PORTLAND, Maine — Plummeting oil prices this winter changed the economics of switching off the fuel, but at least two companies in Maine are seeking to change the economics of heating itself.
The Orono-based PelletCo and Portland-based Alodyne have pioneered new financing methods that have customers pay for heat energy, rather than paying for fuel, while their companies lease the heating units to the building owners.
Getting to understand such arrangements leads to a topic that can get complicated, fast.
“The word cloud of ways of talking about energy is pretty confusing even for someone who’s in it,” said Jeff Packard, Alodyne’s CEO.
It’s partly because the startup asks its customers to think about heat in terms of thermal energy, not gallons of oil or propane or tons of chips or pellets. Both companies are trying to clear one of the major hurdles of upgraded heating systems, that they can be wicked expensive.
“(A pellet boiler) is going to cost $25,000 to $75,000 — it varies, but it’s a big number,” said PelletCo CEO Jim Knight. “Our strategy has said, ‘Let’s help people take that objection off the table and let’s view this like you’re leasing a car.’”
Alodyne and PelletCo are both banking on being able to provide more efficient high-tech heating systems that, in turn, save money. PelletCo’s approach is tied to wood pellets. Alodyne will use any fuel system.
Both use heating systems they can monitor remotely for customers and can take care of maintenance and fuel supply also, which can end with a customer owning the heating unit or not.
Knight said the economics and financing options are putting large residences on the horizon, but small businesses like Maple Hill Farm Inn in Hallowell, and larger facilities, are the primary clients.
For Alodyne, that’s a business burning the equivalent of about 20,000 gallons or more of propane per year. For PelletCo, it’s the heating equivalent of about 3,000 gallons or more of No. 2 fuel oil. (The average home uses about 540 gallons of heating oil.)
Both have built their businesses on an ability to install more efficient heating systems where the savings can, over the course of a 10- or 15-year contract, pay for the heating upgrade.
That’s because both take on the upfront financing and, in return, ask building owners to make long-term commitments for heat. That is, making monthly payments to cover fuel costs as well as a payment toward the cost of the heating system.
When heating oil was about $3 per gallon, Knight said his company could save a customer up to 20 percent.
“The viability of that approach is predicated on a fairly wide spread on what it costs to heat with oil and what it costs to heat with pellets,” said Charlie Niebling, principal of the New Hampshire-based consultancy Innovative Natural Resource Solutions. “But I think the general sense is that oil prices will come back.”
The drop in oil prices — at $2.60 per gallon as of this week — has changed the math.
“What we’re finding is that with oil prices, we can meet them but probably can’t beat them,” Knight said.
For Alodyne, Packard said that has a small effect on business, but not on the timeframe of their typical contracts, which span about 15 years.
“Because we are an efficiency-driven business, it can affect some of the business,” Packard said. “But we do long-term contracts, so basing things on short-term ripples, let’s say, is kind of short-sighted.”
The cost comparison raises a whole host of other questions typically not dealt with when home or business owners buy fuel — that is, how much potential heat energy are you getting?
The wide variety of heat and energy sources — and delivery systems — makes it “really difficult” for clients to “compare how much electricity that they use compared to how much heat they use,” Packard said.
For Alodyne, which doesn’t depend on any one type of fuel for the heating systems it engineers and installs, that calculation depends rather on whether they can create a system efficient enough to pay themselves, cover the cost of the system and charge the customer less than their previous annual fuel bills over about 15 years.
Packard said Alodyne, which has worked on larger scale projects, saved Sunday River more than $60,000 in the first year of a heating contract at the ski resort’s Jordan Hotel. It secured a second contract for the ski resort’s Grand Summit Hotel and also has completed a project to heat the cafeteria at his father’s former school, Gould Academy, in Bethel.
PelletCo’s been at that method of financing for about two years and has about 20 projects completed on that model, where it pays the upfront costs for a heating system that’s paid for by a contract with a building owner for about 10 years.
In order to do that, the companies have to get banks on board, which they said stands to prove the business model and expand their markets.
“It is something new and different, so what we’ve done is spent two years working very hard to educate some key players in order to get their participation,” Knight said.
And proving such arrangements for heating systems alone are a necessary first step for other more expensive projects that could also generate power, Packard said.
“It gets a little more complicated to sell heat and electricity and adds an extra component to the whole model,” Packard said. “We’re looking to build a track record doing heat and that will let us enter the market for (combined heat and power).”
Packard said the company has targeted large users of heating fuel in the Northeast — like hospitals, hotels and schools — after he tried to launch in southern California. He moved to Maine in 2011 to start Alodyne, which this week applied for a work Visa to bring an engineer from Germany to pursue projects on the model of the German energy management company favis GmbH.
“I feel like we’ve jumped out a little bit in front of the wave, and now it’s making sure that we can catch that wave,” Packard said.