March 17, 2010

Heating with wood pellets gets Otten fired up

TUX TURKEL

— By

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Jack Milton/Staff Photographer: Les Otten Tuesday, May 6, 2008.

Jack Milton

Staff Writer

A Maine entrepreneur wants to convert tens of thousands of homes in the Northeast from oil heat to wood pellets through an ambitious new business venture.

Former ski resort owner Les Otten of Bethel is investing $10 million to launch Maine Energy Systems, a company that will manage all facets of the conversion, from importing European pellet boilers to installing the heating systems and delivering the fuel.

The company plans to begin installing systems this summer. It will focus first on homes in and around Lewiston- Auburn, Cumberland County, Augusta, Rockland and Oxford County. In five years, Otten hopes to switch 10 percent of Maine homes burning oil -- roughly 44,000 residences -- to wood pellets.

The company also plans to expand to New Hampshire, Vermont, Massachusetts and New York.

Pellet-fired central heat is common in Europe; it's the dominant system for new homes in Austria, for instance. But pellet heat is unprecedented in the United States on the scale Otten is proposing. Otten and his partners are betting that American consumers will embrace the concept. Customers, who would be counting on Maine Energy Systems to deliver pellets and service their equipment, would be taking a leap of faith along with the company.

As Otten launches his business, he can count on oil dealers to encourage consumer skepticism. While a few of them are selling wood pellets and diversifying to other energy sources, most rely on selling oil and related equipment for the bulk of their revenue.

Consumers should be cautious about switching out of oil to save money, according to Jamie Py, executive director of the Maine Oil Dealers Association, because energy prices today are very volatile.

''Oil prices could drop anytime and wood pellet prices could rise,'' Py said. ''You've got to look past the hype.''

If Otten's venture does succeed, it could have a transformational effect on Maine's energy scene: Four out of five homes in Maine are heated with petroleum products, the highest share in the country.

By switching to wood pellets, Otten calculates, the average Maine home could be warmed for half the current cost of oil. If 44,000 homes made the switch, residents could save $78 million a year on heating bills, based on current costs.

Harvesting the wood and installing the equipment would create more than 1,500 new Maine jobs, according to estimates. The switch also would have positive effects for the environment, cutting carbon dioxide emissions linked to climate change.

Otten and his partners have been working on the project for months, aiming to capitalize on high oil prices. Their market timing is nearly perfect: Crude oil has gone above $120 a barrel, with no relief in sight.

Despite its potential, Maine Energy Systems must skirt several obstacles.

The most basic risk is that oil prices retreat to levels that offset the cost advantage of wood heat. Also unclear is whether enough certified technicians can be trained quickly enough to meet the expected demand for installation and service.

That projected demand partly assumes homeowners will take advantage of loan programs being set up, initially at Lewiston- based Northeast Bank. A typical pellet-fired central heating system costs $12,500, but the company calculates that the average home, burning seven tons of pellets, will save roughly $2,300 a year.

At current oil prices, a homeowner could see an annual net savings of more than $1,000, after paying for fuel and payments on the system, according to the company.

''This is like a giant social experiment,'' Otten said. ''Our surveys show people want to switch from oil, but are they really going to do this?''

Otten is well aware that a pioneering investment can bring both success and failure.

He bought the Sunday River ski area in 1980, using it as a foundation to create the American Skiing Co., which ultimately included Sugarloaf and resorts in five other states. But aggressive expansion and heavy borrowing led Otten to lose control to a venture-capital firm, and the resorts have since been sold.

Otten, who stepped down last year as a minority partner of the Boston Red Sox, also has been active in real estate development and other business ventures. Most recently, he has taken an interest in renewable energy issues and heads a wood-to-energy task force formed by Gov. John Baldacci.

Otten is the lead investor in Maine Energy Systems. His other partners are William Strauss, president of the FutureMetrics financial forecasting firm, and Harry ''Dutch'' Dresser, a former Gould Academy associate headmaster.

Experts who are familiar with the venture say it has enormous potential for both Otten's company and Maine's economy, if all goes as planned.

Otten is smart to make a big, early entry into an evolving market, according to Charles Spies, a former chief executive of the Finance Authority of Maine, because he can capture more customers ahead of competitors.

''There's a lot of risk,'' said Spies, now a program director at CEI Capital Management LLC and a member of the wood-to-energy task force. ''But if it pans out the way Otten thinks it will, the returns will be better. Entrepreneurs love that kind of environment.''

Market penetration could falter if oil prices fall, Spies said, or if the company can't generate enough demand to support its delivery network. Wood pellets are readily available in Maine, but most hardware stores, stove shops and home improvement stores sell and deliver them in bags, not in bulk form.

Another question is whether buyers will balk at spending $12,000 for pellet heating systems, an expenditure that's nearly twice as high as a typical oil boiler.

The initial cost also raises questions for Patrick McGowan, Maine's conservation commissioner. He wonders if Mainers instead will choose less-costly pellet-burning stoves over new central heating systems, for supplemental heat.

''It's going to have to be a hell of a selling job to get people to tear out their oil furnaces and convert,'' said McGowan, also a member of the wood-to-energy task force.

''But I think Les's motto is, go big or go home.''

In recent conversations, Otten acknowledged these and other risks. Wood pellets, he said, are only a partial answer to Maine's energy problems. But it appears to be one that offers the best hope for his company, consumers and the state's economy.

''What's crazy,'' Otten said, ''is to have 80 percent of our energy coming from a single source that we have no control over.''

The high-efficiency boilers that Maine Energy Systems will sell are made by Bosch Thermotechnologies, an arm of the large German appliance maker. They incorporate a burner made in Sweden by Janfire AB. The equipment is fully automated and safety certified in the United States.

Maine Energy Systems also has pellet supply contracts from mills in Maine and Canada. It plans to set up distribution centers around the state. A fleet of delivery trucks will pump pellets into basement storage tanks, where they can be automatically fed into the boilers.

In exploring the market potential for this system, Otten hired Chris Potholm, founder of the Command Research national polling firm in Brunswick. Potholm said he was surprised by very high response rates. The results indicate that many Mainers were comfortable enough with the technology and cost to convert.

The responses also suggested to him that Mainers are desperate and worried about their ability to pay for heat. A furnace, Potholm said, is a core element of home ownership.

Potholm's polling highlighted a contradiction that Maine Energy Systems needs to overcome: Mainers like to think of themselves as self-reliant, but they are more dependent on imported oil for heat than residents of any other state.

''The Maine psyche is that we can do it on our own,'' Potholm said. ''We don't want to be at the mercy of anyone else.''

Staff Writer Tux Turkel can be contacted at 791-6462 or

tturkel@pressherald.com

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