When the Going Gets Tough, the Tough Start Promoting
Reading the tea leaves for our midterm energy future has become difficult over the past three years. Fracking for oil and natural gas has fundamentally altered assumptions about energy costs over the next decade, in some cases demolishing assumptions that once seemed obvious. Institutional projects that made sense strictly because of presumed energy-cost inflation are being re-examined.
Fracking has had the most dramatic impact on the anticipated near-term cost of natural gas in North America. Gas is difficult to export in massive quantities, except via pipelines, which effectively strands this resource in North America. Oil, however, is the ultimate transportable energy source, particularly in refined form, and has also benefited from advances in fracking. Consequently, oil and heating oil will not remain independent of the dramatic growth anticipated in world oil demand over the next decade, which is good news for wood pellet projects.
Currently, the North American industry is based on residential bagged fuel. There are a few bulk customers, and wonderful efforts are being made to create more, but the industry’s bottom line is tied to bagged fuel—several million bags—each year. Most is consumed by households that have other thermal energy sources available—oil, liquid propane, or electric. Much of the behavior of these “pellet supplementing” households is based on energy costs.
Not just real energy costs, but the rate of increase in energy costs. Many of these households have saved hundreds or thousands of dollars over the last five to 10 years, using biomass for 60 to 95 percent of their thermal energy. These families purchase 2 to 5 tons of fuel a year, incrementally or all at once, often shopping for the best price among several mass merchants.
What happens to these consumers when the price of more convenient fuels stops rising? While prices for some nonnatural gas heating fuels will undoubtedly be higher by the decade’s end, what about the next two years? As we have seen with gasoline prices, a price that once was thought of as unbearable can become routine.
I suggest the biomass fuel industry focus more on making a case for pellet heat that transcends the issues of fossil fuel costs. We could promote our industry in terms of renewable energy, locally produced energy and the jobs that it creates, as well as household self-reliance.
Many of us are promoting pellets with these messages, but I’m afraid some have gotten a little lazy, and are used to depending on rising energy costs to “lift all boats,” rather than thinking about consumer promotion.
The pellet fuel industry must increase its ethic of promotion, at the fuel producer level and throughout the value chain, of both the fuel and appliance sides, to avoid being caught unaware and having to chase consumer behavior to attempt to rectify declining utilization rates. Consumers have never failed to value convenience. Furthermore, many of our consumers are aging and older folks, even more vulnerable to the seduction of convenience versus cost.
As an industry, we can highlight new ideas in the value proposition and reach both new and existing consumers. Not just an industry of fuel producers, or appliance manufacturers, but as a pellet industry. We can’t sit back and depend on the sticker shock of energy prices to make our value proposition for us. We need to articulate all the reasons to use residential thermal biomass, and articulate it as a whole community of interest.
We might benchmark ourselves on the propane industry, which has actively embraced the promotion of propane for many years, adopting a check-off system that funds a major promotion and utilization program through their education foundation.
Whatever the industry decides to do, we need to get started. Our value proposition is based on much more than rising energy prices, but it’s up to us to articulate that. We can no longer count on rising energy prices. They will rise again, but not for a while. In the meantime, we need to maintain our share of customers and our percentage of household heat, and perhaps even increase it.
Author: John Crouch
Director of Affairs, Pellet Fuels Institute