Archive for the ‘Cost Savings’ Category

Why Was There a 2014 Wood Pellet Shortage? These 10 Reasons Might Surprise You.​

1. Can You Say Polar Vortex?

Polar Vortex

It wasn’t just cold, it was downright Antarctic.  And we heard the same story repeated again and again from our customers – “I thought I had ordered enough wood pellets to get me through this winter, but I came up a ton short”.    Now multiply that same experience by the 500,000 stoves in New England and you start to see why there was such a drastic shortage.

The problem was made worse by the extremely cold weather in the Midwest as well.  Pellet consumers in the Midwest consumed much more fuel than normal; fuel that might have found its way to the Northeast market. And sadly – according to data on weatherunderground.com, cold temperatures in the Northeast have simply returned to their longer term averages.  Does this mean that we should expect this kind of winter every year?  Let’s hope not.  But maybe you should buy enough pellets each year to get you comfortably through one of these “arctic” winters. Remember, if you properly store your wood pellets they can last many years.

2. Fossil Fuel Head Fake

Head fake! (Maddie Meyer/Getty Images)

(Maddie Meyer/Getty Images)
 

Most of the pellet stoves in New England are used to supplement the home’s primary heat source – typically gas, heating oil, or propane. Because using wood pellets to heat your home takes more effort than using fossil fuels, consumers must weigh this added “hassle” of wood pellets against their estimated savings.

When the spread in price between pellets and fossil fuels grows, consumers tend to utilize more pellets for heating.  But a strange situation developed last year.  Decisions were made last spring and fall (2013) regarding which heating fuel to pre-purchase based on low gas, oil, and propane prices.  Many consumers chose to purchase smaller quantities of pellets figuring they would rely more on fossil fuels for their primary heat source. But when the prices for gas, oil, and especially propane began heading higher in the early part of winter, consumers began to switch to the now much less expensive option of wood pellets.  In basketball, they call this a ‘head fake’. In this market it’s called “pellets sold out”.

It’s no coincidence that the last time we saw pellet shortages was in 2007-2008 when the price of oil rose to almost $150 a barrel. The quick lesson here is that being prepared is your best protection from these “head fakes”.

3. Pellet Exports

Wood Pellets
Did you know that over two million tons of pellets were exported to Europe in 2013?  Granted, much of this export volume is for commercial grade bulk pellets used to replace (or co-fire) coal at European electricity generation plants – and not for home heating.

But these large mills are competing for some of the same raw materials used to produce heating pellets – thereby reducing the amount of wood fiber (a key ingredient) used to produce regular heating pellets. And if you’re a banker looking to invest in this green energy sector, which mill are you going to lend money to help expand their production? The mill with a ten year supply agreement to a German utility – or the mill that sells pellets to a bunch of mom-and-pop stove shops?  That is why we are seeing tremendous new investment and capacity of utility pellet plants down south where labor and raw materials are less expensive; and relatively little expansion of mills producing heating pellets.

But it isn’t just utility pellets being exported to Europe.  Pellet stoves and whole-house pellet boilers are very popular in many countries including Germany, Italy, and Austria.  And because local European mills have failed to keep up with this demand, pellet fuel suppliers have turned to the United States and Canada for a new source of supply.  For example, some wood pellet suppliers right here in the Northeast are already shipping large volumes of bagged pellets overseas.  It’s hard to estimate how much volume is being redirected to European customers, but it’s significant – and getting bigger every year. And isn’t it interesting that exports get so little attention and media coverage in relation to this shortage?

4. Horsing Around

Horse Bedding

(thehorse.com)
 

Still another competing use for wood pellets that gets little attention is its use as horse bedding. Equine wood pellets provide a couple nice advantages over traditional shavings including being easier to store and more economical.  Equine pellets also do a better job of absorbing horse urine – ala cat litter – and have been demonstrated to absorb up to 3 times as much as shavings.  And because they are free of any chemicals, mold resistant, and dust free – many consider wood pellets to be healthier and safer for horses.

Granted this market is still relatively small, and probably didn’t have as big an impact on the shortage as those reasons already discussed.  But supply agreements with large stables are both profitable and highly valued – and would merit suppliers keeping these customers well stocked with horse pellets ahead of heating customers.

5. Box Stores Don’t Get A Free Pass

Big Box store wood pellets
You can’t explain away pellet shortages without mentioning the effect that the mighty box stores have had on this industry.  Box stores have become a major supplier of wood pellets in the last five years.  Their aggressive pricing has gotten them many customers – but at a major cost to the stores themselves, the rest of the industry, and the customers.

By selling pellets so cheaply (and in some cases below cost), box stores have engaged in a form of ‘predatory pricing’ – defined as setting pricing so low as to drive competitors out of the market.  These low prices create much higher demand for box store pellets than would otherwise exist.  Many pellet retailers find it difficult to compete against the box stores and have all but given up trying. As a result, the number of competitors in the pellet market is now much smaller – and consumers are provided with less choice.

