July-August 2015

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32 PalletCentral • July-August 2015 2009 European regulation mandating increased energy production from renewable sources— along with increased North American residential use of wood stoves—have transformed wood pellet manufacturing from a cottage industry into an important international business. Global production of wood pellets has increased more than six-fold since 2004, according to forest industry consulting firm Hawkins Wright. Europe-Driven Demand Data from the U.S. Food and Agricultural Organization (FAO) show that Europe accounts for about 80% of global wood pellet consumption, with North America at 15%. The European Union is working toward a goal of deriving at least 20% of its energy consumption from renewable sources, including wood, by 2020. Since the EU enacted this Renewable Energy Directive in 2009, numerous European energy companies have opened pellet-fired power plants and/or started using pellets to co-fire existing coal plants. Consequently, total wood pellet consumption in the EU exploded from nine million metric tons (MMT) in 2009 to an estimated 20 MMT in 2014, according to Eurostat (1 metric ton equals 1.1 U.S. tons.). Wood pellet consumption in North America totaled about 4.0 MMT in 2014, according to Poÿry Analysis and the Wood Pellet Association of Canada (WPAC). Most of the plants established during the 2000s—including several operated by hardwood sawmills—are small by current standards and oriented toward home heating markets. In October 2014, Rentech opened North America's first 100% pellet-burning power facility in Ontario. Most of the pellet plants recently opened and now under construction are quite large, located in the U.S. South, and designed to provide bulk shipments to Europe. Just the Beginning Industry information firm RISI expects global demand for wood pellets to surpass 40 MMT by 2020. Consulting firm Bain & Company expects EU consumption to approach 30 MMT by 2020, though some forecasts put the figure as high as 70 MMT. Importantly, the EU's demand is increasing much faster than its production. EU imports nearly quadrupled from 2009-2014, to an estimated 7.5 MMT, according to Eurostat, with almost 80% coming from the U.S. and Canada. Since Europe's capacity to further expand production is limited, most future demand growth will be met by North American supplies. Demand is also growing rapidly in Asia, particularly China and South Korea. China aims to derive 15% of its energy production from renewable sources by 2020. WPAC expects Chinese demand From Cottage Industry to Big Business A Fresh Look at the Wood Pellet Industry's Evolution By Hardwood Publishing Company MARKETS A

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