in the space, Verdo Renewables Ltd., has pellet plants in Andover in Hampshire and Grangemouth, Scotland. Each U.K. plant has the capacity of 55,000 metric tons of wood pellets and 15,000 metric tons of wood briquettes per year. Richard Smith, managing director at Verdo and chairman of the U.K. Pellet Council, agrees with Billington in that the RHI has started to have a considerable impact this winter. “It’s really shown that the demand for pellets has grown dramatically,” he says.

Smith adds that everybody has seen significant growth, and although they haven’t finalized their numbers, they estimate that “the demand in 2014 was just under 150,000 tons, and demand in 2015 will be upwards of 300,000 tons.” Smith says, “Roughly, the sector has doubled for purely heating pellets, this does not include cofiring pellets at power stations.”

Policing The Cowboys

Upon the onset of winter, biomass boiler installations are increasing at a fairly rapid rate, perhaps even too rapidly for the industry to keep up. Billington alludes to a potential concern when he says the growth needs to be sustained. Harrison’s business, re:heat, provides a wide range of services to the biomass heat market. A lion’s share of the business is the distribution of boiler equipment, but lately the company has been doing a lot of consultancy and remedial work for customers who have been left with an installation that isn’t working properly. “There is a growing body of that type of stuff, unfortunately, which is why we need to work together as an industry to put together proper standards and police the cowboys,” he says.

Cowboys in the U.K. are people, generally contractors, who don’t do a proper installation job. “As one might expect, a rapidly growing industry brings its own challenges in terms of available skills and expertise and problem resolution processes,” Morgan-Jones says. “Currently there are a fair number of poorly conceived and implemented boiler installations and so we’re getting customers who have problems.

The WHA is looking to help standards and training for all parts of the supply chain to improve this and maintain the reputation of the industry. Equally, installers and fuel suppliers need to learn how to work together to determine the cause of problems and solve them rather than blame each other. At the end of the day, we all need happy customers.”

Solving these problems is one of the three core objectives of the WHA to meet in this year and beyond, Morgan-Jones says. The first objective is funding––the government funding for the RHI is committed only until March 2016. The U.K. has an upcoming election in May, so it is essential for the industry to get the best possible deal from the new government for the RHI beyond this point. The second objective is to raise awareness about the WHA, and promote wood heating to a larger audience in the marketplace. The third big focus is quality and standards. “We need to professionalize the industry, make sure we have the right training and best practices, and do it effectively,” Morgan-Jones says.

Harrison believes the real crux of the issue is that biomass heat is still fairly new technology in the U.K. He recalls just five years ago he could name most of the companies and individuals in the space, and now there are new companies entering the industry almost every day.

MARCH/APRIL 2015 | PELLET MILL MAGAZINE 21

READY FOR DISPATCH: Domestic pellet boilers are lined up for shipment at a manufacturerâ&#x20AC;&#x2122;s facility in Austria last December. Both pellet fuel and boiler demands have grown since the nondomestic and domestic renewable heat incentive schemes became available to applicants.

PHOTO: BEN TANSEY, RE:HEAT

â&#x20AC;&#x153;They donâ&#x20AC;&#x2122;t always enter it with the right level of skills and knowledge to actually execute a successful project, so that is a critical issue,â&#x20AC;? he says. â&#x20AC;&#x153;It doesnâ&#x20AC;&#x2122;t take a rocket scientist to work out the kinds of things that can happen when

you have lack of barriers to entry, low-skill levels and a very generous tariff support regime.â&#x20AC;?

Another critical issue is the disproportionate awarding of funding. Prior says, the RHI has encouraged the installation of many small

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22 PELLET MILL MAGAZINE | MARCH/APRIL 2015

biomass boilers, but there are many things that need to be done to improve the program. â&#x20AC;&#x153;We have a very cost-effective technology that is being encouraged in some ways cost ineffectively,â&#x20AC;? Prior says.

For example, a critical issue is the disproportionate awarding of funding to sub-200 kW boilers (furnaces), which creates unintended consequences, encouraging boilers to be both oversized and undersized for the requirement leading to inefficiencies and/or under-powered systems.

He adds that even if the budget is extended after the upcoming elections, it will only be available for a few more years. â&#x20AC;&#x153;Beyond that, we are going to need to be pretty cost competitive, because weâ&#x20AC;&#x2122;re not going to be in the same world of generous financial subsidies,â&#x20AC;?

Prior says.

Yet another challenge with the RHI is the the tension between the need for change in the future and the fear of change in the future, creating uncertainty amongst potential applicants. â&#x20AC;&#x153;The RHI could be improved after the general election,â&#x20AC;? Prior says. â&#x20AC;&#x153;However, the new government will need to strike a careful balance between correcting the worst failings in the design, and creating further uncertainty and complexity that inhibits investment. There is no time to be lost if the U.K. is to get anywhere near its 2020 renewable heat commitments.â&#x20AC;?

