The global wood pellet market size was valued at USD 11.28 billion in 2021, which is envisioned to reach USD 20.05 billion, growing at a CAGR of 7.45% during the forecast period. Pellet fuels, also called pellets, are biofuels produced by compressing organic compounds or biomass. Sawdust, logging debris, or even whole logs can be used to produce wood pellets. After being dried, the sawdust is compressed under high pressure or extruded through a die. On the market, wood pellets can be purchased in various sizes according to the residential, commercial, and industrial sectors' specific requirements. Wood pellets are an eco-friendly alternative to fossil fuels that can be used as a fuel source. Manufacturers first strip incoming wood fiber of its moisture to make wood pellets, grind the fiber into a powder, and compress the powder into small, cylinder-shaped pellets.
Growing demand for wood pellets producing clean energy is anticipated to drive the wood pallet market over the forecast period. On the other side, intense competition from substitute cleaner fuels and the end of government support programs for wood pellets are likely to impede wood pellet market expansion. In addition, emerging applications and technological advancements, like producing wood pellets from food residues (bio-bean, dry waste), torrefaction (supercharging biomass pellets), etc., are anticipated to provide enormous opportunities for the wood pellet market share over the next few years.
Energy security and mitigating climate change are major market drivers for wood pellets in Germany, Indonesia, Thailand, Japan, and other nations. Government policies and an emphasis on renewable energy have been crucial to developing wood pellets in these nations. Global electricity systems are reducing emissions and increasingly transitioning to renewable energy sources. Intermittent sources, like wind and solar, are the most rapidly expanding renewable energy installations worldwide; moreover, the dependability and versatility of wood pellets, as well as their ability to eliminate CO2 from the atmosphere while achieving renewable electricity through a process called bioenergy with carbon capture and storage (BECCS), make it an increasingly vital source of renewable energy. Thus, boosting demand in the market. Additionally, biomass power plants generate baseload power, which is impossible to attain with solar or wind power. In addition, over 80% of the world's electricity is generated from fossil fuels, primarily coal, in various regions.
As the wood pellet market advances technologically, coal-fired power plants are also being converted to use wood pellets to generate electricity. If the objective is to reduce carbon dioxide emissions in the power industry, modifying existing coal-fired power stations to run on industrial wood pellets provides a substantially more significant CO2 reduction at a lower net monetary cost per metric ton avoided than other renewable technologies. And this results in greater use of wood pellets for clean energy production. Furthermore, the latest trend of retiring coal-fired power stations and constructing new high-efficiency natural gas-fired plants is sensible if operating cost minimization is the only decision metric and there is no gain to reducing carbon emissions. Therefore, countries such as the United Kingdom, the United States, and others are adopting the technology and using wood pellets instead of coal for power generation, which is expected to drive the global wood pellet market growth during the forecast period.
Internationally, the popularity of a peak power source is growing as the use of electrical appliances increases. At certain times of the day, the high level of electrical equipment usage causes an abrupt increase in electricity demand. To meet the increased demand for electricity, utilities must upgrade their power supply. In such a scenario, the electricity generation infrastructure must be capable of ramping up quickly. Unlike renewable energy sources, gas-fired power plants can be coordinated with the grid, making them peak load power plants. Thereby, gas power plants may become the preferable option for utilities over other types of power generation, including power and heat generation based on wood pellets. In addition, the heavy investment in wind power projects is offering a substantial boost to the expansion of the global wind power market. Moreover, factors such as advantageous government policies, the increasing adoption of solar processes, and the lowered price of solar panels and installation costs are likely to support the growth of solar energy's share of the global renewable energy market. Consequently, wood pellets for the power sector are anticipated to face competition from alternative energy sources, primarily gas, wind, and solar.
End-users benefit from lucrative growth opportunities due to rising oil prices and the increased use of wood pellets for heating federal and municipal buildings, office buildings, and educational facilities. In addition, the governments of numerous nations are providing financial incentives and subsidies to promote the implementation of renewable energy sources for power generation. This, in turn, is having a positive influence on the sales of wood pallets across the world.
Depending on the application, the segments include heating and power generation.
The heating segment will most likely dominate the market during the forecast period. Pellets are a kind of biomass fuel typically manufactured from the remnants of wood products and agricultural byproducts such as straw. Pellets have standardized properties, a higher energy content, and a higher density than unprocessed biomass does. Wood pellets are most commonly used in residential and commercial settings for food preparation, including cooking, grilling, and heating homes. As a result of the fact that the price of pellets has been consistently lower than the price of other fuels for a significant amount of time, this alternative has evolved into a more cost-effective choice, thereby tackling the prime concern of the residential and commercial sectors.
Wood pellets are a viable and alternative source of heating energy because of other factors such as their high combustion efficiency, ease of transportation and storage at residential and commercial sites, and lack of any chemicals that make them non-hazardous. In addition, wood pellets can be used as a fuel for residential heating purposes in biomass boilers or unique stoves designed to burn pellets. Pellet stoves are superior to traditional open wood fireplaces since they burn cleaner and produce less smoke and soot as a byproduct of the combustion process. Because wood pellets are highly dense and contain a low moisture content, they can burn the stove at a better combustion temperature, resulting in increased efficiency and much lower ash content than the burning of conventional firewood.
The power generation segment will witness significant growth during the forecast period. In the power generation industry, wood pellets are being used to generate power that is similar to that caused by coal. This paves the way for existing coal power plants to be converted into power plants that use renewable bioenergy instead. The pellets are transported from the storage area to the pulverizing mills via a conveyor system. Once there, the pellets are crushed into a fine powder and blown into the power plant's boiler. According to a survey conducted by the European Pellet Council (EPC) in 2020, the two major regions that made significant use of wood pellets for the production of electricity in 2019 were Europe and Asia-Pacific. In 2019, Europe consumed more than 10 million tons of wood pellets, while Asia-Pacific consumed more than 4 million tons of wood pellets during the same year.
However, even though wood pellets are a cleaner energy source than coal, gas, and oil, their use in power generation has always been a contentious issue. This is primarily true compared to other forms of clean energy, such as solar, wind, and hydropower, which are anticipated to act as a barrier to using wood pellets in power generation applications. In addition, investors' attention has shifted away from wood pellets as a source of power generation due to the declining cost of alternative energy sources like solar and wind power.
The region-wise segmentation of the global wood pellet market includes North America, Europe, Asia-Pacific, South America, and Middle-East and Africa.
Europe will likely command the market with the largest share during the forecast period. A multitude of market factors, like the rising consumption of the product in power generation and the incentives provided by member states of the European Union (EU), are expected to contribute significantly to an increase in demand for wood pellets throughout the forecast period. Along with the growing replacement of traditional burners to improve automatic feed-in and comfort, the regional price competitiveness of wood pellets in the European region compared with propane and residential heating oil is one of the primary factors driving demand for the wood pellets region.
It is envisioned that the demand for wood pellets in Europe will increase by between 30% and 40% over the next few years. And although wood residues are likely to play an essential role as a feedstock, particularly in northern and Western Europe, it is unlikely that these residues will be sufficient to satisfy the growing demand for fiber in the wood pellet industry. In addition, technological developments in the region's market are likely to increase demand for wood pellets during the period covered by the forecast. Due to the increasing number of power plants in the European region, it is anticipated that the demand for wood pellets to be used as fuel in power plants to generate electricity will experience significant growth in the coming years.
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