Pelletco Sells the Heat
ORONO, MAINE
By Mainetoday.com
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.
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 workspaces 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.
- Tux Turkel
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