Tuesday, March 11, 2014
A startup company in Orono is trying to convince midsize businesses and institutions in New England that they can save money by converting from heating oil to wood pellets without buying any fuel or equipment.
Pelletco sells just the heat produced by wood pellets, not the equipment or the fuel.
Reuters file photo
A wood pellet boiler in a HeatPod at the China Lake Conference Center is one of 11 Pelletco installations in Maine.
Courtesy of Pelletco LLC
The concept is intriguing, but some observers in the pellet-fuel industry say Pelletco LLC faces challenges to perform on a large scale over time.
High and volatile oil prices have commercial users looking for alternatives. The next year or so will help show whether selling just heat, rather than fuel and equipment, is a viable option in Maine.
Pelletco brings a wood-pellet boiler and a storage building, called a HeatPod, to a client's business, sets it up outdoors and connects it to the heating system. Pelletco operates and maintains the unit.
The client pays only for heat, buying BTUs at a price that's nearly 20 percent below the cost of oil. Pelletco says it has 11 HeatPods installed.
The three-year-old company has an ambitious growth plan. Financial material obtained by the Portland Press Herald shows that Pelletco, which expects to lose $366,125 this year, is seeking investors to transform it into a break-even energy-services provider with $3.5 million in earnings. That would require hooking up about 80 new customers by 2016, the company acknowledges.
The company has the support of a key lender for renewable energy that sees enough potential in the plan to provide seed capital. But its business plan has drawn a cautious response from more established members of the state's pellet-fuels industry.
They remember when a California company, International Wood Fuels, opened an office in Portland in 2009, selling the same kind of pellet heat service to schools and large work spaces in New England.
Financial troubles forced the company to close in Maine two years later.
International Wood Fuels left behind disappointed customers and a broken promise to build a $20 million pellet mill in Burnham. The episode gave pellet heat a black eye, say industry veterans, at a time when it was struggling to gain acceptance as a viable alternative to heating oil.
No one is suggesting that Pelletco is destined to be another International Wood Fuels. But William Strauss, an economist and president of the FutureMetrics biomass consulting firm in Bethel, said both business models assume oil prices will stay high and wood prices will remain stable.
"There is a good target market for Pelletco to go after," Strauss said. "Maybe they can pull it off. But banking on the spread between what you're paying for energy and charging for heat has inherent risks."
Strauss is a partner in Maine Energy Systems, which sells a European-designed pellet boiler and distributes pellets.
Pelletco faces other challenges, Strauss said, including the rapid penetration of natural gas lines in Maine and the logistics of operating and maintaining HeatPods on a large scale.
EASY TO SWITCH BACK TO OIL
James Knight, Pelletco's chief executive officer, said these risks are being well managed. The trend for oil prices is clearly up, he said, and in his view, the notion that natural gas will reach many Maine businesses any time soon is overly optimistic.
Knight also dismisses comparisons to International Wood Fuels. He notes that the HeatPods are hooked up beside oil systems, which remain intact.
"Should we go out of business, the customer is no worse off than they were before they met us," he said. "They would just switch back to using oil."
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click image to enlarge
A Pelletco HeatPod containing a wood pellet-fed boiler is set up outside the Mildred Fox school in South Paris.
Courtesy of Pelletco LLC