Green Heat in the Great White North

Stakeholders discuss how to build out the domestic wood pellet heat market in Canada.
By Ron Kotrba | March 13, 2017

Last year, Canada produced 2.7 million tons of wood pellets from more than 40 mills, but the cold, northern nation with a reputation of environmental stewardship only consumed about 200,000 tons for its own grand heating needs, with another 100,000 tons used in the domestic power market. The remaining 2.4 million tons of wood pellets produced in 2016 was shipped to Asia and Europe.

“Quite frankly, it’s a little embarrassing that we have to export to Europe and Asia when our own power plants and heating systems here use coal, natural gas, oil and propane,” says Gordon Murray, executive director of the Wood Pellet Association of Canada. “It seems crazy that we have a huge demand potential for wood pellets, and if we as a nation did convert, we could use every wood pellet we produce here in Canada. But thus far, we haven’t had that political will.” Murray says Canada consumes 40 million tons of coal a year for power. “If you took just a small percentage of that and converted it to wood pellets, it’d be a boon for our industry,” he says.

Most of Canada’s 35 million citizens live near the U.S. border, notes Jan Larsson, a founder and partner of Energy North Corp., a company specializing in biomass heating installations in the harshest of climates—the Northwest Territories. But a third of Canadians live in smaller, more remote communities with no access to natural gas. Canada’s gas grid covers “pretty much all of western Canada, and runs into the main cities through Ontario and stops at Quebec,” Murray says. “And there’s another gas line from Sable Island off the East Coast of Nova Scotia that runs through main cities like Halifax and Monkton and south to Massachusetts.” All things equal—and without government subsidies—natural gas is by far the cheapest fuel. Murray says if gas is available, it is unlikely wood pellets would gain any appreciable momentum beyond ambiance. “But then there’s all those areas where there’s no natural gas,” he says.

Canada’s annual nongas commercial and residential heat and hot water energy consumption surpasses 1 trillion gigajoules, Murray says. “This is equivalent to 71 million tons of wood pellets,” he explains. Jonathan Levesque, vice president of sales and development for New Brunswick-based Groupe Savoie Inc., points out that with this huge potential for wood pellet consumption, and with less than 3 million tons of annual production, no one is pushing for 100 percent conversion. “Right now, if all the pellets produced in Canada were used domestically, that’s clearly not sufficient supply to convert everything,” Levesque says. “The market is big enough to handle our industry without any issue.”

The advantage for wood pellets in Canada, Murray says, is that—just like in the Northeast U.S.—large parts of country are not covered by the natural gas grid. But with that edge comes a downside. “Many of these communities are remote,” he says, “so that will be challenging for obvious reasons.” Instead of natural gas, oil fulfills many of the rural communities’ heating fuel needs. But this may soon change.

Government Stick
For the decade prior to 2015’s federal elections, Canada’s government in Ottawa was run by “more right of center conservatives,” Murray says. “They talked a lot about climate change, but they didn’t do anything about it.” In 2015, Justin Trudeau of the Liberal Party of Canada was elected, and since then, the government has developed the Pan-Canadian Framework on Clean Growth and Climate Change. Agreed to in 2016 by the federal government, provinces and territories, the framework proposes to reduce greenhouse gas emissions by 30 percent from 2005 levels by 2030. The government plans to do this by taxing carbon pollution, which will be priced at $10 per ton in 2018, rising to $50 per ton in 2022. The plan intends to phase out coal power generation by 2030 and eliminate diesel power generation in remote communities.

“The Pan-Canadian Framework hasn’t been written into legislation or policy yet, it’s more a declaration of intention,” Murray says. “It’s a step above what the previous federal government was willing to do. We do have to see some concrete policy to mortar that legislation. But people are not going to be willing to pay more for heat just because it’s green—it’s got to make financial sense too.”

Larsson says, “I don’t think they know what they’re doing so far. There are no nuts and bolts yet. There will be a scramble to make it happen by 2018, but it will definitely have a big impact on the future of wood pellets here in Canada.” He says big companies that own large complexes they have to heat, such as apartment buildings, would be highly motivated to convert to wood pellets vs. paying a pricy carbon tax.

“This is a step in right direction,” Levesque says, “because in the end, if you’re doing the right thing for the environment and then fossil prices go down, it jeopardizes all the progress we’ve made in green energy. Over the past few years, with low oil prices, we saw some impact in Canada. But in Maine, we saw the pellet market collapse because fossil prices are so cheap. People say, ‘Why bother? I just have to order more oil.’ It’s easy. You can try to be nice to the environment, but you need a stick. It’s a nice stick to have regulations that say, ‘If you want to burn dirty fuel, then you have to pay more than the guy next to you who wants to help the environment by using the right fuel.’ Since that announcement, people are saying, ‘Okay, 10 months from now, we’re going to see some action happening.’ The end result is hard to predict, but people realize if they’re going to burn oil, they’ll have to pay more with yet another tax on it.”

