Have heat, will travel: Orono heating company PelletCo takes a new approach to business

Posted June 20, 2014, at 6:04 a.m.

ORONO, Maine — The idea is simple: Install an automated outdoor wood pellet boiler, and hook it up to a building’s existing heating system. Don’t charge the building’s owner for either the boiler or the pellets. Charge for the heat that is used.

That’s the business model of local heating company Pelletco LLC, and it apparently works. The company installed an outdoor pellet boiler to heat a building at the former Loring Air Force Base in Limestone last summer. After a bitterly cold winter, both the customer and the company were happy with the results.

“We’ve calculated savings in the range of 7 to 10 percent,” Carl Flora, president and chief executive officer of the Loring Development Authority, said June 12, comparing the cost of oil heat with the heat provided by the Pelletco system. “It‘s their capital investment. We just buy the heat. There is a meter that reads the BTU output, and we pay for the heat that gets used in the building.”

There is no upfront or capital cost for customers because Pelletco installs and operates the unit and purchases the pellets. It bills only for the heat used.

The business idea is attracting attention. The company of three, led by James Knight, Pelletco’s chief executive officer, learned last week that Clean Feet Investors of Farmington, Connecticut, is investing $1.5 million in the Godfrey Drive company that started in 2010 and installed the first of 12 heating units, called a HeatPod, two years later.

“It is an automated wood pellet boiler system which provides heat and replaces the use of oil and propane for commercial buildings,” Knight said. “They keep what they have already. We tie into their existing system.

“We actually have the flexibility now to do the installation of the HeatPods and internal units inside of the buildings and that is a direct result of the investment by Clean Feet,” the CEO said.

Clean Feet makes investments in small to medium-sized renewable energy and energy conserving projects, a news release about the investment states.

Pelletco gets free technical assistance from Michael Bilodeau, director of Process Development Center at the University of Maine, and partners with a number of Maine companies, including ReVision Heat of Portland.

The Orono company also taps Maine pellet producers such as Corinth Wood Pellets, Wood Pellets of Athens and Daigle Oil, which sells pellets and has multiple locations in Aroostook County, to feed its automated systems.

“It’s really whoever is closer to us geographically,” Knight said.

The cost for the heat provided by Pelletco averages out to the equivalent of $3 per gallon for heating oil, Knight said, but it varies for each customer and depends entirely on how much the business used oil or propane the year before.

“We look at how much [fuel] they used historically,” Knight said. “We base our first year off that [calculated at the $3 per gallon of oil rate]. We take that [amount], and divide it by 12, and that is your monthly bill. At the end of the first year, we look at it again and … make an adjustment, and that is used for the bill for the next year.

“What we’re trying to do is make it as simple and transparent as possible,” he said. “You’re not going to keep seeing your bill go up in the winter or down in the summer. You know what your bill is going to be.”

Since each HeatPod building has a BTU meter, customers could be charged only on usage but, so far, all have signed yearly contracts to keep costs low.

“It works out better for the customers and us,” Knight said. “It’s easier to do it on an annual basis.”

In the future, the Orono business would like to make a smaller automated residential unit, but most people don’t want such a large unit sitting beside their homes, Knight said.

Pelletco made a profit in 2013, but Knight admitted “it was not huge,” and that is why the investments by Clean Feet and others are so important.

“We’re splitting the savings with the customers,” the CEO said. “We’re keeping some of the savings to be able to pay back the price of the equipment. The key thing for the customers is they’re getting off the roller coaster of [changing] oil and propane prices.”

Flora said that overall he was happy with the Pelletco system at the old officer’s club on base, but a second system at a building with a steam system “didn’t function as well.”

“It was growing pains,” Flora said. “We believe we’ll see even better numbers from that [system] next year.”