According to a Tecsci Research report, the global wood pellet market is expected to be valued at USD 10.08 billion in 2023, growing at a robust CAGR of 12.19% during the forecast period till 2029.
The wood pellet market refers to the global industry involved in the production, distribution, and consumption of wood pellets, a type of biomass fuel produced from compressed sawdust, wood chips, or other wood residues. Wood pellets serve as a renewable and sustainable alternative to traditional fossil fuels such as coal, oil, and natural gas, especially in heating and power generation applications. This market involves various stakeholders, including wood pellet manufacturers, biomass feedstock suppliers, transportation and logistics companies, energy utilities, residential and commercial consumers, and regulators. Key factors driving the wood pellet market include increasing environmental awareness, government policies promoting renewable energy, concerns regarding energy security, and technological advancements in pellet manufacturing and combustion technologies.
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Wood Pellet Market AnalysisThe wood pellet market size is estimated to be US$ 13.89 billion in 2024 and is expected to reach US$ 19.61 billion by 2029, growing at a CAGR of 7.15% during the forecast period (2024-2029).
In the medium term, the main driver of the market is the increasing demand for wood pellets in clean energy generation, especially in the European region.
On the other hand, increasing adoption and implementation of alternative renewable energy sources such as solar photovoltaics, wind energy, and geothermal across the globe is likely to hinder the market growth during the forecast period.
Still, according to the Global Bioenergy Association, wood pellets have the potential to replace coal in power generation facilities. With recent technological developments, wood pellets have been thermally upgraded through various processes such as torrefaction, hydrothermal carbonization, and steam explosion. Thermal upgrading allows wood pellets to act as a fuel with the properties of coal. The Asia-Pacific region, which has the largest number of coal-fired power plants in the world, is expected to be a growth opportunity for the market in the future.
Owing to the significant increase in wood pellet production in 2022, Europe was expected to account for a major share of the market during the forecast period.
Wood Pellet Market Trends:
Heating applications expected to dominate the market.
Pellets are solid biomass fuels, mainly produced from agricultural by-products such as wood residues and straw. Specific advantages of pellets compared to unprocessed biomass include standardized properties, high energy content, and high density. Wood pellets for heating applications are primarily used in the residential and commercial sectors for providing food, cooking, grilling, and heating to homes. The cost of shot has long been cheaper than other fuels, making it a more economical option, addressing a major concern in the residential and commercial sector. Utility wood pellets (wood pellets) are a dense biomass fuel that can produce electricity or heat when burned. The late 2000s saw a significant increase in wood pellet production, consumption, and commerce in several countries. The source of the increased consumption is industrial power plants, where wood pellets are often co-fired with or replacing coal. According to the German Energy Wood and Pellet Association, there will be 648,000 pellet heating systems in Germany in 2022, compared to 570,000 in 2021. Moreover, as a renewable energy source, wood pellets receive subsidies and incentives from the governments of many countries, and many countries have recently launched or updated policies and schemes on wood pellets for heating applications. The UK government implemented a fuel quality moratorium for pellets only for up to one year from 23 November 2022. This means that while the remaining provisions remain in force, fuel quality standards are not required for wood pellets used in biomass boilers and plants whose owners receive renewable heat incentive payments from OFGEM. The government amended the regulations in February 2022 to require all wood fuels with a Biomass Supplier List (BSL) number to also meet the relevant quality standards. Therefore, due to the above points, heating applications are expected to dominate wood pellets during the forecast period.
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Factors driving the growth of the wood pellet market: Rising primary fuel prices driving the market
Wood pellets are made from agricultural waste and forest by-products such as sawdust. They are becoming increasingly popular around the world due to rising primary fuel prices. Due to the high demand for industrial and commercial purposes, biomass fuels are growing rapidly around the world and the demand for the product is high. Moreover, the availability of pellets as a fuel feedstock and low production costs have led to an increase in their consumption in the industrial sector.
Europe holds the largest market share, with many major European companies converting from coal to biomass power plants. Additionally, governments across Europe are opting for wood-type pellets and other renewables to fulfill their renewable energy commitments by using biomass to generate electricity. For example, Drax Group has begun converting its units from coal to wood fuel as the UK government imposes strict limits on CO2 emissions to fight climate change. The UK has also announced plans to phase out coal-fired power generation by 2025, and biomass is legally classified as a CO2-neutral energy source in the EU. Due to insufficient domestic production of pellets in Europe, many countries are heavily reliant on imports. According to the Global Agricultural Information Network (GAIN), Europe imported approximately 5.4 million tonnes of wood pellets in 2021, with a market value of US$924 million.
