EU's Renewable Goals Driving Wood Pellet Growth

This year will likely see even more growth as utilities increasingly look at wood pellet alternatives as coal prices are expected to increase even more following the Japanese earthquake and subsequent nuclear crisis.

The EU’s wood pellet demand increased 7% in 2010 to about 11 million tons. Europe imported about $250 million worth of pellets from the U.S., Australia and Vietnam in 2009.

The North American Wood Fiber Review reported that the United States and Canada shipped a combined 1.6 million tons of pellets to the European Union in 2010. Exports are expected to increase this year as many countries look to biomass power since the EU mandated 20 percent of energy consumption must come from renewable resources by 2020.

Canada produced 1 million tons of North America’s pellets, while the United States supplied 600,000 tons. Belgium, Denmark, Italy, the United Kingdom, the Netherlands, and Sweden are leading importers of wood pellets and chips since demand there exceeds regional wood supplies.

“As demand increases over the next 10 years, they can’t get all the volumes locally, so they’ll have to go elsewhere, including Australia, Africa, South America and Asia,” said Hakan Ekstrom, spokesman for Wood Resources International.

British Columbia has led Canada’s pellet production, while the Southeast U.S. has become increasingly competitive by ramping up production at its pellet production facilities.

According to the Biomass Power Association, European countries primarily use wood pellets in Combined Heat and Power (CHP) plants, while wood pellets also substitute portions of coal in baseload power plants.

A 4,000 MW power plant in the UK is among many coal-powered facilities that will get about 10 percent of its fuel from wood pellets. The pellets, which resemble rabbit and chicken food, are manufactured with compressed sawdust and other wood materials. Pinnacle Pellet Inc. in British Columbia has also made use of trees damaged by pine beetles.

Wood Resources International reports that more than 80 million tons of wood chips (valued at $10 billion) are traded around the world every year. Most of those chips are used in pulp production, but the forestry industry has increased investments in energy production since 2008.

Europe in 2009 produced about 10 million tons domestically at 650 pellet plants, according to Biofuels, Bioproducts & Birefining (Biofpr). The organization says EU demand will increase to at least 105 million tons by 2020.

Wood pellets cost $230 to $300 per ton. While Europe’s biomass power industry has been heavily subsidized by feed-in tariffs and incentives, it has become increasingly competitive with fossil fuels as coal prices rise.

Bloomberg reported in December that high coal prices could lead to a doubling of biomass usage by the UK’s major utilities over the next three years. The Bloomberg report also stated that costs per megawatt-hour in the UK were roughly equal with 40.25 euros for coal and 39.35 euros for biomass.

Some analysts are predicting the tsunami and subsequent nuclear crisis in Japan will lead to an increase in coal prices in the near term.