Wood Pellet Economics

By John Cruickshank – The Northfield News
Photo: Product-Category.com

When I was growing up, coal was burned by most homes in Vermont. I recall our house had a stoker that burned rice coal and my dad had to shovel the coal into the stoker from the coal bin which was next to it.

The bin was filled every summer all the way to the ceiling and it held about 10 tons of coal.

Gradually, mostly during the sixties, people changed over to heating their homes with fuel oil, at least in this part of Vermont.

My parents were in the coal and oil business in Northfield, beginning to sell fuel oil in 1934. The motto was “clean, comfortable Gulf fuel.” Prior to that, they had sold only coal.

Coal was dirty, had the problem of having to be hand fed into a furnace and was bulky to transport. All of the coal in Northfield came into town on railway cars and was dumped into coal sheds that used to be by the tracks off from Wall Street.

Now, Gov. Peter Shumlin has asked the state Department of Public Service and the statewide energy conservation program Efficiency Vermont to set up an incentive program to get people to switch from heating with fuel oil to wood pellets.

Presently, most wood pellets come in forty pound bags that are bought at a hardware store and are burned in stoves in people’s living room.

There is a big difference in the quality and wood pellets from one hardware store may work very well in a stove while pellets from another will smoke and clog up the machinery that makes the stove operate.

There is talk of imposing a standard on wood pellet manufacture that would make them all the same regardless of where you buy them but that hasn’t happened yet. It’s not like fuel oil that must, by law, be refined to certain standards.

There are a couple of companies that sell wood pellets in bulk, by the ton delivered into a bin in your cellar.

Karen Korrow of Gillespie’s Fuels said that her company began selling wood pellets in bulk back in the early 1970’s when the oil embargo was in full swing. At that time, they were still selling coal and could load the wood pellets in their coal trucks and deliver them to people’s houses.

There were two problems, she said. First, once oil prices began to fall after the embargo was over, people wanted to get back to fuel oil and took out their wood pellets furnaces. The second was there was no reliable supply of wood pellets. Niether of those concerns has changed much over the years.

She said that the only place to buy them at the time was in Canada and there was enough to supply the two small dealers who were buying them in Vermont.

However, if Governor Shumlin gets his way and everyone started using them, there just wouldn’t be enough to go around.

Ms. Korrow said that there was no way to guarantee that there would always be a supply. With fuel oil, that has never been a problem, she noted.

Matt Cota, Executive Director of the Vermont Fuel Dealers Association, said that there is more then the problem of a guaranteed supply with pellets. There is also the cost of gearing up to supply pellets in bulk.

He said that the cost of a fuel oil truck is about $100,000 whereas the cost of a wood pellet delivery truck capable of blowing pellets into your basement, is about $250,000.

Also, he said that the wood pellet truck can only carry about half of the fuel that a similar fuel oil truck can carry and still stay within the load limits set for most Vermont highways and roads.

One ton of wood pellets purchased in bulk would be equivalent of buying 118.26 gallons of fuel oil.

The bulk pellets are held in a silo or bin and you’d have to install one either in your cellar or outside your house so the wood pellets could be delivered into it. A bin that would hold enough fuel to get through the winter would be about 15 by 15 feet square, the size of a good sized room in your house. From the silo, the pellets would feed into your furnace automatically.

The cost of installing a wood pellet conversion to your present fuel oil boiler is somewhere between $5,000 to $10,000 including the cost of the bin and a screw drive to deliver the pellets to the boiler.

There is a down side, wood pellet boilers require cleaning after burning about 2 tons pellets according to Ms. Korrow at Gillespie’s. The average house would use about 8 tons of pellets a winter requiring cleaning of the burner about every one and a half months. Also, the ashes need to be taken out of the boiler so the equipment does not maintain itself and needs someone to watch over it. It’s not going to be a trouble-free system for older people, she added.

Gillespie’s gave up selling pellets in the mid- 1980’s but would consider selling them again if the market for pellets developed again, if the supply of pellets were assured and it was certain that the customer base was going to remain. Without those two caveats, the huge investment in equipment and storage would not be worthwhile.

Several people have heated with wood pellet stoves for some time. However, very few have wood pellet furnaces that heat an entire house.

Homeowners already are eligible for a $500 state incentive when they switch from older, less efficient stoves said Elizabeth Miller, commissioner of the Department of Public Service. The new program would provide the same incentive for people who want to switch out their oil burners for wood pellet systems.

Governor Shumlin has said that he’s trying to reduce reliance on foreign oil, promote job growth among Vermont foresters and wood pellet mill workers and get people to use a fuel that’s less damaging to the environment. He said he also wants to boost employment opportunities at firms that manufacture pellet burner components.

