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Trio Launches Pennsylvania Company That Manufactures Wood Fuel Pellets: Control Over Raw Material, Quality Assurance Are Key Considerations in Venture
PA Pellets: Trio launches Pennsylvania company to manufacture wood fuel pellets; control over raw material, quality assurance seen as key considerations in venture.
By Diane M. Calabrese
Date Posted: 5/1/2008
ULYSSES, Pennsylvania — Create jobs and conserve natural resources. Those are laudable goals for a company, goals that more and more businesses embrace. PA Pellets (LLC), a manufacturer of wood fuel pellets, is one of them.
Established in 2006, PA Pellets is led by three principals, Jason Holmberg, Luke Watson and Gerry Kane.
The young enterprise makes wood fuel pellets and bags them for wholesale distribution. The pellets are eventually purchased by homeowners with pellet stoves – wood stoves or fireplace inserts that burn pellets. PA Pellets can
PA Pellets got started with the aid of a $325,000 grant from the Pennsylvania Energy Department Agency (PEDA). The grant was a portion of the $6.4 million that PEDA awarded to support 16 clean or renewable energy projects in 2006. The allotment and private funds, as well as subsequent smaller grants from PEDA, were used to capitalize the company.
Manufacturing wood fuel pellets requires some expensive equipment. “The equipment is fairly standard” in a pellet mill, said Jason, “but it’s as much of an art as a science. The operators play a huge part” in controlling the quality of the product.
The company’s operating staff samples and tests the manufacturing processes every 15 minutes and makes any necessary adjustments, said Jason. The quality control monitoring is conducted every hour of every day that the company’s pellet mill is in operation.
Testing and monitoring is crucial to maintaining quality. Pellets are made from finely ground wood material that is dried and pushed into dies. Temperature and humidity can affect the integrity or coherence of material in each pellet. Ultimately, these factors also can impact the way the pellet burns.
According to the Pellet Fuels Institute (PFI), a trade association of wood pellet manufacturers to which PA Pellets belongs, there are now more than 80 pellet mills in North America. PFI-graded pellets meet several criteria, including a minimum weight of 40 pounds per cubic foot and maximum dimensions of 1 ½-inch long and ¼-inch to 5/16-inch diameter. PFI also dictates that the fines, or wood dust released from pellet breakdown in transit and capable of passing through a 1/8-inch screen, must not exceed 0.5 percent by weight. The institute also has quality standards that limit sodium chloride (salt) and ash content of wood pellets.
The ash content of product from PA Pellets is less than 1%. Sodium accounts for less than 300 parts per million, and fines also are below the PFI maximum tolerance.
PA Pellets has an informal testing lab to gauge pellet quality. The company’s pellets also are tested by independent laboratories, and they earn the ‘premium’ grade and meet all the standards set by PFI.
Ninety-three percent of the pellets leaving PA Pellets find their way to residential customers, most of them in the Northeast. The remainder goes to industrial and commercial end-users.
PA Pellets delivers its product to wholesalers on the wheels of contract haulers. “We try to use local trucking whenever possible,” said Jason.
PA Pellets has highly automated operations that help ensure quality control. Once a loader dumps wood chips and sawdust on a conveyor leading into the pellet mill at the 40,000-square-foot-plant, the rest of the manufacturing and bagging processes are completely automated. Finished pellets are bagged with a Hamer form, fill and seal bagging machine, a system that fills a bag in less than 3 seconds.
In designing and equipping the pellet mill, the company relied on John Merrifield of Mill Technologies, in Muncy, Penn., whose company provides pellet mill design and technology. (There are similarities in the technology used to produce wood fuel pellets and animal feed pellets; John has expertise in both industries.) John was “easy to work with,” said Jason. “He’s a really good guy.”
Jason and Luke began planning PA Pellets in 2005. They concluded that year they would not be able to obtain financing for a pellet mill they originally sought to develop in Romania; they wanted to launch a business in Romania that would provide financial support for orphanages in that country. In the course of researching the Romanian project, they learned about the pellet market in Europe, visiting mills in Austria, Switzerland, Romania and Italy.
The pellet industry in Europe is 10 years ahead of the U.S., Jason estimated. In Europe, pellets are delivered directly to homeowners. By contrast, in the U.S., consumers buy them in specialty stores, hardware stores and other retail businesses.
With the machinery and automation in the manufacturing operations, the process of making pellets is quite uniform. The major challenge, said Jason, is obtaining raw material. The manufacturing process uses hardwood chips and sawdust. “All of the wood is virgin and all debarked,” said Jason. About 80% of the raw material is oak, maple or cherry, and the other 20% is a mixture of assorted hardwoods.
