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New Venture That Could Make Pellets Hard To Find In Maine This Year

Post in 'The Pellet Mill - Pellet and Multifuel Stoves' started by BrotherBart, Jun 17, 2008.

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  1. BrotherBart

    BrotherBart Hearth.com LLC Mid-Atlantic Division Staff Member

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  2. ducker

    ducker Feeling the Heat

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    interesting article. I doubt he would impact just Maine, but also NH, and potential MA. Especially if he's looking to start storing up future pellets in the area.
  3. JustWood

    JustWood Minister of Fire

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    I don't think the pellet manufacturers are going to let him buy up 100% of the supply in bulk. They have establised distributors to take care of first. I'm sure there will be a new mill come on line that will cater to him just because they don't want to invest in a bagging system.
  4. mkmh

    mkmh New Member

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    12,500 for an installed boiler.
    Even if oil hits 7.00 per gallon you are talking about a lengthy payback period on his imports.

    The guy seems motivated enough to make a splash, but I don't understand the business model well enough to really see how he is going to pull it off.
    I'm glad we're seeing some competition in the pellet boiler space though. Having lots of options in the marketplace should ultimately help to drive the prices down a bit. My price point would probably be around 2500. As of right now i'm happy with the flexibility and efficiency of 2 separate pellet stoves. 5 years ago central heating seemed like a fine idea to me, but i've definitely undergone a shift in thinking. Now I feel like central heating is a waste (kind of a luxury) and i'm focusing more on heating the areas we're in, when we're in them.
    Ditto for Cenral AC. Window units for the bedrooms, thats it.
  5. gw2kpro

    gw2kpro New Member

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    Agree completely. It's a great concept, but a $12,500 initial cash investment on (yet) unproven distribution network........ I'd love to have one, but not for that much up front.
  6. JustWood

    JustWood Minister of Fire

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    IF home heating oil were to hit $10+/gal, $12.5 K would seem like chump change ! Everyone that had equity in their home would be goin' to the bank.
  7. webbie

    webbie Seasoned Moderator Staff Member

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    The ideal model, IMHO, is the one that we are starting to see in the Solar PV market....where the unit gets installed for free (or low price) and then the savings pay for it. Sort of like the cell phone model, also - where the original equipment is subsidized.

    One one hand...yes, 12K is a lot of money. On the other hand, we see 5K Harman installs here now.....so the cost is really only 7K (over and above).

    If the US Dollar strengthens, I would hope to see the price of Euro equipment come down...or at least stabilize.
  8. sinnian

    sinnian Minister of Fire

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    This is not news to us in Maine. There is a lot of information being left out in the news and on MES' site. The systems cost $8400 or $9500, BUT does not come with a hopper! You would need to purchase a storage bin as well as the auger system, say another $2000 (this is a guess, since atm MES has not announced their actual cost). Then there is installation, which we all know varies from set up to set up, but for materials alone (piping, pex, valves, and flue, etc) ~ you have to think that it would be at least $1500. LABOR? For the plumbing/heating guy, electrician..... let's say conservatively (again) $2000. OHHHhhhhhhhhhhhh! You want someone to show you HOW to use it? MES does not do that either, that is up done by the contractor, and I am sure, it will not be included in the installation cost.

    Overall, the $12,500 is a low ball number. It will more likely be in the $14 - $15K+ price range. THAT is assuming MES can actually pull this off. ALL the installation, set up, customer service, repairs, etc. are to be done by the contractor. How many contractors are going to want to take on that headache? AND as of a few weeks ago, MES only had 100 units being shipped over for June/July.

    While Les and his group have deep pockets, they are business people. As such, if this doesn't look like it is going to work, they will pull out before losing it all. That leaves the customer where?

    Finally, if this works ~~~ it will bring more pellets to Maine, or at least keep more pellets here.

    P.S. I find it funny how his only true competition was left out of the article - Traeger PB150 with 16 years of performnce AND a there is one of the few US dealers in Maine. (Otten was not aware of this until after he started MES)
  9. ducker

    ducker Feeling the Heat

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    That's exactly where I'm at with my house as well. We had a wood stove before, and we would run it to keep the house warm in the dead of winter... never to have the furnace kick on at all.

    That means, the room the stove was in was really quite warm, and the rest of the house cold, but with an older - drafty house, I don't see the point in heating a 2nd and 3rd floor which no one is in during the day.
  10. BrotherBart

    BrotherBart Hearth.com LLC Mid-Atlantic Division Staff Member

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    What I was thinking is that when somebody starts filling silos with pellets that has just got to tighten up the supply for the people that just need three or four bagged tons for the pellet stove.
  11. webbie

    webbie Seasoned Moderator Staff Member

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    Given the investment, the time frame and the goal to install only a couple hundred in the first year - my guess is that they have a longer term horizon than a year or two. Think of New England Wood Pellet and companies like that....all backed by investors and money, and yet with the capital to stick it out.

    On one hand, this is a big risk. On the other hand, it is exactly such risks that end up creating a market.

