Heating sector overtakes electricity sector

In Europe, production output amounted to 25.1 million t in 2021 and to 24.7 million t in 2022. That is a decrease of 2%. Compared to 2021, the EU’s pellet production capacity grew by 5.6%, from 25.6 to 27 million t. The number of pellet mills rose by 63 to 816 in 2022. Pellet output in the 27 EU member states was comparatively moderate in the period under review, increasing by 3.2% from 19.8 to 20.6 million t. According to the European association Bioenergy Europe, which is based in Brussels, the difference of 6.4 million t between capacity and production output is due to higher production costs in the second half of 2022, which prompted many countries to curtail their pellet production. The cause of this development was the EU’s ban on imports of Russian and Belarusian pellets into the EU single market. This resulted in a shortage of raw materials and an increase in energy costs for gas and electricity, and also led to rising pellet prices in many countries.

In the rest of Europe, capacity increased by 7.8% but, at the same time, production decreased by 23% to 4 million t in 2022. Shipments from Russia, Belarus and Ukraine alone were down by around 3 million t last year, even though Denmark and the Netherlands, for example, purchased Russian pellets for electricity generation in the first half of 2022. Bioenergy Europe emphasizes, however, that it is difficult to obtain exact and reliable figures from Russia, Belarus and Ukraine.

France and Poland are catching up

With 3.6 million t (61 pellet mills), Germany was once again Europe’s largest pellet manufacturer last year, followed by France (2.1 million t, 70 mills) and Poland (2 million t, 130 mills). In France and Poland, manufacturers are benefiting from their respective national subsidy programs, which led to a year-on-year increase in capacity of 400,000 t each in 2022. The number of pellet mills rose from 58 to 70 in France, and from 90 to 130 in Poland. France plans to increase its production to around 3 million t a year by 2025.

Latvia, which in 2021 had ranked second behind Germany with 2.1 million t, reduced its production output to just under 1.8 million t in 2022. The reason for this is the geopolitical situation with higher production costs as well as the lower availability of raw materials due to reduced logging. Romania is in a similar situation and reduced its pellet output by 100,000 t to 500,000 t. In Serbia, output fell by 11% to 418,000 t despite three new pellet mills having been put into operation.

Decrease in demand for industrial pellets

At 33.3 million t, pellet consumption was 2.2 million t lower than in the year before (2021: 35.5 million t). Electricity and heat supply have switched positions. 14.6 million t of wood pellets (44%) were needed for electricity generation and 18.7 million t (56%) in the heating sector.

Europe’s demand for pellets for electricity generation fell by 2.7 million t to 14.6 million t in 2022. Great Britain (-2.6 million t), the Netherlands (-300,000 t), Denmark (-550,000 t) and Belgium all significantly reduced industrial pellet consumption on a year-on-year basis. The Drax Group, for example, has curtailed production at British mills, which are based on so-called Contracts for Difference (CfD). In the other three countries, some biomass power plants and combined heat and power plants were shut down.

When it comes to consumption in the heating sector, Germany overtook Italy in 2022. At 3.2 million t, Germany’s consumption was up by 11% or 250,000 t compared to 2021. Italy’s consumption fell by around 10% to 3 million t. In the country, the private heating sector accounted for 2.85 million t of overall consumption. Italy is therefore the only country in the Top 5 to have recorded a decrease in consumption. According to Bioenergy Europe, this can also be explained by different data collection and calculation methods in Italy. Nevertheless, a clear negative trend can be observed, as the association emphasizes. Switzerland is also an interesting: With 280,000 and 200,000 t, respectively, it is the only European country besides Sweden where demand is similar in the private and commercial sectors.

Bleak outlook for the heating market

The war in Ukraine and its repercussions also impacted the European heating market. In the first half of 2022, the industry still experienced a positive situation, which however deteriorated noticeably in the second half of the year. In the case of pellet stoves, competitive prices, increasing decarbonization and national subsidy programs boosted sales. However, high interest rates, rising pellet prices and weakening support for biomass in some countries had a negative impact on sales until the end of the year.

7% of Italian households are equipped with pellet stoves, followed by France (5%), Spain (2.5%) and Austria (1.5%). The market for pellet stoves reacts more sensitively and quickly to the volatile energy market, especially in view of higher gas and oil prices. According to Bioenergy Europe, the outlook for 2024 is rather bleak, as the population’s confidence in the pellet industry has fallen noticeably.

As for pellet boilers, the situation in the private heating sector seems to be better. By the summer, sales grew moderately but not as strongly as in the previous two years. Nevertheless, the robust development of sales in the first half of the year helped stabilize the market in Europe and led to a satisfactory annual result. Almost 4% of Austrian households have pellet boilers, followed by Latvia (1.6%) and Sweden (1.5%).