Converting 10% homes to Pellet Boilers!?

[Wet1]

PO,

I agree with some of what you say, and disagree with others. I think part of this is because we are from two different areas. You're in Maine (I don't know where), and I'm in southern CT. Where you are it might be feasible for a tractor-trailer to deliver pellets in "residential" areas, but where I am it will just never happen as "residential" most likely has a totally different meaning. Also, there are no pellet mills around me (that I'm aware of). The closest one to me is probably in RI, and never mind that it couldn't come close to suppling the volume needed to sustain all of southern NE. OTOH, there are oil ports close by. Even if my local oil company ran out of oil tomorrow, they only have a 20 mile drive to the refueling port. And while they are out refueling my neighbors, it cost them very little extra to drive a 1/2 mile down the street to refuel me as well. And like yourself, I have (2) 275 gal oil tanks that will hold enough oil for me for an entire year if I chose to use only oil. Even if you look at the average guy, how many times do they deliver each year? 4 times maybe? Like I said, they are usually in the area anyway...

You're also making assumptions that people want a 4+ ton pellet hopper in their basement, or even have room for such a thing. Hell, some folks only have a crawl space, or no basement at all. There's no doubt oil is easier to package. And where I am at least, it's a lot more feasible to distribute...

Regarding oil prices, I think you've forgotten about all the speculators on Wall St. Since this market was recently deregulated, they've significantly impacted oil prices. And like like anything else, prices can, and will, be volatile until they rewrite the rules again. Right now it's just far to easy for anyone to risk hardly anything by only having to put up 6%... it's no wonder prices have skyrocketed. Keep in mind they could possibly drop just as fast.

Anyway, as a pellet stove owner, I'm all for pellet technology. I'm just not prepared to fully invest in buying a boiler given the infancy of this market and instability of all the fuel prices. I just don't think we'll see today's (fuel) price disparity remain in the future... at least not long enough for me to risk spending $10k+ to convert. To me pellet stove(s) are the way to go until the future becomes a little more clear. A lot less is invested, a lot less risk, and I still get the same savings today... plus I have flex-fuel options.

Just my 2 cents...

 

[JustWood]

The trucks are already designed - how do you think pellets get around in Sweden, Austria, Norway, Germany, Denmark, Poland, etc, etc, etc? True, maybe it will cost more per trip - but when you have one or two trips per customer per year, transportation costs are equal or less per BTU in household. Let's say that the delivery trucks can hold 20 tons, because that's what they're specified as from MEsys. Now, when you have a 20 ton capacity truck, you can make five deliveries. Since delivery services will have 300 tons of pellet storage on-site to be an authorized distributor, they don't have to worry about going back to a mill to pick up more pellets until maybe mid-way through the heating season. Think of how silly that sounds - do delivery trucks hook up to a refinery and drive 60 miles to their destination, or do oil distributors have on-site storage? If you don't need routine service calls due to the in-home fuel capacity, then you save money on transportation costs. So much so, in fact, that it makes economic sense to deliver to four or five customers in one go.

When you fill up, you fill up for half a year, not weeks. I also know of a lot of people - according to a survey, 64% of Maine - that would switch to an alternative fuel if given the chance to buy one that was as "hassle-free" as oil.

I'm suggesting people want a silo in their basement. If they want a larger one outside, they can probably do that - but their main silo product is in-basement, four-ton hoppers.

Ten years from now, diesel is going to be a huge cost in heating, no matter what. I'd wager that diesel could be up over $7 a gallon in ten years - making transportation, not heating fuel, the biggest cost. When you don't need enough bunker oil to get your heating oil from Saudi Arabia, and enough diesel to get your heating oil from the terminal to your home, suddenly the 80 miles to a pellet mill looks like a viable alternative for those whose business is transportation of energy sources.

Distributors won't own the delivery trucks, the mills will and all pellets will be direct shipped. To much extra infrastructure and transportation to be cost effective.

Now you're just incorrect - MEsys has no interest in the distribution business, and wants all the oil distribution companies to distribute pellets as well. It's a lot easier to give the delivery guys a chance at a cut instead of forcing them out of the market, plus they have preexisting customer relations. I mean, it makes sense from your perspective, but that's not how MEsys wants to do business.

I highly doubt a distributor of 300 tons per year is going to invest $150,000 - $200,000 in a delivery truck and who knows how much for bulk storage( can't do didly squat for less than $100,000 anymore) to handle that amount.