A company called Pellergy in Barre manufactures conversion equipment for switching oil burners to wood pellets.

There are companies that are in a start up mode in Vermont that intend to make wood pellets here from timber scrap but their production, if any, has been extremely limited.

Chris Brooks, CEO of the Vermont Pellet Co., which gets the wood he uses to make pellets from within a 30-mile radius of its mill in North Clarendon, said his company presently employs 15 people.

He said an additional 79 logging crews of two to four people each get a significant portion of their income from delivering treetops to his mill while the trunks go to a sawmill for lumber.

That would allow supply to a small number of customers. However, if a large number of people were to convert their fuel oil boilers to pellets, the supply would not be sufficient according to Mr. Cota.

Wood pellets are made from compacted saw dust which is compressed at very high temperatures to hold the pellets together without the use of glue.

Prices for bulk wood pellets vary from $249 to $289 per ton delivered to your house.

How does that compare to the purchase of fuel oil?

The answer is that it depends upon how high fuel oil prices are at a given time.

Up until the big oil crunch where prices began to shoot up because of the Libyan war, fuel oil was selling locally for about $3.61 a gallon. That means that the price of 118.26 gallons of fuel oil would have been $426.92. That would make wood pellets a good value.

Of course, presently, fuel oil prices are up even more, so wood pellets become more desirable as oil prices creep higher.

However, anyone considering changing over has to think about how long if will take to pay back the cost of converting.

Ms. Korrow pointed out that presently there are very efficient fuel oil boilers available that can reduce the effective cost of fuel oil to $1.40 per gallon because the number of gallons one will have to use in the winter is about 40 per cent less than with the ordinary oil boiler. Wood pellets just cannot compete with the efficiency of these new boilers and certainly are not as trouble free.

The fact is that the government does not have a very good track record when it comes to pushing particular kinds of fuel sources, Mr. Cota said, so before anyone jumps out and converts to wood pellets, make sure to conduct your own careful investigation.

In the 1970’s when the oil embargo was imposed on the United States, President Carter pushed for the development of alternative fuels. The Department of Energy was formed in 1977 to support this new development. Then, when oil prices fell, the entire program was abandoned. One wonders if that will happen again.

President Obama in a speech at Georgetown University just a few days ago, said that when he took office, the country was importing 11 million barrels a day and he pledge to cut that by one third in the next ten years. Of course, the use of oil has declined since Mr. Obama took office and today, only about 9 million barrels of imported oil are being used currently, so he’s already well on his way to meeting that goal. Had he said he would reduce foreign oil dependency by one third from today’s use, that would have been a braver pledge. However, even that goal could be met if were we to start seriously developing our own oil and natural gas. The more natural gas we use, the more oil would be available to uses that natural gas cannot service.

What Governor Shumlin really wants is natural gas to be piped to everyone in Vermont said Mr. Cota. But that is a near impossible goal considering the cost of running pipe lines.

I recall my mother fearing that natural gas would come here back in the 1950’s because it would have seriously impacted the fuel oil business. Of course, it never has been piped beyond Burlington and Chittenden County. It is doubtful that it ever will be considering the cost per mile of building and maintaining natural gas transmission pipelines.

The current cost of construction according to Rita Tubbs, Managing Editor of Pipeline News was about $2 million per mile for a twenty inch gas line.

Of course, you would need to add to that initial cost, about $10,000 per year for maintenance and upkeep of each mile of the pipeline according to the Texas Department of Public Administration.

Natural gas would also put out of work about 8,000 Vermonters who are employed in the delivery of fuel oil according to Mr. Cota and would seriously impact the more than 80 family owned business who have made substantial investments in their fuel oil delivery businesses.

Currently, the state of Vermont has only 53 miles of natural gas pipelines, the lowest of any state in the nation according to the Texas State Controller of Public Accounts who conducted a study in 2007.

With the state out of money, the high cost of gas line construction is entirely beyond the state’s ability to finance any part of such a system. The question then becomes whether it would be profitable for a private gas company to build the lines, maintain them and deliver gas. Without public help, that investment is doubtful at best.

If the federal government were to finance the job, estimates are that about $260 billion will have to be spent between now and 2030 to bring pipelines to the entire nation.

The fact is, we are going to be depending on fuel oil for a long time and if we want to reduce our dependence on foreign oil, we’d better start developing our own domestic sources right now and stop dithering around. Drill baby, drill, may be an old saw, but the fact is, we need to do it.