Additionally, according to the USDA Foreign Agricultural Service, the United States exported 1.01 million tons of wood pellets in December 2023, with a total export volume of 9.54 million tons in 2023. The United States exports these wood pellets to more than 16 countries, with the United Kingdom being the largest export destination with 653,970 tons, followed by Japan with 130,830 tons and Denmark with 126,693 tons. Total annual exports will reach US$1.75 billion and reach US$1.56 billion in 2022.
Supportive government policies and initiatives driving market growth
Recently, rapid industrialization has led to a significant increase in CO2 emissions, which has led to climate change. The growing global population, thriving industrial sector, and expanding infrastructure have led to a significant increase in the demand for electricity. Governments across the world are striving to mitigate the effects of climate change by increasing the adoption of renewable technologies. Governments offer various global tax incentive programs, such as state sales tax exemptions, state income tax credits, corporate income tax credits, and local property tax exemptions, to encourage the adoption of renewable energy. A number of federal incentives are also available for businesses, non-profit organizations, and community projects. These include the Modified Accelerated Cost Recovery System (MACRS), tax benefits for grants, and business tax incentives. Government support and regulations, such as subsidy programs and business tax incentives that offer tax breaks and investment subsidies, play a vital role in promoting the global market. Various government programs, such as the Renewable Heat Incentive (RHI), have generated significant interest in the UK pellet market. Such programs are expected to drive the market in the long term.
The UK government has proposed an extension of existing subsidies for wood pellet electricity generation in 2024. The government is backing new financial support for old subsidies of around $760 million, extending them from 2027 to 2030. It will financially support companies that generate electricity from wood pellets, including Drax in North Yorkshire, the UK's largest power station.
Restraining Factors Meeting certification standards may hinder market growth
Government certification helps assure customers that their wood pellets come from sustainably managed forests, proving to be a valuable tool. Strengthening certification measures for exports to European countries and other countries with numerous directives mandating renewable energy production are a key constraint to the growth of the wood pellet market.
The Programme for the Endorsement of Forest Certification (PEFC), Sustainable Forestry Initiative (SFI), Forest Stewardship Council (FSC), and the American Tree Farm System are some of the largest forest certification standard organisations and systems in the world. FSC and SFI are recognised in the US, while FSC and PEFC have excellent reputations in Europe. The latter requires the protection of water, wildlife, visual quality, special places, and other important resources.
In the industry, pellet producers are concerned about sustainability certification, as it shows customers and governments that the pellets used for power are produced sustainably. In the heating sector, third-party quality certification is becoming increasingly important so that consumers can rest assured that the pellets they buy are performing optimally in their stoves and boilers.
For example, standards set by North American certification bodies Forest Stewardship Council and Sustainable Forestry Initiative are limiting market growth in the United States. Currently, the United States owns more than 300 million hectares of forestland. Yet, the major U.S. standards only account for 19% of the U.S. commercial forestland.
Key Market Players:
- Enviva LP
- Drax Group plc
- Graanul Invest AS
- Pinnacle Renewable Energy Group Inc.
- Energex American, Inc.
- German Pellets GmbH
- Westervelt Company
- Lignetics, Inc.
- TANAC SA
- Rentech, Inc
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Regional Analysis:
Europe leads the market with the largest market share for wood pellets
The market research report also offers a comprehensive analysis of all major regional markets such as North America (US & Canada), Asia Pacific (China, Japan, India, South Korea, Australia, Indonesia etc.), Europe (Germany, France, UK, Italy, Spain, Russia etc.), Latin America (Brazil, Mexico etc.), Middle East & Africa etc. As per the report, Europe accounts for the largest market share.
Europe's renewable energy and carbon neutral initiatives have driven the continent's wood pellet market. Consideration of stringent environmental regulations in each state, government incentives, and integrated policies targeting renewable energy have encouraged the use of wood pellets for heating and power generation, stimulating market expansion. Furthermore, the continent's efforts to reduce greenhouse gas emissions and move away from fossil fuels have boosted the market demand for wood pellets, making Europe one of the key determinants of the global wood pellet market. According to data submitted to the Global Agricultural Information Network of the United States Department of Agriculture's Foreign Agricultural Service, the European Union (EU) used 24.8 million tons of wood pellets in 2022.
Apart from this, the surge in demand for wood pellets in North America, driven by the growing awareness towards renewable energy and shift from traditional fuels, is influencing the expansion of the market. Moreover, the abundant biomass resources and supportive policies in the region are contributing to the growth of the wood pellets market.
At the same time, the outlook for the wool pellet market is favorable due to the growing demand for wood pellets in the Asia-Pacific region, driven by rising energy demand, environmental concerns, and government initiatives to promote sustainable practices.
Furthermore, vast agricultural and forestry resources in Latin America and surging demand for diversified and sustainable energy sources in the Middle East and Africa create lucrative opportunities for market growth.
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