What is the outlook for global wood pellet capacity and demand?

An overview of the growth in global wood pellet capacity and the market demand around the globe with Hema Kalathingal, associate economist at Fastmarkets.

Take a deep dive into the global wood pellet market with Hema Kalathingal, associate economist at Fastmarkets, as she shares her insights on future wood pellet capacity in North America and where in the world the demand for wood pellets is coming from.

Watch the full interview or read the summary below.

What does wood pellet capacity look like in North America?

The US and Canada are both major producers and exporters of wood pellets. The global demand for wood pellets is expected to grow exponentially over the next few years and, in order to meet this demand, we are expecting substantial capacity expansions in both US and Canada.

US-based Enviva, the world’s largest producer of wood pellets, is planning to double its capacity from 6.2 million tonnes per year to 13 million tonnes per year by 2026. Its Lucedale, Mississippi plant is ramping up production to 750,000 tonnes, while its Epes, Alabama plant, which is currently under construction, will bring 1.1 million tonnes of capacity per year. There are also further plans for plant expansions, as well as five more other plants, including one in Bond, Mississippi, each with a capacity of 1.1 million tonnes when complete.

Drax, a UK-based company that produces wood pellets from its North American plants, plans to increase capacity from 5 million to 8 million tonnes by 2030. It had recently started operations at a 40,000-tonne pellet plant in Arkansas earlier this year. It also has two more 40,000-tonne mills under construction in the US South.

Another pellet producer that is currently building a pellet plant is the Renewable Biomass Group. It has a project underway in Adel, Georgia, which looks to bring in capacity of 450,000 tonnes per year.

In Canada, Peak Renewables has a 660,000-tonne pellet mill under construction in British Columbia. Québec-based Groupe Lebel has another mill coming up with 100,000 tonnes of new capacity per year.

Overall, we are going to see several new projects in the US and Canada and we can expect a ramp-up of capacity in the years to come.

What does the global wood pellet demand look like?

We have seen the global demand for wood pellets growing over the last few years, and we are expecting this trend to continue. Wood pellets are primarily used for power generation to replace traditional fossil fuels like coal, as well as for heat generation.

Europe continues to be the biggest market for wood pellets, with most of its imports coming from US and Canadian suppliers.

Russia, Ukraine and Belarus had together supplied the European Union with around 3 million tonnes of wood pellets in 2021. However, this supply is no longer available due to the war. Subsequently, we are seeing the European Union increase its imports from the US and Canada by 30% through May this year, when compared to 2021.

There is also substantial wood pellet demand from Asia, primarily from Japan and South Korea but with Taiwan also becoming an emerging market. We could potentially see more demand growth in the coming years from other countries looking for alternative fuel for power generation.

Other than power generation and heating, which are traditionally the main uses for wood pellets, there are also new avenues for pellet demand that we are seeing in the market. One of them is from industrial applications, where it is used in steel and cement manufacturing. Another is for them to be used for biofuel production. Both uses have the potential to become growth markets in the medium to long term.

Is biomass power generation on the up in North America?

While biomass power generation has gained a lot of traction globally, especially in Europe and parts of Asia, domestically we have not seen much development in North America.

Power generation from wood and wood-derived fuels in the US has been seeing declines since 2018. In 2021, this grew by 2.7% compared to 2020. But despite this positive uptick, it still made up less than 1% of the total net electricity generation. Similarly in Canada, biomass power is also a small fraction of total power produced. In comparison, biomass made up 12% of electricity in the UK in 2020.

The main headwind that we are facing in North America is the lack of policy support. The Inflation Reduction Act 2022 extends biomass power’s eligibility for tax credits to 10 years. This could provide tailwind for new investments. Until there are drastic changes brought in, the growth in biomass power generation will be modest in the region.

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