Billington believes changing the program has made it difficult to understand for some. â&#x20AC;&#x153;My personal opinion remains that it was too complex, and the rules were altered and tinkered so much that few truly understood it or could trust in its development,â&#x20AC;? Billington

UK Pellet Market »

says. “Had they made it simpler and made a clearer commitment to it, then it would have been better understood and more effective, and you might have achieved more at a lower cost. Hence, it is crucial now that they don't keep tinkering, but rather allow the policy to settle down and have a stable run for the time being.”

Some changes coming this year will impact biomass installations. One change is degression, which, according to Prior, has been 30 percent over the past 12 months. One big change in autumn, subject to parliamentary approval, is associated with government plans to introduce sustainability criteria for using biomass fuels. The easiest way for applicants to comply with the criteria will be to source an approved fuel from the Biomass Suppliers List, a pre-approved list of fuel suppliers.

An Unknown Future

The stability of the program is called into question with policy stagnation due to the election in May, not to mention current low oil prices. “It is crucial that they come back to seeing the bigger picture for the election, that biomass heating represents a sensible and sustainable alternative to using fossil fuels, improves our energy security, and that the RHI represents good value for money to develop this technology quickly in this country,” Billington says.

Another question is whether there will be an opportunity for North American producers to take advantage of the growing market. The schemes have clearly created the opportunity for expansion in the U.K. wood-heat industry, but when it comes to the U.S., as one of U.K.’s largest biomass suppliers for industrial power, the opportunity is less clear. Based on conversations with players in the industry, the general sentiment is that the opportunity isn’t there at the moment, but could certainly be in the future. This potential opening for U.S. producers seems to circle back to “if the price is right, then the opportunity is there,” Harrison says.

Billington thinks that North America’s involvement will become very important and actually help make the U.K. market fully robust and sustainable. “The key, however, is to get the quality right,” he says. “Achieving the ENplus quality standard fully and consistently is more difficult than it might initially appear, especially when transporting over distances. The U.K. producers have done a superb job at this,

and very much set the level which others must achieve.”

Smith with Verdo Renewables says that there is still a mindset change that North American producers must make to hit the U.K. heat market. “They are used to supplying large shiploads to power stations, and the power stations are traditionally near ports, and have significant dock sites,” he says.

Smith adds that the distribution network in the U.K. is significantly smaller than the power-pellet demand, so there is a limited ability to import 15,000-metric-ton shipments and store the pellets. The financial cost to ship is high for the still relatively small market, and the quality of the pellet once it arrives is not always ideal in terms of fines, which is probably the main challenge for U.S. and other exporters targeting the U.K. market.

Time was needed for the RHI to make an attention-worthy impact, but now that it is catching hold, people in the industry hope

funding can continue until at least the end of the decade to help create a sustainable market for the future. “There is a certain amount of inertia in getting these markets to move,” Morgan-Jones says. “The RHI has done this, but it has taken a while for the momentum to build, and now that it has we need to ride the wave while it’s here. That wave could go flat on the beach if the budget is not supported beyond 2016 and it would be a huge shame not to use this momentum to achieve the government’s carbon reduction targets for 2020. My hope is certainly that for the next four years the wave continues to grow until it hits the beach in 2020, and then the hope there is that by 2020 there is some other scheme in place to be able to make sure it is sustainable on an ongoing basis.”

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

JRXOG HTXLSPHQW

MARCH/APRIL 2015 | PELLET MILL MAGAZINE 23

BEAUTIFULLY ENGINEERED FIRE: The Harman XXV cast iron pellet stove, manufactured by Hearth & Home Technologies, has been a top seller the past 10 years, and demand has increased with the addition of more porcelain color options. Pellet stoves such as this are virtually unaffected by the NSPS because they burn so clean already.

PHOTO: HEARTH & HOME TECHNOLOGIES

24 PELLET MILL MAGAZINE | MARCH/APRIL 2015

REGULATION »

The Clean Warmth of an Engineered, Regulated Fire Companies and organizations speak out about U.S. EPA’s new source performance standards for residential wood-fired appliances.

BY RON KOTRBA

T

Ihe fact that the U.S. EPA finalized the first new source performance standards (NSPS) for residential wood heaters since 1988 won’t have much bearing on some wood and most pellet stoves on the market, today or five years from now when emissions standards tighten. For other products, such as forcedair wood heaters, single burn-rate wood stoves and even pellets themselves, the new regulations could be a game-changer.

What makes these source performance standards unique is that they regulate consumer products. John Crouch, director of public affairs for the Hearth, Patio & Barbecue Association, says NSPS are typically issued to regulate industry, such as refineries and power plants.

The new standards were finalized in February and reflect significantly improved technology now available to make a range of models cleaner burning and more efficient. The rule sets the first-ever federal standards for hydronic heaters, wood-fired forced-air furnaces, pellet stoves and the previously exempt single burn-rate stove.

The EPA states that this new rule will result in emissions from new models being reduced by approximately two-thirds, which is estimated to provide $3.4 billion to $7.6 billion in public health benefits. Those who purchase the new stove models will also benefit from efficiency improvements, which means they will need less wood to heat their homes. EPA also estimates the rule will reduce fine particle and volatile organic compound emissions from heaters covered by the rule by nearly 70 percent, with carbon monoxide emissions reduced by 62 percent.