Mills that sell to the box stores usually compete on price alone – and have tremendous incentive to cut costs.  But here’s the rub. Cheaper bags and skids, lower quality raw materials, and reduced quality control standards are just some of the ways mills might adjust to the box store pricing pressure.

Furthermore, pellet mills that don’t sell to box stores are also being affected as they struggle to compete against these subsidized box store prices by focusing on other alternative products (like wood bricks) or ‘higher end’ premium pellets.  Pellet mills like these typically produce lower volumes, and are unable to quickly scale up production to meet higher demand.

6. Stove Sales Growth

Wood Pellets

With the last run-up in energy prices in 2008, pellet stove sales reached as high as 100,000 annual units – and consumers were put on waiting lists for new stoves.  But as oil and natural gas prices have come down significantly in recent years, so too have the sales of pellet stoves.

2013 saw the return of sales growth with the corresponding spike of natural gas and propane.   Some estimate that between 50,000 to 60,000 new pellet stoves were added in 2013. This translates into over 150,000 new tons of pellets required to feed them – the equivalent of two medium sized pellet mills total annual production.  And with new state subsidy programs becoming available – this number is only going to grow.

7.  Drill Baby Drill

wood pellets now used in drilling

Pellet exports and horse bedding aren’t the only new uses for wood pellets that are having an impact on this shortage. Pellets are now being used commercially by the oil and gas industry for a number of important roles. First, wood pellets make a great cleaner for absorbing oil and solvent spills. And because they are better and cheaper, pellets are replacing traditional clay based products that had been in use for decades.

Wood pellets are also used to filter and clean water used in fracking, as well as helping to slow the fluid loss for drilling operations in porous layers. And as a result, drillers are able to use much less water in the process.

Ok, so some of our heating pellets are being used by the oil drillers. But at least you can take solace in the fact that they are also being put to use in helping to clean up our environment.

8.  Another Mill Bites the Dust

Wood Pellet Mill

Making pellets is dangerous work. If the dust from the manufacturing process isn’t managed properly, it can cause explosions and create dangerous fires. Unfortunately, that’s exactly what happened to a few mills this winter.  In fact, fires and explosions affected two mills right here in New England.  One mill was able to quickly recover from a fire – but the other mill has been shut down and has long since stopped shipping any new pellets.

9. Pellet Shortages Beget More Shortage

Shortage
(Mike Stobe/Getty)
 

As soon as the media started covering and reporting on the pellet shortages, what little availability disappeared almost overnight.  Should we be surprised?  Much like food and water, heat can be considered a must-have necessity that can easily lead to hoarding, desperation, and price gouging.  We saw examples of gas shortages with hurricane Katrina, and again with Sandy.  Even a big winter storm here in New England can cause a stampede to the grocery store where the shelves quickly turn empty.  The same psychology was unleashed this winter with pellets. When pellet retailers start arming employees with guns – as some news sources reported – you know things have gone from bad to worse.

10. Pellet Mills

mill

(Gordon Murray/Wood Pellet Association of Canada)
 

The wood pellet industry is historically a tough, low margin business that is hard to turn a profit. Pellet mill producers simply can’t afford to have very much unsold inventory in their warehouses come spring.  Excess inventory can be devastating to a mill’s financial health (at least in years where there isn’t a pellet shortage).  Therefore each year, they carefully estimate how much production they’ll need to meet demand – and try to minimize any overproduction and excess inventory.

This job of estimating demand is made much harder by the fact that so many pellet consumers now wait until the last minute to buy their fuel – long after the mills have finalized their production plans.  So when we endure an extremely cold winter like we had this year and demand is underestimated – it’s too late.  Six months prior, the mills have already bought (or contracted) the raw materials needed to produce their volume targets.  Even with mills only running at partial capacity – many pellet mills are simply unable to dial up more production.  In many cases, there just isn’t any raw materials to do so.

An important takeaway in all this is that we may not have a capacity issue with the pellet mills. Rather, we have an order timing and weather prediction issue.  But with so many new and competing uses for wood pellets, future shortages can’t be ruled out. By buying your pellets in the Spring (or early Summer), you’ll not only secure your fuel ahead of the crowd, you will also help the mills better plan for winter demand.

Paul Tlapa
WoodPellets.com

Please visit us online at http://www.woodpellets.com or call us at 1-800-PELLETS to find availability and delivery options in your area.

State of NH makes it even easier to compare cost savings with wood pellets!

Exciting news! The  state of New Hampshire has added wood pellets to the list of fuels on its savings calculator, making it even easier to see just how much you’re saving with wood pellets instead of oil, propane, or other sources of heat. Just enter the current pricing of the fuels you want to compare, and voila! You have an instant calculation of cost per million BTU, letting you compare apples to apples and find out how much your heat actually costs.

Questions, comments, observations? Sound off here!

Model Neighborhood Project helps NH residents cut heating costs by up to 50%!