In February, the Canadian Broadcasting Corp. reported that the federal government is earmarking $50 million in the next budget to help remote, indigenous communities develop renewable projects to decrease their dependence on fossil energy, specifically diesel fuel. “Biomass is going to be the best solution for that,” Murray says. “There will be people who think using solar panels up there in northern Canada, where it’s dark for 20 hours a day in the wintertime, is a good idea, but that doesn’t make sense. And building new hydro dams for small communities will not work, so it’s going to be biomass. Importing pellets is an attractive solution there.”

Larsson says the $50 million to wean 200 remote Canadian communities off fossil fuel will be “the most important” aspect of the Pan-Canadian Framework to date. “Once we get wind, solar and biomass into those communities, there’ll be a spillover effect.” Larsson knows about spillover effects. It’s what has made the Northwest Territories one of the biggest success stories for wood pellet conversions in Canada.

Northwest Territories
With slightly more than 40,000 people occupying 442,000 square miles—a land mass equivalent to the combined U.S. states of New Mexico, Texas and Louisiana—the Northwest Territories is about as remote and isolated a region as any. “For bulk pellet deliveries, we have nine delivery trucks servicing five regions,” Larsson says. “That’s not a lot, but last summer the whole province of Ontario only had one.” While Northwest Territories is remote and sparsely populated, the region is well-served with wood pellets through a variety of means: pallets of bags; bulk delivery by trucks, which often traverse ice roads from isolated distribution centers using farm silos; railway cars; and river barges. How could such a remote area develop wood pellet usage that rivals the most developed regions of Europe on a per-capita basis? Larsson explains.

“About eight years ago, before people started talking about carbon credits, the government of Northwest Territories said we were spending too much money on home heating fuel installations,” Larsson says. “The risk is high, with ship and truck spills left and right—and oil spills are expensive—so to change this, it was decided to turn over the biggest government installations to biomass. All the big consumers of heating fuel—hospitals, schools, airports, correction centers—were converted to biomass, mostly wood pellets. And in doing this, we would get private companies to establish bulk delivery infrastructure. Once this happened, there was a spillover to commercial and home owners.” Larsson says the government began with the big installations and realized a savings in heating fuel costs every year, so it put those savings in another fund to invest in additional, smaller installations down the road. “It had a snowball effect,” he says, “and it kept rolling.”

The second driver was the territorial government’s installment incentive program. “Homes receive up to $5,000, and commercial buildings get between $10,000 and $50,000 in a check if they switch over, depending on what’s installed,” Larsson says. “Communities could also receive up to $50,000. This has been going on for five to six years.”

Thirdly, Larsson stresses development and utilization of a homegrown industry. “This is very important,” he says. “It means we have a homegrown industry of engineering companies that know how to define and propose installations that fit northern use, which is more demanding than what’s required in the south. I can’t emphasize this enough. We’ve had some big flops here, in which southern engineering companies won the bid, completed the drawings, and the systems don’t work because we have such extreme winter conditions up here. And then there’s the maintenance challenges. All this needs to be taken into account. My own company, Energy North Corp., trained and certified 21 installers in the Northwest Territories. They’re certified from the factory. There are less hiccups that way.”

In addition to training certified installers to set up pellet appliances made by manufacturers such as Maine Energy Systems, Larsson says he also lobbies. “We have to change regulations and standards, and update them,” he says. “Most regulations are based on 1950s technologies.” While the U.S. has Underwriters Laboratories, he says Canada has the CSA Group (formerly the Canadian Standards Association), and regulations can be strict. Boilers must be approved for safety and each region needs approval, he says.

Levesque buttresses this, saying boiler regulations between the provinces differ. Furthermore, the ASME certification process to approve European boilers for use in North America is slowing development, Levesque emphasizes. “Europe has been doing this for 25 years,” he says. “The problem is when you bring that technology here, it has to be suitable for our regulations—there’s a big difference—and the result is additional costs to all appliances.” To gain ASME certification in North America, Levesque says the pressure vessel inside boilers must be modified, adding 20 to 35 percent additional costs over models approved for Europe.

“We also realized that those people sitting on committees, they have no experience with a homegrown industry for pellet boilers,” Larsson says. “We ended up getting two people to sit on the boards. We’re slowly changing things, but regulations are always behind what’s going on in the field.”

Larsson says another area of concern is insurance companies penalizing pellet users. “The insurance industry is really backwards,” he says. “Some dictate that policyholders can’t use more than 1.5 tons of pellets in bags if they’re using a stove or a boiler, and if they do, then their home insurance premiums will balloon. As an industry, we advised owners to contact their insurance companies. Those who will listen and take our advice will find another company that doesn’t penalize them for saving money.”