“One of the things that makes this rule very complicated is that it involves four very different products,” Crouch tells Pellet Mill Magazine, “only

one of which (wood stoves) was in the original NSPS.”

Wood And Pellet Stoves

EPA estimates that about 88,000 pellet stoves, 86,000 adjustable burn-rate wood stoves, and 27,000 single burn-rate wood stoves will be sold this year alone. The new standards for wood and pellet stoves have two steps, with the first set of requirements taking effect 60 days after the final rule is published in the Federal Register and the second limit taking effect in 2020. The step-one emissions limits for new wood and pellet stoves is 4.5 grams of particulate matter (PM) per hour of operation for catalytic and noncatalytic stoves. The step-two PM limit is 2 grams per hour for catalytic and noncatalytic stoves if emissions are tested using cribs (lumber assembled in standardized configurations) or 2.5 grams per hour if tested with cordwood (split logs) using an EPA-approved method.

“The de facto national standard for stoves was already 4.5 grams an hour, since Washington state made that their standard in 1995,” says John Ackerly, president of the Alliance for Green Heat.

“Very few stoves were on the market that put out more than 4.5 grams per hour of particulate matter, so the wood stove market is barely impacted.”

And even though all pellet stoves put out less than 4.5 grams per hour already, they have to be certified now, Ackerly says, so they have to go through the process. “Some may be redesigned but most will be the same as what has been on the market,” he tells Pellet Mill Magazine.

Kelsey Scheel, public relations manager for Hearth & Home Technologies, a major manufacturer of wood and pellet stoves under the Harman brand name, says HHT agrees with the step-one emissions limits of 4.5 grams per hour. “In fact,

MARCH/APRIL 2015 | PELLET MILL MAGAZINE 25

« REGULATION

our products already comply with it,” she says. This year Harman is launching the Absolute43 with “EASY Touch Controls” that will, according to Scheel, redefine how consumers interact with a pellet stove. Its unique features include automatic maintenance reminders of when and how to clean the stove, reminders to fill the hopper, on-board diagnostics and a scheduling feature that helps save fuel.

Paul Williams, national sales manager for United States Stove Co., offered this statement to Pellet Mill Magazine instead of addressing our inquiries about the NSPS. “As everyone I’m sure is doing, we’re going through the prepublication and making adjustments,” Williams says. “Very little is much of a surprise, as we’ve been working through the process since the beginning. But there is always something that draws a questioning look and until the final version is released, we have to hold.”

Crouch confirms that most pellet and adjustable burn-rate wood stoves already meet the 4.5 grams per-hour limit, adding that the first NSPS’s definition of wood stoves hinged on an air-to-fuel ratio to keep fireplaces out. The new NSPS also does not cover fireplaces, fire pits, pizza ovens, barbecues or chimineas, which are earthenware outdoor fireplaces shaped like a light bulb with the bulbous end housing the fire.

“The intention [of the NSPS] was that it was supposed to cover all residential wood heaters,” Ackerly says. “Some at EPA even wanted to include fireplaces, and many stakeholders urged the agency to include them.”

Ackerly says adjustable burn-rate wood stoves make up 90 percent of the wood stove market. “All EPA-certified stoves and almost all older, uncertified stoves allowed the operator to adjust the rate of air that goes into the firebox,” Ackerly says. “Adjusting the airflow also adjusts the heat output. The more air, the hotter the stove. The less air, the cooler. The EPA designated single burn-rate stoves as exempt from regulation in 1988, when they did the first NSPS for residential wood heaters.

They have a set rate of airflow, which has to be very high to be exempted from EPA emissions regulations.”

To ease the transition to cleaner stoves, EPA’s final rule will allow wood stove retailers to sell existing inventory until Dec. 31. After 26 PELLET MILL MAGAZINE | MARCH/APRIL 2015

that date, any new wood stoves sold at retail in the U.S. must meet the step-one emissions limit. Ackerly says the sell-off period is mostly for the exempt, single rate-burn stoves, and for boilers and furnaces. “The technologies that are being regulated out of existence are the most impacted—like the single rate-burn stove,” he says.

Crouch says there are at least two or three types of catalytic wood stoves available today, but noncatalytic stoves dominate the market. Noncatalytic stoves use more sophisticated air mixing, employing three or four different entrances where air fuels the fire.

“Much of the differences are opaque to the consumer, shifting from primary to secondary and so forth,” Crouch says. Smoke contains a lot of energy, and many clean-burning wood stoves on the market today barely emit any visible smoke. The newer models also burn up to 50 percent less wood than the older, less sophisticated models for the same heat output, Crouch points out. Harman wood stoves and inserts currently use its noncatalytic FireDome and FireDome Plus Combustions System, “and we are working on a unique, new wood stove technology that we’ll introduce in the coming years,” Scheel tells Pellet Mill Magazine. Currently, Harman does not offer catalytic wood stoves or fireplace inserts.

