Wood fuel pellets are coming into their own as a global energy product, but while building opportunities and long-term potential characterize markets in North America and Asia, for example, Europe remains the market for current solid growth and expansion, with governments throughout the region committing to policies to reduce greenhouse gas emissions and fossil fuel usage. Looking at world pellet consumption through 2013 shows Europe taking an overwhelming share of global pellet output, consuming 19 million tons out of 24 million tons overall.
According to a January 2015 working paper from the U.S. International Trade Commission (ITC) by Alberto Goetzl, the UK is the world’s largest pellet importer. At least five major UK power producers have developed plans to incorporate and expand the utilization of wood fuel pellets for electricity production.
After passing Canada in 2012, the U.S. is now the world’s largest exporter. A U.S. Energy Information Administration paper from April 2015 notes that U.S. wood fuel pellet exports increased 40% from 2013 to 2014, from 3.2 million tons to 4.4 million tons. Of that amount, almost three-quarters (73%) of volume went to the UK for power generation.
As these and other pellet markets have expanded, production has risen to meet demand: According to Hawkins Wright, global pellet production has risen 637% in the past 10 years, from 4 million MT in 2004 to 25.5 million MT in 2014.
Europe Expansion
European markets are expected to remain the top driver of global wood pellet demand, with a widely reported analysis from Poyry’s Silvio Mergner projecting European demand to grow from 25 million MT in 2015 to 35 million MT in 2020 and up to 38 million MT in 2025—a 52% increase in the coming decade.
According to U.S. Industrial Pellet Assn. Executive Director Seth Ginther, wood pellets remain attractive because “Biomass is the cheapest renewable technology” and fits the current power generation infrastructure better than other technologies, he says.
“Pellets are a baseload fuel that’s easily used in existing infrastructure, and affordability is a case we’ve made strongly in the UK,” Ginther says, adding that “It’s probably a disservice to talk about a ‘gold rush’ in terms of market growth, but pellets are here to stay as a global energy source with a good ROI.”
Looking ahead, Ginther sees steady growth in European markets during the next few years and notes that the Netherlands has approved green power programs that become available in 2016 that support renewable fuel utilization and should boost demand there by 3.5 million tons for power production co-firing, plus another 2.5 million tons applied toward steam production.
Noting the flurry of export-oriented U.S. pellet mill announcements and startups during the past five years that seems to have slowed as of late, Ginther says that’s the nature of the power industry and baseload fuel production. “We may now be seeing a bit of a plateau, but we still see additional incremental growth that’s steady.
“Investors won’t build a plant without a long-term agreement in hand,” Ginther continues. “The business sort of follows the market, so you have to have a customer in place to support a business plan.”
Eventually, a good chunk of industrial pellet demand could come from domestic markets, though the future remains uncertain concerning U.S. reduction of CO2 emissions in power production, Ginther says. The recently released EPA Clean Power Plan, which seeks to reduce CO2 power plant emissions by more than 30% from 2005 levels by 2030, is likely to get hit with a slew of legal challenges.
Regardless of how or if the plan or parts of it survive, Ginther sees wood fuel pellets as playing a key role in any future U.S. CO2 emissions reduction efforts. “We see a role for pellets to be used to help elongate the life of the current coal power infrastructure,” Ginther says, adding that co-firing with wood pellets helps both coal companies and power companies preserve existing capital investments.