Atlantic Canada
Groupe Savoie Inc. is an innovative company that not only produces more than 90,000 tons of pellets a year, but has been instrumental in developing the domestic market in Atlantic Canada. “Groupe Savoie is exporting to Europe,” Levesque says, “and we’re supplying local markets. Right now, the local market has a bigger share than what we export. But we’re always trying to supply here and Europe. Customers there want long-term commitments and that’s hard to do with demand on this side of the ocean up and down. It makes it tricky.”

Groupe Savoie started pellet production in 2010. “Four years ago, we decided to develop the domestic pellet heat market by taking the bull by the horns and doing it ourselves,” Levesque says. The company partnered with Compact Appliances and started Biomass Solutions Biomasse to sell and install pellet appliances for small commercial and larger applications. “The first question the customer had for us was, ‘Where am I going to get pellets, and how?’”

Groupe Savoie had long since partnered with third parties for transportation, but two years ago it bought “a real pellet delivery truck,” Levesque says, adding that other pellet trucks in Canada are converted grain trucks, but BSB’s truck was the first in Canada specifically designed to deliver pellets.

The company’s appliance installations over the past four years vary from residential units to large commercial applications—schools, hospitals, apartment buildings, chicken broiler farms, potato warehouses, airports. “You name it,” Levesque says. “The reason why we started doing this, instead of waiting for someone else to do it is because we’d probably still be waiting.” He says while BSB doesn’t build appliances yet, it’s not off the table for the future. “It’s too early to go that step,” Levesque says, “but I’m not saying it’ll never happen.”

BSB has installed a vast majority of its appliances in New Brunswick, with one installation in Newfoundland and its eye on Quebec and Nova Scotian markets. “The government of New Brunswick is dedicated to retrofits or new installations for wood pellets,” Levesque says. “It has a budget every year to convert schools, hospitals, government buildings, or for new installations. A crucial thing to keep in mind is, as we develop this industry, we have to develop distribution with it. Of course, it’s easier for us to have a plant in New Brunswick and to develop customers around us. Sending a truck to drive 400 kilometers to deliver 5 tons is not a business model that will survive for long. We have to be strategic in how we develop the market.”

Levesque says BSB is talking with four other mills in New Brunswick in collaboration. “If they have a pellet customer who wants to buy a boiler, we’ll sell the appliance, and they can use our truck to deliver their pellets,” he says. “After all, it doesn’t make sense to produce here and supply there. Pellet mills need to realize that collaboration is important to grow this industry.”

Atlantic Canada is an ideal place to develop the domestic pellet market because, in addition to minimal natural gas grid coverage, the pellet mills are smaller scale and rather evenly distributed. “In my view,” Murray says, “plants scaled at less than 100,000 tons, unless they’re connected a with larger producer in a joint venture, it’s difficult for them to do bulk exports. They have to rely on heat markets because it’s more a local-type business.” In eastern Canada, plants are on average much smaller than those out west, and many are inland, farther from the ports. So even if they are big enough, they may not have good port access. “Those guys want to build the domestic market,” Murray says. “But in many cases, they don’t have the marketing budget. They may have one sales guy doing the best job he can. But to really educate the market, it takes a combined effort—and more marketing. Getting the message out on behalf of the whole industry.”

Murray says Canada’s pellet production will grow by a few hundred thousand tons this year over last, not from new mills, but from recently built plants becoming more efficient. Furthermore, he predicts domestic consumption will increase by 15 percent. “That’ll be attributed to local marketing and organic growth,” he says. “People are slowly becoming more aware, and that will snowball.”

The environmental aspect of wood pellet conversions cannot be underestimated, but the economic impact and savings are perhaps the most human of motivations. “The total economic impact of burning what grows around you, rather than sending money to other countries, is important to highlight,” Levesque says. “That total impact is huge.”

Larsson says many calls he receives are from people whose existing fossil-fueled appliances are reaching end of life. They don’t want to switch to go green, he says, but to save money. By using wood pellets compared to propane or oil in Northwest Territories, users can save 35 to 45 percent a year, Larsson says. “The main reason for wood pellet use in this part of Canada is not carbon or going green, hugging trees, but because it makes sense,” he says. “It makes them money, and they have more money to spend on other issues. Up here we have six to nine months of heating bills. It’s a big bill. So here comes a solution that makes sense, provides savings, and on top of that the government can help cover installation costs. It’s a good thing for Mother Nature too, and the younger generation wants to be green, but they don’t want to lose money doing it. You should be a good citizen of this community, but you can’t be stupid about it. It has to make sense.”

Author: Ron Kotrba
Senior Editor, Pellet Mill Magazine
218-745-8347
rkotrba@bbiinternational.com