Industrial Producers Eye Global Thermal Markets

By Seth Ginther | March 20, 2015

The wood pellet industry is always looking for ways to grow and expand into emerging markets. While the pellet heating market in Europe is nothing new, it is emerging as an additional opportunity for North American wood pellet exporters.

The market for pellets for heat in Western Europe has seen exponential growth, going from a 2 million metric ton market in 2004, to a projected 10 million metric ton market in 2014. Pellets provide a low-cost option in the face of increased heating costs across Europe. Pellets for heat are cheaper in comparison to other forms of space heating, such as natural gas, oil, and electricity.

Europe’s ability for domestic production to meet the demands of the pellet heat market is waning, however. Italy, the largest and fastest growing pellet heat market, had to import 70 percent (1.75 million metric tons) of its supply in 2013.

Many markets import pellets from other member states with a surplus production, such as Germany, Austria, and many of the Eastern European countries. However, as the pellet heating markets continue to grow, these countries are seeing a reduced amount of surplus supply and are unable to meet the export demand. It is here that North American exporters see an opportunity for additional markets for their product.

While the pellet heat market is not reliant on government subsidies, it is not without its own challenges and vulnerabilities. This winter has seen a major oversupply of pellets in this sector, making it difficult to enter the market right now.

Additionally, some government regulatory uncertainty exists. For example, the Italian government saw a budget shortfall late last year and, within a matter of days, decided to double the value-added tax on the import of pellets and passed this measure into law, increasing the price of pellets by 30 to 35 euros per metric ton. There is a petition to repeal this move, which I encourage you all to sign.

Challenges aside, North America has already established the supply chain necessary to deliver wood pellets to Western Europe. Further, industrial pellet producers in the U.S., such as ENPlus have shown increased interest in the pellet heat market by obtaining the necessary certifications to participate. Buyers of industrial wood pellets are also paying notice to this industry, with both Drax and RWE diversifying their interests and making recent investments in the pellet heating market.

As an industry, we continually ask ourselves, what does the market look like after 2027 when European subsidies for renewable energies come to an end? The added optionality presented by this market provides additional investment security for producers and buyers alike and we view the pellet heat market as an important pillar in the foundation of the overall wood pellet industry moving forward.

Author: Seth Ginther
Executive Director
U.S. Industrial Pellet Association
[email protected]