 

[PelletOwner]

The trucks are already designed - how do you think pellets get around in Sweden, Austria, Norway, Germany, Denmark, Poland, etc, etc, etc? True, maybe it will cost more per trip - but when you have one or two trips per customer per year, transportation costs are equal or less per BTU in household. Let's say that the delivery trucks can hold 20 tons, because that's what they're specified as from MEsys. Now, when you have a 20 ton capacity truck, you can make five deliveries. Since delivery services will have 300 tons of pellet storage on-site to be an authorized distributor, they don't have to worry about going back to a mill to pick up more pellets until maybe mid-way through the heating season. Think of how silly that sounds - do delivery trucks hook up to a refinery and drive 60 miles to their destination, or do oil distributors have on-site storage? If you don't need routine service calls due to the in-home fuel capacity, then you save money on transportation costs. So much so, in fact, that it makes economic sense to deliver to four or five customers in one go.

When you fill up, you fill up for half a year, not weeks. I also know of a lot of people - according to a survey, 64% of Maine - that would switch to an alternative fuel if given the chance to buy one that was as "hassle-free" as oil.

I'm suggesting people want a silo in their basement. If they want a larger one outside, they can probably do that - but their main silo product is in-basement, four-ton hoppers.

Ten years from now, diesel is going to be a huge cost in heating, no matter what. I'd wager that diesel could be up over $7 a gallon in ten years - making transportation, not heating fuel, the biggest cost. When you don't need enough bunker oil to get your heating oil from Saudi Arabia, and enough diesel to get your heating oil from the terminal to your home, suddenly the 80 miles to a pellet mill looks like a viable alternative for those whose business is transportation of energy sources.

Distributors won't own the delivery trucks, the mills will and all pellets will be direct shipped. To much extra infrastructure and transportation to be cost effective.

Now you're just incorrect - MEsys has no interest in the distribution business, and wants all the oil distribution companies to distribute pellets as well. It's a lot easier to give the delivery guys a chance at a cut instead of forcing them out of the market, plus they have preexisting customer relations. I mean, it makes sense from your perspective, but that's not how MEsys wants to do business.

I highly doubt a distributor of 300 tons per year is going to invest $150,000 - $200,000 in a delivery truck and who knows how much for bulk storage( can't do didly squat for less than $100,000 anymore) to handle that amount.

It's about $500k for a fully equipped delivery node, complete with two 9-ton trucks and one 23-ton truck. They break even at around 500 customers within 30 miles. MEsys isn't interested in making too much of a profit on delivery - they want the organic heating delivery network to take care of delivery.

 

[JustWood]

They don't have a clue about truck operating expenses or they are just realing you in. Once they have all this in place after a few years ,you know where the price will head to make up for the years they operated at a loss.

 

[PelletOwner]

PO,

I agree with some of what you say, and disagree with others. I think part of this is because we are from two different areas. You're in Maine (I don't know where), and I'm in southern CT. Where you are it might be feasible for a tractor-trailer to deliver pellets in "residential" areas, but where I am it will just never happen as "residential" most likely has a totally different meaning. Also, there are no pellet mills around me (that I'm aware of). The closest one to me is probably in RI, and never mind that it couldn't come close to suppling the volume needed to sustain all of southern NE. OTOH, there are oil ports close by. Even if my local oil company ran out of oil tomorrow, they only have a 20 mile drive to the refueling port. And while they are out refueling my neighbors, it cost them very little extra to drive a 1/2 mile down the street to refuel me as well. And like yourself, I have (2) 275 gal oil tanks that will hold enough oil for me for an entire year if I chose to use only oil. Even if you look at the average guy, how many times do they deliver each year? 4 times maybe? Like I said, they are usually in the area anyway...

You're also making assumptions that people want a 4+ ton pellet hopper in their basement, or even have room for such a thing. Hell, some folks only have a crawl space, or no basement at all. There's no doubt oil is easier to package. And where I am at least, it's a lot more feasible to distribute...

Regarding oil prices, I think you've forgotten about all the speculators on Wall St. Since this market was recently deregulated, they've significantly impacted oil prices. And like like anything else, prices can, and will, be volatile until they rewrite the rules again. Right now it's just far to easy for anyone to risk hardly anything by only having to put up 6%... it's no wonder prices have skyrocketed. Keep in mind they could possibly drop just as fast.