    As to the price - this needs some consideration. Right now, people are STANDING IN LINE around here to have solar PV systems costing 30-40K (maybe 20K after tax credits) installed. They are not going to save a dime on these - in terms of actual payback, but they want to be part of the solution. I was almost thinking of installing a big PV system myself, but my more frugal self rules for now.....

    As relates to pellet boilers....sure, the first generation is not going to be (or should not be) an option for a very poor person, but perhaps the combination of incentives (from the state or feds?) and more pellet plants will eventually make it a valid option. Just about every "revolution" starts out at the high end and then the technology trickles down.

    As far a a business model, all they need is enough takers to meet their sales goals......for the first number of years.

    All in all, I'm pleased that the big money is starting to chase alternative energy...in general. I'm sure Mr. Otten is not going to invest more than he can afford to lose.
  12. Steveo

    Steveo Member

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    I would not be surprised to see them produce there own pellets in the future. Buy the equipment and we can supply you with all the pellets you need.
  13. mkmh

    mkmh New Member

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    Yeah it sounds like that is what they're going for...but I doubt they have enough capital to buy up the whole supply and keep people from going to competitors for pellets.
    Craig had an interesting point about possibly mirroring some of whats been done in the solar world.

    Sell the boilers at a loss for 5K then make people sign a contract for their pellets (lets say locked in at 375 per ton)
    It could work, but it seems like that could be a risky strategy since the boilers might be prone to failures in the early going.

    It'll be interesting to see how the whole thing plays out.
  14. sinnian

    sinnian Minister of Fire

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    They are not going to make their money off of the pellets. It will be made in the "unforeseen" costs that the customer who thinks they can get this system for $12,500 installed is charged.
  15. JustWood

    JustWood Minister of Fire

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    I would say it's a good bet too. I tried years ago when pellet stoves were just coming about to start up a wood/pellet stove dealership and most of the manufacturers wouldn't even return my calls. I had the facility and the customer list to start from without even advertising.It was a no brainer. I did talk to a couple of manufacturers but they were very tight lipped. I think the situation is that they can sell ALL the pellets they can make and not piss off established distributors at a good profit without catering to someone like me (an unproven distributor) or Les who will likely use his big bank account as buying power to dicker price. I don't think established pellet manufacturers have anything to gain by seling to Les. A new manufacturer just coming online on the other hand would have an easy startup by selling to Les. It will be interesting and I hope he succeedes because we need every form of alternative energy as fast as possible in this country.
  16. Turbozcs2003

    Turbozcs2003 New Member

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    I think his business plan is too make the money selling the pellet boiler and the peripheral equipment like the hopper and auger.

    Notice he has the subcontractors do the installs and he doesnt even stock or inventory any boilers, bet the customer waits until he has them come in, so he ties up very little money. Then he off loads responsibility to maintain the system on the contractor who installs and probably the factory. Maybe if the customer needs financing, he gets a cut with the bank or whatever.

    Somehow I think his gameplan is to import the boilers and sell some pellets. He doesnt want to get into the install and service end since that would require a lot of bodies.

    Per the pellets, if he only installs 150 units per year and each needs say 6 tons that is only 1000 tons or about 1% of the output of the new plant in Athens. I am sure the local plants can scale up production as demand increases.
  17. MaineEnergySystems

    MaineEnergySystems Member

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    Hi, my name is Dan and I represent Maine Energy Systems.

    >>The systems cost $8400 or $9500, BUT does not come with a hopper!

    The total system cost, including installation, for a typical house is around 12.5k. It's not an actual cost, just an estimate. The smaller boiler costs $8400, and the bin should be another $1500-$2500. We decided not to go with a hopper because of the burnback problems a competitor is having.

    The auger system is 100% included in the price of the boiler.

    You're right about the cost of materials and labor - it could be variable. We used estimates from three different HVAC contractors with master solid fuel licenses to arrive at our $12.5k figure.

    Using a Bosch/MEsys burner/boiler system is straightforward - you turn up the thermostat, the augers work, and your house gets warm. Every few months you have to remove a tray from the bottom of the boiler and throw out the ash. There's no bags to buy, no pellets to spill, no bulk pellet storage hassle, and best of all, no constant "tending".

    We've had over 40 master solid fuel HVAC technicians go to our training sessions in Bethel over the past two weeks. A majority of these contractors are excited to be on the forefront of installing the Next Big Thing and have between 2 and 5 installations slated each.

    Our current orders are well over 150, and we anticipate needing another, larger shipment from Bosch later this summer, which Bosch has assured us is already being manufactured at no additional cost.

    If MEsys folded after this heating season, there's still manuals available from Bosch and Janfire, and the contractors and installers have copies of everything that we know relating to the installation and care of the system.

    Mr. Otten is definitely aware of the Traeger offerings, as well as those from Tarm and other American manufacturers. However, these burner/boiler systems haven't been in widespread, typical home use in the US, and our systems have had decades of field testing in Europe's pellet fired market. We're also very concerned about the burnback problems a few American manufacturers are having - if we had a new company whose offerings caught fire on a regular basis, we'd be out of business tomorrow.