Having control over raw material supplies is critical, Jason noted. To be successful, the company “must have a fixed price on raw materials and control over the supply and quality of raw materials,” he said.
“Every dollar increase on the cost of green materials has a two dollar increase on the pellet side,” explained Jason. Factor in the recently escalating cost of fuel and transporting material, and the economics is a challenge. “The fuel prices really demand that operations be efficient,” said Jason.
PA Pellets buys chips and pole wood directly from affiliated logging businesses. “One of the things that’s unique is that we don’t rely on anyone else for raw materials,” said Jason. The loggers are equipped with a Fulghum stationary chipper, a Morbark 1848 flail Chiparvestor and a Peterson-Pacific 5000-G flailing whole-tree chipper. The company also buys some wood chips and sawdust from other sources. “We need 80,000 tons per year of raw materials to supply the plant,” said Jason.
Most wood comes from within a 150-mile radius of Ulysses, Pa., which is the home of PA Pellets. Ulysses, a town of fewer than 700 residents, is located in north-central Pennsylvania close to the New York border.
The company’s primary markets are in Pennsylvania, New Jersey, Connecticut, New York and Massachusetts, but PA Pellets also has markets as far north as Maine and as far south as N.C.
The business is not seasonal; pellet manufacturing operations are conducted year-round. “The wood pellet industry is evolving” said Jason, and they constantly adjust their business strategy.
Each principal brings different talents to the company. “I worked for a very entrepreneurial cable and telecom business for about 10 years,” said Jason. Then, he spent some time on his own doing consulting work.
Jason has an MBA degree from Rensselaer Polytechnic Institute in Troy, N.Y., Luke earned a forestry degree from Penn State, and Gerry received a degree in electrical engineering at Virginia Tech.
“We have a much broader management team than most pellet mills,” said Jason. “Gerry is ideal for operations. He lives and breathes it. Luke is a third generation forester.” The “three-pronged” approach to management strengthens the company, he said.
Jason and the other principals have a commitment to their business that goes beyond profits. “It’s good to be able to provide jobs to people,” and they also operate the business with a family environment.
Jason and the other principals take pride in producing a fuel source that allows consumers to tap renewable, clean energy while conserving fossil fuel and saving money. “A user of wood pellets can save more than 72 percent over home heating oil,” said Jason.
“It’s the only alternative energy that is economically viable without government subsidies,” he added. “It’s carbon neutral. It’s indigenous to Pennsylvania and the United States. It’s renewable. It’s nice warm, radiant heat.” And wood fuel pellets provide dramatic savings over the cost of other fuels, like heating oil, electric, propane and natural gas. Perhaps the biggest benefit is that they reduce the use of fossil fuels.
According to PFI, 800,000 pellet stoves and fireplace inserts are already in place in the U.S. and Canada. A benefit of pellets compared to ordinary firewood is that pellets produce negligible creosote, which makes them safer; creosote can build up in chimneys and catch fire.
In announcing the PEDA awards that included the grant to PA Pellets in 2006, Gov. Edward Rendell, cited the expected savings from the projects. The PEDA awards had two important objectives: to promote conversion to clean energy and create jobs. The 16 clean energy projects were expected to create 316 permanent jobs and as many as 280 construction jobs. They were also projected to leverage private funds at a six to one ratio for a total of $38 million.
The wood pellet fuel industry is drawing interest from other sectors of the forest products industry, Jason acknowledged. “We get quite a lot of interest from people who make pallets,” he said. People in the pallet industry envision pellets as a possible side business to their main endeavor.
Jason disagreed. Pellet manufacturing is not feasible as some add-on project to generate more revenue. “You need to focus on it as a business,” he said. Even so, he hears from many pallet companies that are considering getting into the pellet industry. PA Pellets opens up its plant regularly for tours, and many are attended by pallet company representatives.
Pallet companies are best positioned to participate in the pellet fuel industry as suppliers — by grinding wood that can be sold to pellet mills, said Jason.
Pallet Company Builds Pellet Mill
A pallet company with operations in three states is developing a wood fuel pellet mill in Tappahannock, Va.
O’Malley Lumber, which is based in Baltimore, is spending $4.5 million to bring the pellet mill on line. Pellet production is scheduled to begin in June. The company expects to produce 32,000 tons of pellets annually in a business that will provide 24 jobs and operate three shifts.
The company already operates a sawmill in Tappahannock, which is located 45 miles northeast of Richmond on Virginia’s Middle Peninsula.
The pellet mill will use residual material from the sawmill as well as waste material from operations at O’Malley Lumber in Baltimore and O’Malley Wood Products in Gardners, Penn. – all hardwood material.
The equipment for the new pellet mill is being supplied by Equipment Dynamics Inc.