Anyway, as a pellet stove owner, I'm all for pellet technology. I'm just not prepared to fully invest in buying a boiler given the infancy of this market and instability of all the fuel prices. I just don't think we'll see today's (fuel) price disparity remain in the future... at least not long enough for me to risk spending $10k+ to convert. To me pellet stove(s) are the way to go until the future becomes a little more clear. A lot less is invested, a lot less risk, and I still get the same savings today... plus I have flex-fuel options.

Just my 2 cents...

There exist traditional "oil truck" sized trucks for delivery, and pellets can be delivered (in fact, the cheapest delivery is) by rail car.

I used to live in CT (east lyme, if you're interested) and it sounds like you're near bridgeport/new haven. There's a ton of oil flowing through the area to meet the NYC metro area's demand, so oil might be a better way to go. I do take issue with the assertion that oil is easier to package, though. Oil is flammable, toxic, and intensely difficult to clean up. As a friend said, "A pellet mess needs a shovel, an oil mess needs a hazmat team." Pumping oil means you need to have a reduced-static environment that is completely sealed off from the outside (or you risk either violating code or making it really unpleasant for the homeowner). A specialized pump is needed, and an entire sealed infrastructure needs to be in place from the sands of Saudi Arabia to the tank in your home.

I agree with a lot of what people are saying about it not being a tested technology (in the US). I have a feeling, however, that if someone were to look for feedback in swedish or german you'd be looking at hundreds of positive reviews for the same or a similar system.

 

[PelletOwner]

They don't have a clue about truck operating expenses or they are just realing you in. Once they have all this in place after a few years ,you know where the price will head to make up for the years they operated at a loss.

They're not renting nodes, though. The nodes are going to be available to anyone who wants to buy one - and after the factories have made five this year, the costs might come down slightly. 500 people means 1000 deliveries, which means 500 truckloads with the small truck. If you divide them up, then you need about 125 deliveries per small truck, and 250 deliveries with the large one. This works out to probably 50 delivery days per year - hardly the same yearly operating expenses as an oil truck that has to deliver to homes 3+ times per year while running back to the distributor. (50 delivery days per year assumes that each truck only makes one trip per day, which is probably a good hedge).

 

[JustWood]

They don't have a clue about truck operating expenses or they are just realing you in. Once they have all this in place after a few years ,you know where the price will head to make up for the years they operated at a loss.

They're not renting nodes, though. The nodes are going to be available to anyone who wants to buy one - and after the factories have made five this year, the costs might come down slightly. 500 people means 1000 deliveries, which means 500 truckloads with the small truck. If you divide them up, then you need about 125 deliveries per small truck, and 250 deliveries with the large one. This works out to probably 50 delivery days per year - hardly the same yearly operating expenses as an oil truck that has to deliver to homes 3+ times per year while running back to the distributor. (50 delivery days per year assumes that each truck only makes one trip per day, which is probably a good hedge).

Tandem axel truck- 9 ton capacity. Insurance,plates ,registration,permits,etc $5000-$8000/year
Tri -axel $8000-$12,000/year
Fuel $400/day

You're preaching to the choir. I know the logging,milling,trucking, and waste business inside and out.
The cost of alternative energies will follow the price of oil.

 

[ugenetoo]

The trucks are already designed - how do you think pellets get around in Sweden, Austria, Norway, Germany, Denmark, Poland, etc, etc, etc? True, maybe it will cost more per trip - but when you have one or two trips per customer per year, transportation costs are equal or less per BTU in household. Let's say that the delivery trucks can hold 20 tons, because that's what they're specified as from MEsys. Now, when you have a 20 ton capacity truck, you can make five deliveries. Since delivery services will have 300 tons of pellet storage on-site to be an authorized distributor, they don't have to worry about going back to a mill to pick up more pellets until maybe mid-way through the heating season. Think of how silly that sounds - do delivery trucks hook up to a refinery and drive 60 miles to their destination, or do oil distributors have on-site storage? If you don't need routine service calls due to the in-home fuel capacity, then you save money on transportation costs. So much so, in fact, that it makes economic sense to deliver to four or five customers in one go.

When you fill up, you fill up for half a year, not weeks. I also know of a lot of people - according to a survey, 64% of Maine - that would switch to an alternative fuel if given the chance to buy one that was as "hassle-free" as oil.

