Woodpellets.com Gets $11M to Spread Its Fuel

Wood pellets may seem like a strange place to look for technology to fuel growth. After all, what is more old-fashioned than burning wood to heat a home?

But in fact, wood pellets made from discarded or sustainably harvested sources and burned in clean-burning stoves and boilers are a carbon-neutral fuel that comes from a renewable resource.

What's prevented more widespread use of wood pellets, says Jon Strimling, president and CEO of Woodpellets.com, is their old-fashioned distribution system ≠ one that usually ends with the customer lugging big bags of the fuel from stores to their homes.

Woodpellets.com on Monday announced it had secured an $11 million series B investment to help it solve that distribution problem. The investment was led by Monitor Clipper Partners and joined by .406 Ventures, the lead investor in a $4 million series A round in 2008.

Launched in 2006 as Pelletsales.com, the Goffstown, N.H.-based startup has built up a network of 30 distribution centers, 200 affiliates and about 40,000 customers, mostly in the Northeast but with a growing number in the Midwest and Pacific Northwest.

That's a pretty small slice of the roughly one million homes in North America that use wood pellets for heating, but represents a fourfold growth in revenue for the company between 2007 and 2008.

That growth has continued into 2009, despite the economic downturn, Strimling said. After all, it's the only company he knows of that can offer customers a "search engine for wood pellets," offering customers different options priced by source of manufacture, mode of transport and type of end-point delivery, whether that be from affiliated retailers or from Woodpellet.com's own fleet of delivery trucks.

The latter category represents a relatively rare way of delivering wood pellets in North America, but one that's gotten better traction in Europe, he said. The idea is to load pellets in trucks that can drive from customer to customer and blow the fuel through a hose into basement bins that feed wood-fired boilers, much as heating oil is delivered to Northeast homes today.

"Name me another consumer product that people go and pick up three tons of at the store," he said. Getting past the "carry-it-yourself" mode of delivery could put wood pellets on the map as a serious alternative to other heating fuels, he believes.

Wood pellet stoves did enjoy a big boom in sales last year when oil prices reached $140 a barrel, he noted. He estimated that wood pellets will remain competitive with oil at $60 to $70 a barrel, and pay back the cost of installing the stoves in two to three years.

Harder to compete with is natural gas for heating, which after all doesn't need to be trucked to each home it's used in, he said.

But natural gas does have a better use in generating electricity, he noted, since burning it to spin a turbine is about a 62-percent efficient process, versus the 32-percent efficiency of generating electricity by burning biomass – like, say, waste wood that could be turned into pellets.

Since waste wood will eventually decompose and release carbon dioxide anyway, burning it doesn't increase the greenhouse gas impact, he said. In fact, burning wood pellets reduces the amount of methane – a far more potent greenhouse gas than carbon dioxide – compared to letting the wood rot, he said.

And particulate matter pollution from a wood pellet stove or boiler's emissions is far lower than that from a fireplace or traditional wood stove, he said. That's why the Environmental Protection Agency offers up to $500 rebates for replacing fireplaces with pellet stoves in certain air pollution "non-attainment" areas, he said.

Whether or not more American homes will turn to burning wood pellets as a primary heating source remains to be seen. Still, they're becoming an increasingly popular fuel for homeowners and industry alike.

European coal-fired power plants are turning to wood pellets to meet upcoming mandates for providing 20 percent of their power from renewable sources, this July Wall Street Journal article reports.

That's led to a boom in wood pellet production facilities in the United States, the article notes, despite the fact that wood is a far less efficient fuel for electricity generation than coal or natural gas.

Learn how to differentiate your company through greener product lines at Greening the Supply Chain on September 17 in Boston.