Kicking off the 2023 wood pellet industry calendar of events was the inaugural edition of the European Pellet Forum (EPF) that took place in Graz, Austria in conjunction with the 7th Central European Biomass Conference (CEBC).
Hosted by the Austrian Pellet Association, proPellets Austria, the new one-day event launched after an unprecedentedly volatile and dramatic year for European pellet producers and consumers.
To be held annually, the EPF was initiated late last year by the European Pellet Council (EPC), the umbrella association for national pellet associations in Europe. EPF aims to discuss matters focusing on pellet applications for heat generation in the domestic, commercial, and industrial sectors, not industrial pellets for utility applications.
As we all know, it has been a tumultuous year for European pellet producers and consumers, commented Dr Christian Rakos, CEO proPellets Austria, and EPF23 Conference Chair in his opening remarks.
Electricity and HDDs
First up to provide a helicopter perspective was Gilles Gauthier, Hawkins Wright who first noted that in an energy context, electricity prices are the greatest driver for industrial wood pellet demand while weather or heating degree days (HDDs) are the driver in residential demand.
In Europe, Benelux, UK, and Danish, the largest industrial pellet markets, day-ahead power prices peaked in August 2022 at around 450 EUR/MWh while abnormal mild weather in October-December 2022 meant that heating demand was up to 35 percent lower than the same period in 2021.
As the year came to a close, European industrial pellet consumption ended up 1.5 to 2 million tonnes less than originally anticipated, while for the heating sector, it was also lower than initially feared, and reflected in the pricing
Residential bulk pellet prices in Germany peaked in August reaching almost EUR 800 incl. VAT per tonne delivered and have since continually dropped to under EUR 500 per tonne in January. Similar peaks and month-on-month decreases have been seen across several European markets. This is likely to continue if the heating demand remains low, said Gilles Gauthier, adding that even at the record peak prices, most markets maintained a healthy price differential to fossil fuels such as heating oil and gas.
According to Gauthier, the key question is what the level of stock at the end of the 2022-2023 heating season will be as it will have a significant impact on the 2023-2024 heating season.
Especially if it is a cold start, as there will still be a supply deficit and a full effect of the trade embargo on Russian and Belarussian pellets, the former of which were now making their way to South Korea.
The Austrian experience
With proPellets Austria being the host for the inaugural EBF, Dr Christian Rakos gave a detailed account of the Austrian experience of 2022, and lessons learned.
At the beginning of 2022 we had upbeat boiler sales but following Russia’s invasion of Ukraine, a tightening market supply with rising prices. By summer the pellet market had descended into outright panic with regional supply collapsing. By autumn the supply situation began relaxing while demand had reduced sharply and now, we in some sort of hangover phase, said Dr Christian Rakos.
The dramatic dynamics have put a significant strain on both suppliers and the Association, which refocused its efforts on calming public sentiment, explaining the pricing, and handling national media interest, while assuring everyone that pellets will be available but that patience is needed.
Riding on buoyant boiler sales going into 2022, we had just launched an award-winning consumer-oriented “das pellet magazin” promoting all the benefits of pellet heating. By summer, with our second issue out, consumers were very upset, and the pellet delivery folks who were at the frontline understandably became extremely reluctant to pass out magazines. And to top it off, the Association was subjected to an investigation by the Competition Authority, recounted Dr Christian Rakos, adding that there was nothing untoward found by the Authority.
“Die Pellethotline”
By summer the phones of our members, and ourselves were ringing almost non-stop with callers looking for pellets, and to bring order into the chaotic situation we managed to set up a Pellets Hotline with one phone number for consumers to call, said Dr Christian Rakos.
By the time the call centre was fully operational in September, the worst has passed. Nonetheless, in the two months it was running, it proved an invaluable tool.
We now have a tool that can be reactivated and used quickly in case supply issues emerge, and the public perception is that at least we try to help customers, remarked Dr Christian Rakos.
The call centre documents the need and geographic area of the caller on a web platform. Pellet producers and traders get access to the web platform and can pick customers that are located in their supply area.
Once a trader picks a customer it disappears from the platform and the trader gets the contact details. The call centre then follows up and checks if the customer is actually being supplied.
The call centre costs were around EUR 6 000 and the web application around EUR 5 000.
The benefits have been tremendous. From a customer service perspective just one phone call while from a trader and producer perspective an optimization of time, logistics, and dispatch priority. In addition, we’ve seen a total change in the attitude of traders towards customers. Furthermore, there is a monitoring of the actual supply situation, and security in that no critical customer stays empty, said Dr Christian Rakos.
Political interest in a storage obligation
The other “upside” is that following the summer’s “pellet panic,” Austrian politicians are finally willing to implement the storage obligation proposal that was put forward by propellets Austria quite some time ago.
In short, the storage obligation proposal mandates pellet producers and importers to accumulate pellets in storage over a calendar year equivalent to 10 percent of annual sales by December 1.
Of this up to 5 percent can be sold off after December 15, seasonal storage, and the remaining 5 percent held as permanent stock, strategic storage.