I'm suggesting people want a silo in their basement. If they want a larger one outside, they can probably do that - but their main silo product is in-basement, four-ton hoppers.

Ten years from now, diesel is going to be a huge cost in heating, no matter what. I'd wager that diesel could be up over $7 a gallon in ten years - making transportation, not heating fuel, the biggest cost. When you don't need enough bunker oil to get your heating oil from Saudi Arabia, and enough diesel to get your heating oil from the terminal to your home, suddenly the 80 miles to a pellet mill looks like a viable alternative for those whose business is transportation of energy sources.

the trucks, storage facilities and delivery equipment has been available and in use for years. the grain and feed business uses the exact same equipment! this isnt rocket science as mr otten and gov balducci would have you believe.
yes, pellets have a bulk density that is almost 4 times that of fuel oil (per btu), but consider that if you spill 1/2 ton of wood pellets ,(or other biomass for that matter) you wont have to call in an environmental consultant and a lawyer to cover your a**.
i will always remember the town drunk telling me one day when he saw an oil delivery truck go by;" it dont make much sense to be burning that stuff over here. ill bet they dont burn wood over there in the desert."
i dont know if anyone could actually put a price on a gallon of fuel oil what with all the subsidies that would apply.
i for one think that with all the new capacity coming online, pellet prices will stay the same or even drop a bit.
i keep looking at the pellet prices in the lake states area and wonder why we are paying up to $40 a ton more than they are.

 

[Sting]

i will always remember the town drunk telling me one day when he saw an oil delivery truck go by;" it dont make much sense to be burning that stuff over here. ill bet they dont burn wood over there in the desert."
i

Thats a great quote Steve!

 

[PelletOwner]

So I did some calculations, and it turns out that at $240/ton bulk, $260/ton delivered, 2 trips per day of operation per vehicle, and 500 houses, you're still making $29,777 a year in gross profit.

naturally, the margins widen up some when you put in realistic pellet prices and a larger boiler installed base. Same pricing, 600 houses, $41,666 gross.

If you have a thousand houses, and make the trucks fill up 3x a day, then your profit goes to $102370 gross profit. If the bulk/delivered price difference increases by $5 (235/260), and you have a thousand houses, you get $142,370 gross profit.

 

[JustWood]

So I did some calculations, and it turns out that at $240/ton bulk, $260/ton delivered, 2 trips per day of operation per vehicle, and 500 houses, you're still making $29,777 a year in gross profit.

naturally, the margins widen up some when you put in realistic pellet prices and a larger boiler installed base. Same pricing, 600 houses, $41,666 gross.

If you have a thousand houses, and make the trucks fill up 3x a day, then your profit goes to $102370 gross profit. If the bulk/delivered price difference increases by $5 (235/260), and you have a thousand houses, you get $142,370 gross profit.

Are these figures based on the 3 trucks you were talking about in an earlier post ?

 

[PelletOwner]

So I did some calculations, and it turns out that at $240/ton bulk, $260/ton delivered, 2 trips per day of operation per vehicle, and 500 houses, you're still making $29,777 a year in gross profit.

naturally, the margins widen up some when you put in realistic pellet prices and a larger boiler installed base. Same pricing, 600 houses, $41,666 gross.

If you have a thousand houses, and make the trucks fill up 3x a day, then your profit goes to $102370 gross profit. If the bulk/delivered price difference increases by $5 (235/260), and you have a thousand houses, you get $142,370 gross profit.

Are these figures based on the 3 trucks you were talking about in an earlier post ?

Yes. I mean, I'm not trying to say that MEsys is 100% right here - just giving a rough calculation based on the numbers you gave me.

 

[JustWood]

So I did some calculations, and it turns out that at $240/ton bulk, $260/ton delivered, 2 trips per day of operation per vehicle, and 500 houses, you're still making $29,777 a year in gross profit.

naturally, the margins widen up some when you put in realistic pellet prices and a larger boiler installed base. Same pricing, 600 houses, $41,666 gross.

If you have a thousand houses, and make the trucks fill up 3x a day, then your profit goes to $102370 gross profit. If the bulk/delivered price difference increases by $5 (235/260), and you have a thousand houses, you get $142,370 gross profit.

Are these figures based on the 3 trucks you were talking about in an earlier post ?

