The U.K. wood pellet market began around 2002, as a few small-scale pellet producers invested in workshop-scale pellet mills to add value to their waste dust and shavings. Most of these pellets made their way into coal conversion projects in local authority or public administration buildings such as schools and offices, and it wasn&rsquo;t until northern Irish sawmilling company Balcas opened its 55,000 metric-ton-per-year plant in Eniskillen that the U.K. had a credible supplier of wood pellets operating at a meaningful scale.
At about the same time, coal-fired power stations were making the transition to cofiring with biomass. This involved years of trials with many different forms of biomass fuel, such as olive pits from Spain and Italy, straw pellets from local farmers and waste wood from industry, before power generators settled on wood pellets as the optimum fuel for cofiring with coal.
Most of the cofiring power stations have either closed or converted since these early projects, with several making the move to 100% wood pellets for fuel. The largest of these is Drax Power Station in North Yorkshire, which has converted four of its six 65-MWe generating units to run exclusively on biomass and is currently evaluating options for its remaining two coal-fired units. Not only is Drax the U.K.&rsquo;s largest power station, producing around 7% of the U.K.&rsquo;s total electricity, but it&rsquo;s also the world&rsquo;s largest biomass-fired power station, taking in around 7 million metric tons (MT) of pellets each year, and making up the vast majority of the UK&rsquo;s 8.5 million MT&nbsp; of annual pellet imports&mdash;more than any country in the world.
Sitting between domestic- and dramatic-scale pellet users, the U.K. has developed a biomass boiler market of around 16,500 commercial and industrial systems and 12,700 domestic systems since the introduction of the Renewable Heat Incentive, the main support mechanism for biomass and other forms of renewable heating systems. Of these users, around half of the commercial and industrial systems (measured by number of installations) are running on wood pellets, while almost all the domestic installations are pellet-fired.&nbsp;
In the domestic sector, which has been supported by a version of the RHI tailored specially to this market, the installation rate of new systems started at just two systems in the first month of the scheme (February 2014), before peaking at close to 1,300 systems in December 2016 and then&nbsp; dropping&nbsp; to a rate of just 28 new installations per month by the end of 2018. This rapid peak and drop off are due to the built-in cost control mechanism in the RHI, which has systematically reduced payments for new schemes to the point that growth in the domestic wood pellet market is now stagnant.
In the commercial and industrial sector, smaller boilers (less than 200 kilowatt (kW) saw solid market growth between June 2013 and July 2015, before the same cost control mechanism that has slowed the domestic sector took the heat out of this market segment. Because of their relatively small size and typical application in low duties such as space heating, pellet-fired boilers were the dominant choice for those installing boilers below 200 kW. This market peaked around 2,100 installations in December 2014, before drastically dropping in 2015, averaging just a dozen or so systems in the months since then, with some months seeing just single figures of market growth.
At the larger scale&mdash;boilers above 200 kW output&mdash;wood chips, rather than wood pellets, have been the dominant fuel choice, due to the better economics of using this cheaper fuel in larger boilers running in higher duties. There are some exceptions to this rule, but as a general principle in the U.K. market, the larger the boiler, the more likely it is to run on wood chips.
This market growth, most of which has been since 2011, has created a U.K. manufacturing base that produces around 300,000 MT of pellets each year, although this has fluctuated dramatically thanks to industry restructuring between 2017 and 2019. This capacity meets just under half of the U.K.&rsquo;s annual wood pellet heating needs each year, with the balance of the total&mdash;a further 350,000 MT&mdash;coming mainly from the Baltic states, Russia and Portugal.
Of the 650,000 MT of pellets used for heating in the U.K. each year, the majority goes into commercial applications, although the supply chain is fundamentally the same as domestic applications.&nbsp; Both markets involve mainly ENPlus certified pellets being delivered from U.K. pellet mills or ports, usually via regional depots, to end users using bulk tankers for the final journey.
Prices have seen modest fluctuations in recent years, although not as much as fossil heating fuels, which are subject to much greater variation. The winter of 2017- &rsquo;18 saw a particular spike in prices and shortages in some parts of the country, as structural issues in international supply chains, coupled with a significant but temporary drop in U.K. production, impacted availability and price.&nbsp; This spike was not repeated in winter 2018- &rsquo;19, and prices have since stabilized. Outlook The outlook for the wood pellet market is mixed. The U.K. government seems to have fallen out of love with the idea of biomass, but it&rsquo;s hard to see how our carbon reduction targets can be met without dramatically increasing the deployment of biomass boilers across rural domestic properties where heating oil is the dominant fuel type, and in commercial and industrial applications in all sectors of the economy. Wood pellets have a natural advantage over wood chips in many applications, particularly in urban areas where the majority of larger heat users are located, but concerns around urban air pollution&mdash;especially NOx and particulate matter&mdash;means that installing a biomass boiler in a town or city is a drawn-out and complicated process. The typically lower particulate emissions associated with pellets as a fuel, coupled with higher bulk density than wood chips, means that in instances urban area schemes do go forward, pellets are the fuel of choice.
The U.K. government has indicated that there will be no RHI 2.0 once the current scheme ends in March 2021 and has established an &ldquo;RHI Closure Panel&rdquo; that includes representatives from government, advisory bodies, trade associations and industry.&nbsp; This group will look at the best way to ensure those who are already on the RHI scheme&mdash;which for commercial customers runs for 20 years from the point of first registration&mdash;will be monitored and supported so that they meet their ongoing obligations.
Government tends to look for technological fixes and constantly seeks new and silver bullets for problems, and this can certainly be said for the U.K.&rsquo;s current approach to decarbonizing heat. The biomass industry, having proved it can deliver at scale, is now frustrated by the thinking of government, which sees the electrification of heat as the way forward, with the notion that large-scale Bioenergy Carbon Capture and Storage in the 2030s will help them achieve&nbsp; goals. Backing a currently unproven technology to deliver tomorrow rather than today, in lieu of deploying a no-regrets option such as biomass heat, is a dangerous move. It is a decision that not only runs the risk of failing to meet targets, but also undermining the viability of the remaining industry in the U.K., which is already challenged with limited opportunities for meaningful new growth.
Industry lobbying and government research continues at an increasingly frantic pace, as the biomass sector seeks to secure its future as part of the solution to U.K. carbon emissions, while the government looks for technologies that can be supported to meet targets that, although unchanged for many years, look less and less realistic with each day that passes. Author: Neil Harrison Chairman, Wood Heat Association www.reheat.uk.com

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The outlook of the U.K. wood pellet market is mixed. 

UK Wood Pellet Market: Past, Present and Future

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