    I hope this answers your questions, and if you have any more, feel free to post here or e-mail me directly at dan A_T maineenergysystems.com

    Edit: some new concerns!

    First and foremost, we're looking to sell pellets at a very competitive rate. We're not trying to cause any problems with the pellet market, and our contracts have already been accounted for in terms of the mills' production and pricing.

    We are anticipating stocking and inventorying boilers here in Bethel. We're looking at buying up some warehouse space, and we anticipate stocking at least 30 boilers on hand (unless they're bought out too fast). We aren't having the boilers shipped individually (otherwise you'd be looking at another thousand dollars a boiler, at least), so we can pass the transport savings on to the customer.

    Next heating season we anticipate owning multiple online and producing pellet mills.
  18. sinnian

    sinnian Minister of Fire

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    Interesting that not all of my points were spoken to, and that the ones that were, were confirmed. At $8400 for the boiler and $1500-$2500 for the storage bin, you would be looking at $9900-$10900. There is no way that materials and installation are only going to cost $1600-$2600.

    I really am not slamming them. I think it is a wonderful idea and would have gone with them IF I knew up front how much it was going to cost, AND they were being installed and serviced by people who had been doing it for a while.
  19. MaineEnergySystems

    MaineEnergySystems Member

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    What points remain unaddressed? As with any other heating system, your cost is going to vary depending on the installation. Our costs were based off a typical installation, but if you have something tricky in the way, then you have to work around it. As to experienced installers, I think you'd have no problem if you spoke German. As it is, there's nobody installing this type of system anywhere in the US.
  20. Steveo

    Steveo Member

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    Is this the same Bosch that puts out the high quality power tools, washers and dryers and more?
  21. sinnian

    sinnian Minister of Fire

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    Yes, and indirect hot water tanks out of Londonderry, NH.

    (big) Points 'not' addressed:

    1. At $8400 and then $1500-$2500 for the bin, you would be up to $9900-$10900, take that away from your estimated "$12,500" and that would leave $1600-$2600 for materials (flue, piping, wiring, valves) and installation (flue, plumbing, electrical, delivery), set up, walk through, etc. There is NO WAY a contractor is going to do all that for $1600-$2600.

    2. You may be training 40+ master solid fuel HVAC technicians, but how many of them want to accept 100% of the responsibility? If it works out for you and your customers, I think that is great and makes for a great business (for you). Sell the product and, sell and deliver the pellets, and not be responsible for anything with the actual boiler or customer issues.

    3. Thank you for making this point for me....
    Again, I hope MESy succeeds in changing 10% of Maine to pellet boiler owners. I am simply stating things that ought to be considered, and pointing out that the $12,500 estimate is at least on a straight forward installation a minimum of a grand off, and more likely more then a grand. That and MESy is not taking any responsibility for the boiler, but rather the contractor assumes all the responsibility.

    If I was assured the final price (for a straight forward installation) was $12,500 AND MESy was the party standing behind the unit, I probably would have bought one. As you can see by my signature, I went with the Traeger PB150 instead. It has 16 years of a proven track record, and if you maintain the system as you should, there would not be any burn back problems with the auger. Traeger actually has several things in place for it NOT to happen, but as with any of these units, including MESy's, if it is not maintained, anything can happen. Finally, the company I bought my system from does that for a living. They do not sell pellet stoves, pellets, oil boilers, etc. The master solid fuel HVAC technician has installed a lot more then 2 -5 of them, so I won't feel like a guinea pig either.

    I wish MESy luck, because the alternative would be bad for the industry, but more importantly ~ bad for the people of Maine.

    ~Jeff
  22. JustWood

    JustWood Minister of Fire

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    BLAH BLAH BLAH
  23. Shane

    Shane Minister of Fire

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    Maybe not to a "T" but this is similar to how many two step distribution networks operate. We would buy stoves etc from distributor, then when warranty issues arose we would take care of it and file paper work with the factory. We took 100% responsibility for installation and all warranty work. The manufacturer paid for parts and a pittance for labor but the distributors didn't really have a hand in the handling of warranty issues. This wasn't always the case, but it was with a few distributors.
  24. sinnian

    sinnian Minister of Fire

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    I understand that. However, this is really a three step distribution network. With the responsibility falling on Bosch/Janfire and the contractor.
  25. Turbozcs2003

    Turbozcs2003 New Member

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    Yes

    The warrantly questions would be

    1) who will handle this and determine who will pay

    2) will the contractor who installed be adequatly compensated for warranty

    3) who will stock parts on this side of the pond or will customer wait weeks for repair parts

    4) If MES goes belly up where does that leave the customer?

    5) if local contractor who installed goes belly up or gets out of the business will MES pick up the mess

    6) if MES goes belly up and customer has funky storage system which uses the new pellet truck to fill
    his hopper who would he turn to??
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