As a result of the new NSPS, catalytic wood stoves may become the fastest growing model in that category, Ackerly says, because most manufacturers are considering adding catalysts in order to meet the 2 gram per-hour standard. “Pellet stoves have been a fast-growing category, and the new regulations won’t slow this down—or speed it up—since pellet stoves aren’t that affected by the NSPS,” he says.

Some noncatalytic wood stoves already achieve less than 2 grams per hour of PM, so hitting the 2020 limits is “not only possible, but also regularly done by manufacturers,” Ackerly says. “It involves a lot of fine-tuning and injecting air in all the right places, and really maximizing your secondary and often tertiary combustion.” He says he doesn’t expect to see many new downdraft stoves, “but that is a unique way to achieve secondary combustion. It is often very finicky and relies on a skilled operator.” As with noncatalytic designs, there is a lot of variety among cata-

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lytic designs, Ackerly says. â&#x20AC;&#x153;One option may be to preheat the cat in order to achieve secondary combustion in the catalyst sooner. Automation, using Ackerly sensors and automatic adjustments of airflow, may also become an attractive way to reduce emissions without driving up the price too much.â&#x20AC;?

Hydronic And Forced-Air Wood Heaters

Hydronic heaters are typically located outside the buildings they heat in small sheds with short smokestacks. They burn wood to heat liquid, either water or a water-antifreeze mixture, which is piped to provide heat and hot water to occupied buildings such as homes, barns and greenhouses. Hydronic heaters may be located indoors and they may use other biomass as fuel, such as corn or wood pellets.

Like the wood and pellet stove standards, the new regulations for hydronic heaters will be implemented in two phases, with the first set of requirements taking effect 60 days after the final rule is published in the Federal Register and the second limit taking effect in 2020. The step-one PM limit for hydronic heaters is 0.32 pounds per-million Btu heat output (weighted average) with a cap of 18 grams per hour for individual test runs.

The step-two limit is 0.1 pounds per-million Btu heat output for each burn rate if testing with crib wood. If testing with cordwood using an EPA-approved method, the step-two limit is 0.15 pounds per-million Btu heat output for each burn rate. â&#x20AC;&#x153;The achievability of these standards will rest significantly on the test methods for hydronic heaters, for which manufacturers have many unanswered questions,â&#x20AC;? says Joseph Seymour, executive director of the Biomass Thermal Energy Council.

For wood-fired forced-air furnaces, the final rule requires wood-practice standards beginning on the effective date of the rule,

with emissions limits phased in over two steps between 2016-â&#x20AC;&#x2DC;17 and 2020, to give manufacturers time to develop cleaner models and conduct emissions testing. Small forced-air furnaces will have to meet step-one emissions limits by 2016. Large forced-air furnaces will have an extra year to meet step-one requirements, with compliance required in 2017. All forced-air furnaces are required to meet the step-two emissions limit by 2020. The stepone operational- or work-practice standards take place 60 days after the final rule takes effect. The step-one limit is 0.93 pounds of PM per-million Btu output, weighted-average, and cordwood testing is required for forcedair furnaces. For small furnaces, the step-one requirements go into effect in 2016, for large furnaces, they go into effect in 2017. The step-two emissions limit of 0.15 pounds of PM per-million Btu heat output for each individual burn rate takes effect in 2020 and also requires cordwood testing.

Delaying implementation of limits on forced-air furnaces is either a good decision or a bad one, depending on who is asked.

Ackerly says this was a mistake. â&#x20AC;&#x153;Wood and pellet boilers had a voluntary program where EPA established a test method and standards, and companies could get their boilers qualified,â&#x20AC;? he says. â&#x20AC;&#x153;No such program existed with warm air furnaces so the EPA did not have test methods or data to know where standards should be set. We think it was a mistake to give them so much more time. The EPA should have at least had them meet some interim test in order to know who was working toward cleaner furnaces, and who had no intention of meeting any standards but just wanted to keep selling dirty equipment for two more years.â&#x20AC;?

Crouch, however, thinks otherwise. â&#x20AC;&#x153;Of the step-one process, the agency did the proper thing with hydronic heaters,â&#x20AC;? he says. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re thankful EPA gave warm-air furnaces more time. They never had any certification, and theyâ&#x20AC;&#x2122;re so different. They need every minute they can get.â&#x20AC;?

Several changes were made between the proposed rule and the final rule. In addition to changes made regarding masonry heaters and the implementation timeline for forcedair furnaces, the final rule changes the stepone emissions cap for hydronic heaters. The cap now matches the current requirements of

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MARCH/APRIL 2015 | PELLET MILL MAGAZINE 27

« REGULATION

the agency’s voluntary Hydronic Heaters Program. The change allows most models that are phase-two qualified under the voluntary program to be automatically certified as meeting the first emissions limit in the final rule.

To reduce potential certification delays, the EPA said it will allow conditional certification for up to one year for wood stoves, pellet stoves and forced-air furnaces if a manufacturer submits a complete certification application that includes a full emissions report by an EPA-accredited laboratory and meets other application requirements.