The experience of 2022 has proven the case for seasonal and strategic storage, just as we have for other critical commodities. The cost for this in Austria works out at approximately EUR 4 per tonne of pellets delivered but I believe it is fair to say that it would be money well spent, ended Dr Christian Rakos.
Need to get communication in order
Stefan Ortner, CEO of ÖkoFEN, a dedicated pellet boiler manufacturer with global sales offered a more optimistic view.
While ÖkoFEN also saw a decrease in sales in the latter half of 2022, Ortner reminded delegates that the potential in Europe alone for pellet-fired heating systems is enormous.
Over 3.2 million new gas-fired, and over 130 000 oil-fired along with almost 1.3 million heat pump heating systems were sold in the EU and Switzerland in 2022, despite the oil-, gas, and electricity prices, let alone climate considerations of the two former energy sources.
However, Stefan Ortner cautioned that the coming weeks will be crucial for the sector.
What is our message? That 2022 was a crazy period but now we are back to normal, or that pellets are a rare commodity and therefore expensive? How can many industry insiders talk about a serious shortage in Austria when the facts say the opposite? Do we really trust our own figures? Stefan Ortner asked.
Ortner explained that the demand from existing customers in Austria going into 2022 was 1.2 million tonnes. Combined with the demand for new boilers (11 percent year-on-year) during 2022, 1.3 million tonnes.
Domestic production volume in 2022 was 1.7 million tonnes, 28 percent more produced than consumed with another 437 000 tonnes or 26 percent of new capacity under construction.
Communication to end users that are calling pellet dealers is very powerful. Saying “no more pellets are available for this year” is not a good message to calm end users. Instead, “we have a lot of orders at the moment. Our prognoses show that there will not be a shortage, but we cannot deliver to everyone at the same time. We put you on a list and contact you as soon as we can schedule a delivery for you.” The pellet hotline in Austria was a really good tool – we would have needed it earlier and in every country, remarked Stefan Ortner.
Italian colleague Marco Palazzetti, from stove manufacturer Palazzetti, discussed market development for wood- and pellet stoves respectively.
In Italy, Europe’s largest market for pellet stoves, sales peaked in April 2022 at an 80 percent increase on April 2021 then drop rapidly month on month. Already by August sales were less than in August 2021 and by December, 60 percent lower than in December 2021.
However, unlike Germany which saw a similar downward trend for both pellet and wood stoves, wood stove sales in Italy grew, from March through December ending at a 100 percent increase compared to December 2021.
We saw a sudden drop in sales in the latter half of 2022, and in Italy, a switch from pellet to wood stoves. The first quarter and pre-seasonal sales for 2023 are compromised so it is crucial to recover consumer trust and the coming pre-seasonal pellet price will be crucial, said Marco Palazzetti, echoing Ortner’s sentiments
Marco Palazzetti also noted that during the 2022 heating months September to December, existing pellet stove users in France, Germany, and Italy reduced both operating hours and pellet consumption compared to 2021, the latter by as much as 34 percent.
Palazzetti concluded that this is down to a combination of a warmer season, high pellet prices, and reduced operating effects of the stoves in a bid to save fuel.
If this was a maturity test for the sector, then I am afraid that we failed, miserably, concluded Marco Palazzetti.
“Primary woody biomass” is a serious threat
Irene di Padua, Policy Officer at Bioenergy Europe gave an update on the status of RED III negotiations and other pertinent files.
She reminded participants that RED II sustainability criteria are important for the sector as their fulfillment is a requirement to be accounted for RES-target and sectorial sub-targets, to be eligible for public financial support, and to be zero-rated in the EU Emissions Trading System (ETS).
Therefore, the European Parliament’s recently introduced term primary woody biomass (PWB) coupled with the exclusion of such biomass from the RED III must be rejected.
Primary does not mean high quality. Primary woody biomass represents between 25.9 percent and 35.7 percent of the feedstock for bioenergy, and bioenergy from primary woody biomass is between 14.9 percent and 20.5 percent of renewable energy, said Irene di Padua.
Forest bioenergy and pellets are a “win-win-win-win”
On the subject of biomass sustainability Dr Hubert Röder, Professor at the University of Applied Sciences Weihenstephan-Triesdorf (HWST) presented some preliminary findings of a new yet-to-be-published study “CO2-Balance of Selected Forest Management Scenarios in Europe”.
A holistic approach is needed to assess the full greenhouse gas (GHG) effects of forest management, including storage of bio-based carbon and the substitution of fossil fuels. Forest residues and pellets deliver a positive contribution to the energy transition, climate protection, biodiversity, and future bioeconomy – a Win-Win-Win-Win situation – and should therefore be promoted by government funding in Europe, said Dr Hubert Röder summarizing the main conclusion.
France next for EPF 2024?
The next edition of EPF is tentatively slated to take place in France at the end of May 2024. Given what was heard and discussed during EPF 2023, it is set to be a watershed event as it comes at the close of the 2023/2024 heating season seen as critical by many.
Only then will we see if the sector passes the maturity test.
