🔒Switching to wood pellets | Maine-made appeal rekindles nascent industry

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When Chris Lheureux's security business outgrew a small warehouse at his home in Dayton two years ago, he went on the hunt for roomier commercial space. With limited options in this rural town just west of Biddeford, Lheureux chose an unorthodox home for his fire and burglar alarm company: an old chicken hatchery.

Outfitting the space to house an office and warehouse meant a full renovation of the property, including its dated heating system. An old oil-fueled steam boiler had warmed the building during its poultry days, but Lheureux made an interesting discovery. "The cost was the same whether I put in a pellet heater or boiler versus a regular boiler," he says. So he had Evergreen Heat of Old Orchard Beach install a 130,000-BTU pellet furnace at the property. This year, Lheureux expects to spend about $1,600 on eight tons of wood pellets to heat Maine State Security's office and warehouse. "I've got to be saving easily a couple thousand dollars a year," he says.

Despite the upfront cost, and lack of tax credits or the other incentives often associated with renewable heating systems, Lheureux has no regrets about his investment in pellet heat. "We've been so happy with the pellet system and the way it's heated that we bought a pellet system for our home," he says.

Lheureux buys pellets from the Wood Pellet Warehouse in Jay, which distributes for Maine Woods Pellet Company in Athens, one of four active pellet manufacturers in the state. "Even if you didn't save money, at least I'm putting money in Mainers' pockets, not in Venezuela," he says. Plus, burning oil would mean he could afford to heat only the 1,200-square-foot office in his building. "If I was doing it with oil, my parts room and my garage would not be heated," he says.

The industry's take

Maine's pellet industry is banking on business owners and residents like Lheureux, who value keeping their energy dollars in state. After getting off to a running start three years ago — when press releases sought to allay consumer panic over a feared pellet shortage — the industry's profile dipped, as other alternative energy sources took center stage, bringing tax credits and incentives with them. "If you read the newspapers, you'd think all the new energy work was being done in wind and solar and tidal," says Dutch Dresser, COO of Maine Energy Systems, a pellet boiler company in Bethel, and president-elect of the Maine Pellet Fuels Association. "Our industry has grown itself, with no help from anybody. It has sort of made us the little voice at the table."

Efficiency Maine has doled out funds for pellet and biomass projects, but has no plans for more allocations with stimulus funds exhausted. "Right now, we have no funding for new pellet heat projects for businesses," says Efficiency Maine's Ian Burnes.

While installing a pellet stove in a living room or small office for supplemental heat costs a few thousand dollars, central heating systems run north of $15,000, much more than a typical oil furnace. Many cash-strapped businesses just don't have the upfront capital to make the conversion.

As businesses wait on hoped-for government incentives to convert to pellets, a number of public facilities have made the switch with help from federal stimulus funds. More than $11 million in renewable energy grants funded through the American Reinvestment and Recovery Act, a whopping 23% of the $50 million awarded nationally, went to 22 projects at school systems, colleges, hospitals and other facilities in Maine that switched from oil-fired systems to wood pellet and biomass boilers.

So how's the market looking this year? "I wouldn't say it's back on the same path of growth it was on, but it's growing," says George Soffron, CEO of Corinth Pellets and the pellet fuel association's current president. He estimates the industry is replacing 20 million gallons of heating oil a year in Maine, worth $74 million annually at current oil prices. With 75 cents of every oil dollar leaving the state, that translates to a roughly $55 million impact on Maine's economy, he says.

Volatile oil prices have nudged consumers back toward pellets, which fluctuate with the cost of wood but tend to rise at the inflation rate, Dresser says. Maine Energy Systems, which offers unbagged bulk pellets for home delivery, is planning on prices no higher than $239 a ton through June 2013. That's the equivalent of oil at $1.99 a gallon. Lheureux at Maine State Security says he paid $220 a ton his first year, $199 a ton in 2010 and $204 a ton for his bagged pellets this heating season.

Fears that the pellet supply will dry up also have faded as consumers see their friends and neighbors installing the systems, Soffron says. "The 'Gee, it's too new for me' argument is disappearing," he says. None of Maine's four active pellet mills — located in Corinth, Athens, Strong and Ashland — is operating at full capacity. An inventory glut, triggered in 2008 when manufacturers ramped up production to meet demand from anxious consumers and retailers as oil prices soared to $4 a gallon while financial markets nosedived, continues to shake out, he says.

Meanwhile, bagged pellets produced in British Columbia and in southern states are competing with Maine-made pellets, showing up on pallets at Walmart, The Home Depot, Lowe's and other large retailers. Pellet makers in the state are betting their quality product and Maine-made appeal will lead to a strong season this year.

Southern pellet makers are also taking advantage of a strong export market for wood pellets, as European power plants and other industrial users turn to the fuel source to meet Kyoto Protocol air emission standards. "We're getting a lot of interest from overseas, for domestic residential use and also for larger European utilities," Soffron says. He traveled to Europe earlier this year to meet with several utilities that use more than 6 million tons of pellets a year combined, and thinks Maine's proximity to the continent and its clean-burning pellets could find a toehold. "We've been looking at it, and it's very promising," he says.

Pellets on a larger scale

While most of Maine's pellet industry remains focused on local residential customers, a new pellet heating system at one of Maine's most recognizable companies, believed to be the largest installation of its kind in the Americas, is generating momentum for industrial applications.

The Jackson Laboratory explored a number of alternative energy sources in recent years. With 1,400 employees and hundreds of mice to keep warm on its Bar Harbor campus, the nonprofit looked into liquefied natural gas, piping in natural gas from Bucksport and building a co-generation plant on campus, among other options.

For reasons financial, practical and legal, none worked out. But on a recent August day, all 800,000 square feet of the lab's campus were heated without a drop of oil. Jackson Lab has just installed a wood pellet-fired boiler that will displace 1.2 million gallons of No. 2 heating oil annually, reducing the lab's oil dependence by 75%, says project manager Norm Burdzel.

Housed in a new 4,000-square-foot energy center, the boiler will run in conjunction with six existing oil-fired boilers to meet higher demand for heat during colder months. Also part of the project is a steam turbine that will run off the boiler to produce 2.2 kilowatt-hours of electricity. The $4.4 million project, funded in part by a $1 million Efficiency Maine grant, is projected to save JAX roughly $2 million a year. "Economically, the project's gotten better for us as the price of oil goes up," says John Fitzpatrick, who oversees the lab's engineering and building projects.

The lab has locked in five-year fixed-price contracts for bulk pellets with Geneva Wood Fuels in Strong and Maine Woods Pellet Co. in Athens, at a rate averaging the equivalent of oil at $1.69 a gallon. The lab will receive at least one delivery a day from a 32-ton H.O. Bouchard truck, which dumps the pellets into a silo. The pellets are then milled into dust that fires the burner, burning just like a liquid fuel. JAX expects to burn 11,000 tons of pellets a year.

Bulk delivery hasn't yet become a cost-effective way to supply smaller users, who are often spread across rural parts of the state, but JAX officials hope to see pellets take hold in Maine. Fitzpatrick says with the new boiler, $24 million of the lab's money will stay within a 200-mile radius of its campus over the next decade. "I'm a big believer in trying to support the Maine economy as much as we can," he says.

Jackie Farwell, Mainebiz senior writer, can be reached at jfarwell@mainebiz.biz.

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