“We are pleased with many of the step-two rulings,” Scheel says, “such as the EPA’s recognition of industry concern about the length of time for the certification process. Under the current rules, it can take up to 90 days to get a certificate granted before a manufacturer can begin producing and selling a wood stove, but under the final rule, there will be a temporary certification process that allows manufacturers to begin production as soon as the certified third-party lab verifies that emissions meet the requirement and the application is submitted to the EPA.”

Testing: Crib Vs Cord

While EPA will not require emissions from wood stoves and hydronic heaters to be tested with cordwood rather than the crib wood, the agency will allow cordwood testing for wood stoves and hydronic heaters with prior approval. To encourage further development of cordwood test methods, the EPA is including a slightly higher step-two emissions limit based on cordwood testing for wood stoves and hydronic heaters. Based on available data, the EPA said it anticipates the

alternative limit would be at least as stringent as the emissions limit for crib testing. The EPA also indicated manufacturers can test using either cribs or cordwood in step two, and must meet the limit corresponding to the type of test they choose. However, manufacturers that test with cordwood for step one must meet the same emissions limit as those testing using cribs. In addition, any manufacturer choosing to test wood stoves or hydronic heaters with cordwood will be allowed to voluntarily use a special EPA label that recognizes emissions from cordwood testing more closely reflect emissions from in-home use.

The step-two, 2-gram limit for pellet stoves and 2.5-gram limit for cordwood testing are “arbitrary numbers plucked out of thin air,” Crouch says, adding that a cordwood test method isn’t even finished yet, so how can EPA pick a number—2.5 grams—if a finalized test method for cordwood isn’t even completed? He also says that once a cordwood test method is approved, it may be problematic not only for third-party reproducibility of results, but also in-house test results consistency.

The allowance for voluntary testing with cordwood using an alternative test method approved by the EPA “may become one of the most sensitive and disputed sections of the entire NSPS,” Ackerly says, “as it may allow the EPA to gather enough data showing acceptable test methods that can achieve low-emission rates with cordwood. I expect in the next two years we will see a number of stoves being tested and certified with cordwood and some will even be under 2 grams per hour. The EPA will allow those units to carry a special hangtag so that consumers can more easily identify which stoves are being designed and tested to run the same way that the operator will.”

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REGULATION »

Scheel says HHT was “a little surprised” by a few of the guidelines under step two. “For example, we appreciate the option of two methods for compliance—the first uses the current crib wood test methodology at a limit of 2 grams per hour,” she says. “This is lower than what a recent study showed the precision level to be, but is likely based on historical emissions data from a consensus-based test method. The second option uses a cordwood measure, which we agree is where these guidelines need to move in the future. However, we take issue with the EPA proposing an option that does not have a finalized consensusbased test method or a known completion date.” HHT’s position on the 2.5-gram limit mirrors Crouch’s sentiments. “We don’t understand the logic in setting an emissions limit at 2.5 grams per hour without this test method in place to develop statistically viable data,” Scheel says. “While the EPA believes this option will drive manufacturers to take up the cordwood option, which is what we all want, it may have the opposite effect. Until an approved and finalized test method is completed, it will be difficult for manufacturers to devote resources to developing a stove to meet the cordwood emissions requirement—and beyond that, we have no way of knowing whether the 2.5 gram-per-hour limit is reasonable since it was set without reliable data.”

Ackerly says in the previous NSPS and the new one, stoves are tested at four burn rates and then those four numbers are averaged. “So at the low-burn rate, a stove could emit 10 grams an hour, but if it does well enough at the high-burn rates, it can be certified,” he says. The proposed NSPS said that stoves had to be under 4.5 for all burn rates. “The idea was good, but the implementation was problematic,” Ackerly says.

W E

Scheel agrees. “It’s a positive step that the EPA abandoned the proposed high-and low-burn rate average with a cap,” she says, “and instead went back to the weighted average of all four burn rates, as this is a more accurate representation of consumer usage.” Ackerly also says that poor operation is widespread, however, which undermines advances that many new certified stoves technologies offer. “Ultimately, we believe that some types of automation are needed to prevent the widespread consumer misuse of wood stoves,” he says. “The attempt by the EPA to set a maximum-emission level while the stove is on its lowest burn rate was a good start. We had urged the EPA to more formally address alternative tests for automated stoves that hold tremendous promise to reduce widespread poor operation by consumers.”

Pellet Fuel Standards

The NSPS rule requires any new noncommercial wood-burning appliances to utilize fuel that has been graded as part of a licensing agreement with an EPA-approved organization, such as the Pellet Fuels Institute. For appliances such as pellet stoves, manufacturers will be required to state such claims in the owner’s manuals. Rather than designating one fuel standards program for the industry, the NSPS rule as written allows pellet manufacturers to choose among three programs, including the PFI Standards Program. The other two pellet standards programs are CANplus and ENplus.