The Northern Forest Center in Berlin, New Hampshire is launching a new program to support the local economy, reduce residents’ heating costs by up to 50%, and reduce environmental impacts associated with home heating.  The Model Neighborhood Project is sponsored by Berlin BetterBuildings, the City of Berlin, and Maine Energy Systems and funded by corporate and individual donors to cover up to 75% of the cost and installation of a wood pellet boiler system for local homeowners.

According to the Concord Monitor, the Model Neighborhood Project is hoping to help convert up to 40 homeowners in Berlin over the next two years. This means that 40 homes and/or municipal buildings are going to switch from fossil fuels to wood pellet heat… and we think that’s fabulous!

Think about it: for every home that switches from imported oil, that’s money saved each year (probably 40-50% of heating costs – our average customer saves nearly $700 a year by heating with wood pellets instead of oil)!; and 100% of the money each homeowner does spend on heat will stay in the local economy. And on top of the financial savings, that’s somewhere in the neighborhood of 7 tons of greenhouse gases saved per household, per year!

If you’re lucky enough to live in Berlin, NH, contact Mike Wilson at mwilson@northernforest.org for participation details. And if you don’t happen to live in Berlin, check out some of the great state & local programs sponsored in your area.

NH Senator Jeanne Shaheen visits WoodPellets.com!

New Hampshire Senator Jeanne Shaheen visited WoodPellets.com on Monday, and we couldn’t have been happier to host the Senator here at our Goffstown office! Sen. Shaheen met with leaders of the renewable energy industry, including our own president Jon Strimling, to discuss the future of wood pellet heating in America. Wood and wood pellet heating is growing quickly in this country, and here in the Northeast in particular. We’re proud to work with our government representatives to make sure wood pellets are affordable and sustainable, even as more and more people choose to heat with this green resource.

Why did you switch to wood pellet heat? Was it to support a local industry, or to save money on your heating bills? Or maybe to reduce your carbon footprint? Whatever the reason, sound off here!

From left to right, Jon Strimling (President, WoodPellets.com), Lou D'Allesandro (NH State Senator), Senator Jeanne Shaheen, Mary Collins (Small Business Development Center State Director), and Hollis McGuire (Small Business Development Center Regional Manager). Photo credit: Melissa Paly, Cross Current Communications.

How I Saved $1390 with Wood Pellets

Just thought I would share my most recent pre-buy from Irving on propane.

This year they are quoting $2.89 vs $2.29 from last year.

Just to put this into perspective, if I had to pre-buy a full 1,500 gallons (as we did last year) – that would have cost me $4,335.00 (cash up front) to heat my home.

I have all but replaced 500 gallons (used to heat my hot water) with my pellet stove.

So at $289 x 1,000 gallons = $2,890 is my savings from Irving.

Minus the cost of 6 tons (say $250 per ton) to heat this year =  $1,500

Gives me a net savings of $2,890 – $1,500 = $1,390

Gotta love pellets!

-Paul, new stove owner in 2011

Save money & secure your family’s energy needs – make your home a hybrid

One of the most common questions we get here at WoodPellets.com is: “How much will I save on my heating bill when I switch to wood pellets?” And the answer is, LOTS. Our average customer will save $682 this year by heating with wood pellets instead of oil, and even more compared to propane.

BUT, there’s another benefit to heating with wood pellets that’s a little less tangible, but just as important: the security of knowing your home is a hybrid. When you diversify your home energy system with a highly efficient and renewable source like pellets, you’re declaring your energy independence. You’re ensuring that you have options to keep your family warm, your lights on, and your costs down, no matter what’s happening with oil supply or propane prices.

We just read a pretty inspiring blog post by Martin LaMonica of CNET, explaining why he made his home a hybrid. His honest assessment of payback and benefits is a great indicator of what you – the typical homeowner – would likely see.  And we think it’s exciting to know that taking a few steps to supplement your heating or electricity systems with a renewable source will secure your energy needs, on the grid or off, no matter what.

What are your thoughts about hybrid homes? Tell us your story here!

NECN highlights savings with wood pellet heat!

NECN covers the benefits of heating with wood pellets.Check out this great spot on the benefits of wood pellet heat from NECN last night!

NECN reporter Lauren Collins interviews folks who’ve been heating with wood pellets and learns about the cost savings they’re enjoying over heating oil and other petroleum-based fuels. Also interviewed are Barbarba Bernstein of the NH Public Utilities Commission, who reminds NH homeowners that they can take advantage of a 30% rebate (up to $6,000) on the installation of an approved, high efficiency, bulk-fed pellet boiler or furnace, AND our very own Jon Strimling, CEO here at WoodPellets.com, who highlights some of the many other benefits of heating with wood pellets.

Of course, as a savvy wood pellet consumer, you already know that you’re helping to create jobs here at home, contribute to the most efficient use of wood resources, and reduce your carbon footprint – all while saving yourself a pretty penny on your heating bills.

So, this makes us want to hear your story – why did you make the switch to wood pellet heat? What did you used to heat with? And what are you saving by heating with wood pellets?