Wood Pellets' Swift Rise Tests Supply Chain

Dec 29, 2014

The number of homes in New Hampshire using wood for heat has more than doubled over the last decade, from 3.8 percent in 2005 to 8.6 percent in 2013.

Much of that increase comes from wood pellets. Pellets have advantages over cord-wood – they are less work and burn more cleanly – and are cheaper than fuel oil or propane.

But the fuel’s rapid growth has meant the pellet industry has earned a few black-eyes from the occasional shortage, and manufacturers and retailers are struggling to figure out how to smooth out their supply chain.

Of the 16 pellet mills in New England, New York, Rhode Island and Pennsylvania, New England Wood Pellet in Jaffrey is one of the bigger ones. It can crank out 85,000 tons of pellets a year. The company’s CEO, Mark Wilson, describes making pellets as an art. “We have a wood yard operating here that takes the different types of wood, whether it’s sawdust or chips and then the different species, and puts them in different piles over there, sort of like a chef,” he says while leading a tour of the facility.

The wood is dried, ground and pressed into the product you’ve seen at your local hardware store.

A small percentage of those pellets go straight into a truck to serve bulk customers: schools, hospitals, and even some homeowners with big hoppers in the back yard which get filled just like an oil tank. These 'non-bagged' clients are first in line to get their supply, and are unaffected by the vagaries of fluctuating demand.

But most are bagged up, stacked by a nifty pallet-loading robot into one-ton bundles and sold to retailers who serve the pellet stove market.

New England Wood Pellet runs flat-out, year round, but many mills dial back in the summer.

“It takes cash to build inventory, and that’s when sales are typically slow. And some of the manufacturers just aren’t large enough to be able to guess wrong as to how many pellets they can sell during a winter,” Wilson explained in a phone interview before the tour.

This means we have two seemingly contradictory facts. First, New England’s mills have the capacity to produce more pellets. Second, there are occasionally shortages.

Fluctuating Seasonal Rhythms

“We would have anywhere between two and three tractor trailer loads,” says Jim Fallon, who owns a home and hearth store in Hampton Falls. He says last spring, cars would start lining up in front of his store at 6 am, and he had to limit them to five bags of pellets per customer.

“At five bags per customer, fifty bags to a ton, twenty-six tons per trailer, we would sell out in two hours time.” This went on for six weeks. “It was absolutely horrendous,” he remembers.

Supply got tight again this fall. The culprit was, once again, last year’s cold snap.

"At five bags per customer, fifty bags to a ton, twenty-six tons per trailer, we would sell out in two hours time. It was absolutely horrendous."

“Many consumers were buying a full heating season, you know 3 to 4 tons, and then because of the shortage because last winter went longer, they bought an extra ton,” says Wilson, “And so basically, I hate to use the word, but it’s an appropriate word, there was hoarding going on.”

If you heat with cordwood in New England, you’ve learned the drill: you either cut or buy in the spring, let it dry all summer, and if you run out midwinter you’ll expect to pay a premium. Pellets, on the other hand, come in bags and are sold on shelves just like your groceries; they feel deceptively removed from any sort of seasonal rhythms.

So the industry is trying to introduce customers to the idea that they should order their pellets early, and be flexible on when they’ll take delivery.

Fallon says that the current pattern is that on the first cold day of the winter “10,000 people show up and they all want their fuel, and it’s just not going to happen. I don’t have enough property here to store 20,000 ton of pellets.” Though he hopes that after this year, maybe some will learn, “because we’ve had some very, very frustrated customers come in and try to buy pellets, and we don’t have them for them”

Matching Supply to Demand

Pellet boosters say eventually the market will mature: consumers’ buying habits will become more routine, more warehouses will pop up to keep pellets dry and safe from spoiling if there’s a bit of over-production, and shortage headlines will fade into the rear-view.

Rob Riley, President of the Northern Forest Center which promotes the forest products economy, says pellets are the nation’s fastest growing renewable heating technology.

Booming markets respond to scarcity, and the pellet market is no exception. A new mill that is serves the New Hampshire market came online recently in Windsor, Vermont and while Riley couldn’ say where and when he says he’s had “conversations about two more in the potential pipeline that are in the New Hampshire proximity.”

The interior of a one of New England Wood Pellet's mill. Ground wood is pressed though holes that look somewhat like a cheese grater, before being cut into individual pellets
Credit Sam Evans-Brown / NHPR

As for any further shortages this year?

Low heating oil prices could take some of the pressure off, but more New Hampshire residents are heating with some form of wood than ever before. The Alliance for Green Heat estimates that over 108,000 homes have a wood or pellet stove in the state, and more than 40 percent of them are used as the primary heating equipment.

With all of those pellet stoves around, pellet supply issues will likely be determined by the same question New Englanders have always asked themselves while looking at their wood pile: how cold, for how long?