“PFI has significant concerns that the current EPA language—allowing for U.S. pellet producers to choose among multiple standards programs—will cause more confusion than clarity among manufac-

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turers, retailers and consumers as they try to grasp what the different programs and fuel standards mean,” says Jennifer Hedrick, PFI executive director. “We are surprised that EPA did not choose the PFI Standards Program as the sole program for U.S. pellet manufacturers, despite the fact that the Pellet Fuels Institute has maintained a fuel standard for over 10 years and strengthened its testing requirements in more recent years at the specific directive of EPA. We are particularly disappointed and troubled that EPA has changed course and will now allow standards that do not incorporate the very components, such as routine testing, that EPA publicly stated were essential requirements of any fuel standard to be included in the NSPS rule.”

Hedrick tells Pellet Mill Magazine that the PFI standard is superior to the other programs because PFI has a third-party accreditation program and its standards require testing every 1,000 tons. Crouch says, “The appliance manufacturers are supportive of the PFI standards. The ones I have talked with are flabbergasted that fuel allowed under the NSPS can be audited only once a year.”

Perhaps the biggest effect on readers of this publication—pellet manufacturers—is the requirement for pellets to meet one of these three standards. “Pellet-fuel manufac30 PELLET MILL MAGAZINE | MARCH/APRIL 2015

turers will see this has a direct impact on their industry, and manufacturers now will need to participate in a fuel-grading program,” Hedrick says. “No longer is this a voluntary program for pellet-fuel manufacturers.” Of wood pellet product produced and consumed in the U.S. today, Hedrick says just under 50 percent is part of a program qualified through PFI. There are companies qualified through ENplus, but the bulk of that is sent to the EU, and product sent to the EU won’t need to meet standards under NSPS. Hedrick says this aspect of the rule will give consumers more clarity through product labeling, since the claims on pellet bags will match what the grade is and inform consumers to the testing.

“There’s a lot of confusion and misinformation out there today [with pellets],” she says.

Final Thoughts

Pellet stoves are an engineered fire, Crouch says, the keys to which are, for the fuel, knowing what each piece looks like, thanks to standards programs such as PFI’s, and for the stoves, the fan-forced air system.

All organizations are still digesting the final rule and, as Hedrick says PFI is doing, developing a list of questions for EPA to gain clarity on certain aspects of the regulations.

Seymour says the rule’s authors have injected

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confusion for manufacturers that make tremendous investments in testing and certifying their products, and EPA should address these questions quickly. He says thereâ&#x20AC;&#x2122;s also ambiguity as to what constitutes a residential heater.

Most agree, however, that the regulations will impact pellet stoves sales and design very little in the coming years. Crouch says three of the four regulated appliancesâ&#x20AC;&#x201D;including hydronic and forced-air heaters and some wood stovesâ&#x20AC;&#x201D;have major issues with step-two compliance. â&#x20AC;&#x153;Cordwood hydronic heaters will be heavily impacted by the step-two emissions limits,â&#x20AC;? Seymour says. â&#x20AC;&#x153;The fuel is the limiting variable given its moisture content and overall composition compared to densified fuels like wood pellets.â&#x20AC;? Ackerly says, â&#x20AC;&#x153;I donâ&#x20AC;&#x2122;t think these regulations will necessarily have any impact on the number of pellet stoves sold. In the long run, I think we will see the market share of pellet stoves grow, but that is mostly due to market forces, not any government regulation.â&#x20AC;?

Very basic, inexpensive indoor and outdoor boilers will be heavily impacted. â&#x20AC;&#x153;Many of those units will be going out of production and companies will have to design new ones that will be more expensive and likely be far higher in efficiency,â&#x20AC;? Ackerly says.

Ackerly says the winner under these new regulations is the consumer, both in terms of operating costs and improved health. And when thereâ&#x20AC;&#x2122;s winners, thereâ&#x20AC;&#x2122;s also losers. â&#x20AC;&#x153;The losers will be the small companies who cannot produce boilers that can meet the emission standards,â&#x20AC;? he says. â&#x20AC;&#x153;Some companies will be going out of business, and customers will go to companies who make the cleaner appliances. Among the losers will be some factories in China that made the really cheap, exempt stoves. Now, the American companies that make the cleaner stoves will not have to face that competition.â&#x20AC;?

Companies that make more efficient heaters will also be winners, Ackerly says, because the NSPS requires the disclosure of efficiency for the first time. Over the next five years, consumers will have more and more access to reliable efficiency values and â&#x20AC;&#x153;that will drive sales to the companies who make the higher efficiency stoves,â&#x20AC;? he says. Scheel says HHT appreciates that there is required reporting of efficiency with no minimum, versus allowing the default efficiency to be used, as this is ultimately good for both consumers and the

industry. She says HHT disagrees, however, work to set efficiency standards, which all othwith the requirement of carbon monoxide er HVAC equipment have. Once testing with reporting, because as emissions are lowered, cordwood starts and there are minimum efficarbon monoxide levels will also be reduced. ciency standards, Ackerly says wood and pellet â&#x20AC;&#x153;So this requirement only sets the stage for the heaters will be positioned to become mainEPA to gather information to allow them to stream energy options that can more readily set another limit on wood-burning stoves in be embraced by scores of programs. the future,â&#x20AC;? she says.

