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Pellets remain a competitive renewable alternative

Pellets remain a competitive renewable alternative
Pellet consumption in the EU-27 reached 24.5 million tonnes in 2021 – 18 percent up on the previous year. Two-thirds of this (19.2 million tonnes) was used for heat (graphic courtesy Bioenergy Europe).

While all energy carriers have seen unprecedented prices during the ongoing energy crisis, wood pellets still remain competitive compared to almost all other energy sources. Furthermore, pellets could become even more attractive with a series of targeted measures, a new report from Bioenergy Europe suggests.

For the fourth time since its launch in 2007, the annual Statistical Report published by Bioenergy Europe is being split into different publications, each one covering a different aspect of bioenergy.

Compiled in close collaboration with the European Pellet Council (EPC), the Pellet Statistical Report 2022 constitutes an essential section of the 2022 Statistical Report. Together with its accompanying Policy Brief analyses, it provides data directly from national contributors to help develop strategies and continue the development of the wood pellet market – one of the key solutions to decarbonizing energy production for homes, businesses, and industries worldwide.

For European pellet producers and consumers alike, strategies are needed. After a COVID-19 recovery, the European market is in the midst of an unprecedented crisis on account of its current geopolitical situation – Russia’s invasion of Ukraine.

As the Northern hemisphere enters into winter, the 2022/23 heating season has begun. Sharp and volatile increases in fossil fuel prices, coupled with a cessation of pellet import flows from Russia and Belarus, are leading to a significant increase in pellet prices and shortages in several national markets.

Growth in capacity, production, and consumption

Reaching an output of almost 20 million tonnes representing around 48 percent of global production in 2021, the EU remained the global leader in wood pellet production – followed by the United States (US) and Canada. European production capacity and output in 2021 increased by 6.2 percent and 8.9 percent respectively compared to the previous year.

Pellet consumption in the EU-27 reached 24.5 million tonnes in 2021 – 18 percent up on the previous year – with the residential and commercial sectors (space heating) accounting for two-thirds (66.1 percent) of this consumption, while industry and utilities (steam and power) for the remaining 33.9 percent.

The report highlights the sector variances in Member States. While in terms of volume, industrial consumption is the main end-use in the Netherlands and Denmark, the use of pellets for residential space heating takes place practically all over Europe.

In Italy, Germany, and France, it is the residential heating sector that is the largest volume consumer while Poland has “exhibited tremendous growth rates in 2021.”

Cost-competitive and stable quality

The report finds that a key factor behind the increasing popularity of wood pellets is its cost-competitiveness compared to other energy carriers such as coal, fossil gas, electricity, and heating oil. Indeed, towards the end of 2021, industrial wood pellet prices were actually lower than coal, potentially representing a game-changer for industries and utilities that traditionally relied on solid fossil fuels. 

Another key factor identified by the report is the growth and widespread adoption of the ENplus quality assurance scheme across the wood pellet supply chain providing assurance to residential consumers.

In 2021, around 14.2 million tonnes of pellets have been certified by the system in 47 countries all over the world. Europe leads the certification race, having the highest number of certified producers and volume of certified pellets, with ENplus on its way to becoming a “global standard for the pellet industry.”

Turbulent times

However, following the COVID-19 pandemic, in which the wood pellet sector demonstrated remarkable resilience, Europe entered turbulent times with the onset of the energy crisis in the latter half of 2021 that escalated and was exacerbated by Russia’s invasion of Ukraine on February 24, 2022.

The report notes the double whammy of increasing energy prices, increasing pellet demand, and increasing production costs impacting the (European) pellet sector, pushing up pellet prices.

Increased production costs, primarily power, raw material shortages due to a slowdown in the sawmilling industry, and market tightness due to increased demand for pellets and less available supply following EU trade sanctions on Russian and Belarus pellet imports in 2022.

Recommendations

For many years, wood pellet prices have remained much more stable compared to electricity and fossil gas, but now – like those of all energy products – are reaching record levels.

Nonetheless, the report emphasizes that wood pellets still remain competitive compared to almost all other energy sources and could become even more attractive with a series of targeted measures. Furthermore, there is still “significant potential for further expansion of sustainable wood pellet production, both worldwide and in Europe,” but barriers to investments and logistics need to be overcome, while stable and enabling policy frameworks need to be enacted.

The ongoing energy crisis should not reverse the EU’s decarbonization efforts – if anything, it underscores the need for its acceleration. Heating and cooling make up almost half of the EU’s energy consumption and the majority (around 80 percent) is still fossil-based. Addressing the slow rate of decarbonization in the heating sector has gained fresh urgency with the energy crisis.

To that end, Bioenergy Europe recommendations include:

  • A stable policy framework is essential to provide a long-term perspective to companies to further invest in pellet production capacity, fostering European pellet production and thus ensuring adequate supply along with promoting climate mitigation efforts.
  • Measures to ensure that wood pellet prices remain at acceptable levels for consumers should be implemented. VAT reductions – in line with other energy carriers – are suggested, while measures for reducing costs in pellet production (e.g. net metering for pellet producers) should be promoted.
  • Instead of subsidizing fossil fuels, EU and national funds should be directed to consumers that wish to switch from fossil fuel appliances, or older and less efficient solid-fuel fired appliances, to modern and efficient wood pellet solutions. This will accelerate the deployment of renewables, reduce air pollutant emissions, and improve resource efficiency all while shielding vulnerable consumers from energy poverty.
  • A progressive ban on fossil fuels for heating is also a very effective policy to consider in order to achieve a fast energy transition. National initiatives – such as heating oil phase-outs in Austria and France – and industrial success cases demonstrate how wood pellets can be a critical part of the new, emerging energy system.

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