Electricity produced by burning wood pellets decreased in absolute terms for the first time in 2022, while wind and solar rose.
Driven by EU policy and strong national incentives for both industrial and residential use, the European market for wood pellets has been the world’s largest for more than 15 years, endangering both European and global forests. This overconsumption is indeed driven by Member States, EU and international renewable energy policies that fail to distinguish between wood burning and cleaner sources of renewable energy such as wind, solar or geothermal.
New analysis of industry data by Fern shows, however, that overall European consumption of wood pellets decreased by 6 per cent (minus 1.56 per cent in the EU) in 2022.
This was not what the market expected.
Prior to 2022, European forests struggled with increasing logging and climate disturbances. Rising use of biomass for energy has contributed to the reduction of the overall canopy tree cover in Europe since 2016 and the severe degradation of the EU’s land carbon sinks – especially in biomass-producing Member States, such as Estonia, Sweden, Finland or Germany. Industrial demand for pellets for the energy sector roughly equalled local and residential demand by the end of 2021.
Russia’s 2022 attack on Ukraine radically changed the context, causing energy prices, and energy poverty, to surge across the EU. Citizens turned to wood as a heating alternative, driving up wood and wood pellet prices, and several governments created or reinforced incentives for EU citizens to purchase wood pellets stoves and boilers. Many therefore expected the consumption of wood pellets for heating to dramatically increase.
But according to market intelligence firms and Bioenergy Europe, while residential demand still grew by 0.81 per cent, particularly in France and Germany, industrial demand shrunk by more than 15 per cent.
Many factors contributed to this: wood pellet prices peaked in August 2022, undermining residential and industrial demand, and the mild winter lowered heating demand more widely. Some energy companies took advantage of higher prices by reselling their pellets rather than producing electricity; domestic pellet producers were too slow in filling the gap caused by the ban on wood imports from Russia. As a result, the amount of electricity produced by burning wood decreased for the first time in Europe in 2022, while generation from wind and solar kept rising.
Forests remain under pressure.
So far, in 2023, pellet prices have been higher than before the Ukraine crisis, but lower than in 2022. EU production has increased, and new pellet factories are being built (particularly in Germany, Austria and France). Both factors may maintain pressure on EU forests. The United States Department of Agriculture (USDA) also expected EU demand for imported US pellets to grow in 2023, due to Member States incentivising residential markets. That said, the demand reduction in Europe contributed to bringing Enviva, the US-based largest global wood pellets producer, on the verge of bankruptcy in November 2023.
A recent industry study forecasts that needed developments like the phasing-out of incentives for fossil fuels in the heating sector and bans of fossil-fuel boilers in new buildings could drive additional pellet growth if additional measures are not taken. This is likely to be the case if climate, environmental and health risks of wood burning are not taken more seriously by Member States when they implement the recently adopted revision of the EU’s Renewable Energy Directive.
Forests and climate cannot withstand the additional pressure. Member States and EU institutions must provide sufficient public support to the switch to non-combustion heating solutions such as heat pumps and the reduction of heat needs. The €16 billion the EU spent subsidising bioenergy in 2020 would be better used supporting citizens insulating their homes rather than forest destruction.