Author: Ron Kotrba Ultimately, the NSPS is important in that Senior Editor, Pellet Mill Magazine it lays the groundwork to test and certify all 218-745-8347 heaters with cordwood eight years from now, rkotrba@bbiinternational.com 9 ELRPDVV ,VODQG 3DJH during the next NSPS. It also lays the ground-

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« MARKET RESEARCH

Gauging Customer Likelihood Of Purchasing Biomass Heating

I

n early 2012, while moderating a focus group investigating consumer attitudes about a new, green HVAC product, the staff at the Illinois Institute for Rural Affairs at Western Illinois University made a handful of discoveries about consumer attitudes that warranted more inquiry.

The group suggested that biomass residential heating solutions were certainly a more natural and environmentally benign way to heat homes, but were ultimately too laborious to maintain. This premise prompted follow-up research that revealed that the biomass heating industry’s marketing communications were not addressing the ease-of-use issue.

In business, correct strategy is more important than correct execution. If the

strategy is wrong, then everything that follows––product, advertising, and pricing––is likely to be wrong too.

To research the business strategies of the biomass residential heating sector, the research team at the IIRA approached the USDA’s Federal State Marketing Improvement Program with a research proposal to address marketing strategy issues in the biomass heating appliance industry. FSMIP agreed to partially fund a market segmentation study.

Marketing Segmentation

Segmentation involves separating the total group of potential buyers of a product into two or more subgroups. In today’s big data environment or networked world, it has become fashionable to talk about in-

dividual, micro, or segment-of-one marketing. We believe that this approach to mass customization is not yet scalable for most, if not all, businesses. Consider the difficulty of profiling millions of “other-brand users” or competitors’ customers and nonusers of the product using Web intelligence such as social media, and then tailoring offerings to each one of them. The enormity of such a project dictates that it will never be undertaken.

In fact, a true mass customization strategy would require a company to secure access to the most valuable data (for example, salesforce feedback, current and past customers’ feedback, potential customers’ needs, etc.), and develop unique or competitive advantage-generating insights by combining advanced analytics with cre-

The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Pellet Mill Magazine or its advertisers.

All questions pertaining to this article should be directed to the author(s).

32 PELLET MILL MAGAZINE | MARCH/APRIL 2015

MARKET RESEARCH »

ativity. The reality, however, is marketing executives largely report that their companies have access to only basic demographic information on each customer, and fewer than 4 percent say that they have the analytical skills to gain marketplace insights from big data analysis (Harrysson et al 2012).

In short, if companies don’t group potential buyers into segments, their marketing efforts would regress toward a theoretical “average” customer and thus would fail to deliver results in the marketplace.

Research

To understand and generate customer segments for the biomass residential heating sector, the team at IIRA engaged in three types of research: situation audit; qualitative research, and quantitative research.

A situation audit consists of background or secondary research into all factors that could affect company or industry performance. Qualitative research or, more specifically, interviews with potential and actual customers of biomass home-heating products, is completed to gain information about people who use those products and their opinions about the product category.

Adding quantitative research, in this case, a consumer survey, to the prior qualitative research allowed the research team to classify more precise target market subgroups or market segments, and profile those market segments.

Briefly, the situation audit revealed that: • The pellet stove product category is in the growth stage of its life, and biomass-furnace category (central heating) is in the introductory stage of its life.

• The industry’s expenditure on advertising and marketing is a low 0.5 percent. In general, for products in the introductory or the growth stage of life cycle, not only must the product be readily available, but the buyer must be aware of the product and its

Consumer Survey Since customers will differ in their assessments or evaluations of biomass home-heating solutions, we utilized a questionnaire survey to capture these natural clusters or segments in the marketplace.

For the survey, the head of households in the Lower 48 states in the U.S. were the population of interest. Households were defined broadly so as to include a house, or a single room that is occupied and which had direct access from outside the building. We surveyed 25,000 households using a mail questionnaire.

The survey was designed to facilitate market segmentation using both attitude and purchase intention measures with questions such as the following:

How much do you like or dislike biomass residential heating?

(Dislike a lot -2 -1 0 +1 +2 Like a lot)

If you were going to buy a residential heating appliance for home use in the next 12 months, how likely would you be to buy a biomass heating appliance?

• Certain (99% or more chance) • Practically certain (90% or more) • Almost sure (80%) • Very probable (70%) • Probable (60%) • Good possibility (50%) • Fair Possibility (40%) • Some possibility (30%) • Slight possibility (20%) • Very slight possibility (10%) • No chance (0%)

Note that attitude is an overall evaluation of biomass heating based on purchase criteria such as safety, cost, and ease of use.

The entire questionnaire can be downloaded it from: www.instituteintelligence.com

MARCH/APRIL 2015 | PELLET MILL MAGAZINE 33

benefits. Given a 0.5 percent sales-toadvertising ratio for the industry, it is doubtful that customers are being educated about biomass home heating.

The qualitative research consisted of 30 husband/wife interviews. It helped the team learn that: • Biomass home heating is a new form of a product in a familiar product class, namely home heating.

• The consumer evaluates biomass heating products as better or worse on these choices or purchase criteria: safety, cost and labor intensiveness.