Yes. I mean, I'm not trying to say that MEsys is 100% right here - just giving a rough calculation based on the numbers you gave me.

$142,370/year for 3 trucks is DIDDLY !

What about $35,000/year per driver. =$105,000/year.
Insurance,registrations,permits and don't leave out DOT fines @ on average $8000/year per truck = $24,000
Fuel $300-$500/day per truck. Let's just use $300/day x 3 trucks= $900/day x roughly 250 work days a year= $225,000/year for JUST FUEL !
Tires for my Tri-axels cost $5000/year. So you can figure these 3 trucks being tandems and tri's will probably cost $10,000/year
You can figure after the first year the trucks are going to need about $2000-$3000/year x 3 trucks in maintenance.
I'm already up to $373,000/year just in expenses.
I don't even want to guess what workmans comp/unemployment insurance costs will be.

I'm using the high number you gave me so they will have to charge $60+/ton just to break even. And thats if they can do that many deliveries a day. My Tri-axles are loaded in 10-15 minutes and we dump and run. 5-7 deliveries/day is realistic. Hooking up a hose or jockeying an auger is going to take alot longer than opening a tailgate and dumping.

If this distribution company is basing their business plan on the figures you gave me then they will be teats-up in no time.

OH, and I almost forgot the payment on the $500,000 capital investment. And don't think a bank will string this out for 30 years like a mortgage. Try 6 years max if you have good credit.

 

[PelletOwner]

Nope, I'm doing my own calculations. I don't know too much about trucking overhead, and I'm sorry if we got off on a combative first step. I would guess that loading these things is pretty simple, all you have to do is dump some pellets in from an overhead hopper.

I calculated the number of days that it'll have to run with two full loads per day, and it's much less than the 250 days/year you quoted. For example, if you have 500 homes, you have to make 1000 deliveries yearly. If you have 1000 deliveries, then you can take care of them in 1000/(2 small trucks*2 hoppers each*2 full trucks per day + 5 hoppers/truck*2 full trucks a day) = 56 working days. If you make it one full load per day, it takes 112 days. This is still dramatically lower than the 250 days/year you quoted. If you could show me what those 250 days break down into, then maybe we can have a working conversation about these costs.

If you don't have to do as many deliveries, you can make the position seasonal and screw the little guy to boost your margins. I'm not sure what delivery system they're using - so far I'm hearing pneumatic, but that doesn't give me anything in tons per minute.

Also, I'm pretty sure that the pellets are going to be cheaper than my estimate, given that they've contracted for "multiple thousands" of tons of pellets.

 

[JustWood]

I'm not being combative just realistic.
Ever heard of 30% debt to income ratio. This is one of the things the bank looks at to determine wether a company is credit worthy and stable. If it takes $500,000 to start up this business ,it needs to gross $1.5 million/year to be profitable.
Enough said.

 

[ugenetoo]

If you don't have to do as many deliveries, you can make the position seasonal

hey leeswoodco
would you like to depend on am "seasonal" employee to make your deliveries for you?

 

[ugenetoo]

i will always remember the town drunk telling me one day when he saw an oil delivery truck go by;" it dont make much sense to be burning that stuff over here. ill bet they dont burn wood over there in the desert."
i

Thats a great quote Steve!

actually... that quote is from me. our town is so small that we dont have a town drunk.

whoop whoop whoop

we all take turns!

 

[webbie]

I'm gonna close down this thread - getting too long and off course.

I think we know that there are a lot of variables involved.......and that, in business (as ANYONE who has done it can confirm) EVERYTHING costs more and takes longer than what you first calculate. That has always been true for me!

I think it is also clear that there are massive logistics involved in moving millions of pounds of pellets, keeping them dry, getting them paid for, etc.

I would not be surprised if, in the end, the pellet supply business was 100% separated from the boiler part. You CAN make $$ on appliances and installation.

All in all, I'm please that people (and capital) are taking the chances. But that does not make it any less of a risk! Tying oneself to a single source of appliance, service and fuel supply is inherently risky. If a corporation does not do well, they can simply close up shop and there goes the warranty, service and all the other promises and paperwork.

Maine Energy is reaching for the sky - thinking fairly big....and they probably have some $$ to do so. I'm a small time thinker myself, often finding that the taller they stand, the harder they fall.

It will be interesting to watch this all come to fruition.