Results

The survey revealed two customer segments. Group 1, or the biomass-loyal segment includes respondents who reported they had a higher than 80 percent probability of buying a biomass heating appliance.

Group 2, or “other loyal” reported having “very slight possibility” (10 percent chance) or lower of purchasing a biomass heating appliance. The target cluster, the biomass loyal, has 32 percent female head of household compared to 40 percent females in the other loyal segment. The median age is 52 for cluster 1 and 58 for cluster 2. Education wise, a typical group 1 member has a bachelor’s degree, works for pay and lives in a home built on or before 1970 valued at around $250,000. Based on the survey results, one-third of the households in the Lower 48 (44.3 million) can be classified as biomass loyal.

Gaining social approval, living an active or exciting life, and a mature understanding of life or wisdom are the primary motives that influence the biomass loyal segment to engage in purchases that satisfy their life goals of competency and affection. Indeed, research by Athiyaman (2013, 2014a) shows that households with biomass heating tend to have members with do-it-yourself men-

MARKET RESEARCH »

tality (capable members) and often, the love for their family influences biomass heating appliance purchases.

Additionally, it was discovered that the primary heating equipment (that is, the heating equipment that provides the most heat for the home) for the biomass-loyal segment is electric or natural gas-powered central furnace with ducts to individual rooms (48 percent), followed by heating stove that burns wood or biomass pellets (29 percent). Practically, these findings boil down to one simple conclusion for the biomass heating sector: To increase topline revenue, target group 1 households (biomass loyal) with 10-plus years-old primary heating equipment (Athiyaman, 2014b), would, at a high likelihood (80 percent chance), need to buy a biomass heating appliance to replace their old central furnace.

In general, the biomass-loyal segment relies more on interpersonal sources of information. Among commercial sources, newspaper and magazine ads are consulted to gain information about biomass heating: Home service-type magazines are read by 33 percent, and 45 percent subscribe to an area newspaper.

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ÂŤ MARKET RESEARCH

Online App

As mentioned the heating appliance industry would be wise to target biomassloyal households that have 10 years or older primary heating equipment. To identify such households in the lower 48 states, we developed an interactive computer application based on the heuristic algorithm shown in Figure 1.

The heuristic program highlights that not all geographical locations are attractive markets for the biomass residential heating sector. Using this heuristic in screening potential markets allows the retailer to concentrate on the one-third of the households in the Lower 48 that are biomass loyal. Their time is put to much better use in screening and evaluating a finite number of concentrations of demand.

To insure targeting that segment of the households producing the greatest revenue, the program evaluates N micro segments or clusters of households that have 10-plus years-old primary heating equipment; N ranges from 1 = heat pump, to 8 = hydronic heaters. Then, it eliminates from consideration clusters that do not meet or exceed profit objectives; of course, the profit objective has to be input by the manager.

Finally, the bumped micro clusters are assessed for their potential to increase sales

PUTTING PENCIL TO PAPER: The interface developed as an extension of this research allows appliance retailers to pre-qualify selected markets. The application allows users to input both the anticipated sales price as well as the cost-of-sale. The application then calculates the expected profit opportunity within existing customer segments

of residential heating products of different forms, for example, electric or gas central furnaces. Think of it as a scenario analysis of lost sales to competitors.

The interactive app is available online at www.instituteintelligence.com. At the moment, it is available only for Illinois,

36 PELLET MILL MAGAZINE | MARCH/APRIL 2015

however, anyone with knowledge of object-oriented programming can calibrate the heuristics model for any state.

The app starts with geographical input.

Once the county is chosen, the manager will be asked to input the expected sales revenue per customer or household in the

MARKET RESEARCH »

geographical region. For demonstration, we use $1,500 as the expected revenue per household, which, according to the Alliance for Green Heat, is the selling price of a pellet stove. Then, the manager will input the cost of sale per customer. Again, we use $42 as cost of sales per customer (Athiyaman, 2015a).

Based on these two numbers, the application will compute expected profit margins for a set of eight segments, the eight segments are shown in Sidebar 1. Finally, based on the managerial input of profit ob-

jective, the program will list the attractive segments, and highlight the implications of bumping segments.

of these two groups and in high likelihood waste resources on average customersand might imagine positioning the product as a low-cost alternative to home heating when the actual benefit sought is “ease of use” of the product.

To insure that the industry targets this segment, we have developed an interactive computer application that highlights households that would produce the greatest revenue for the industry. The program evaluates eight microsegments or clusters of households that have 10 plus years-old primary heating equipment ranging from heat pump, to hydronic heaters, and eliminates from consideration clusters that do not meet or exceed company profit objectives.

In conclusion, this research facilitates the biomass residential heating sector to target the right customer. It is now up to the industry to utilize the tools and optimize the marketing program.

Summary And Conclusion

Our research has shown that the biomass residential heating industry operates in a marketplace populated by two different groups of customers: one who likes biomass heating and the other group with little or no intention of adopting biomass heating. Without our research, the biomass industry will be targeting the average

Author: Adee Athiyaman Professor of Marketing, Illinois Institute for Rural Affairs 309.298.2272 a-athiyaman@wie.edu

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