Wood pellets first appeared as an emergency fuel in the US during the energy crises of the 1970s. Today Americans use one million tonnes a year, mainly for burning in small domestic heating stoves. Except for a few isolated cases, pellets became widely used in Europe much later. In the 1990s, Sweden and Denmark became the largest European pellet markets, followed by Austria a few years later. Since 2000, Germany and Italy have also seen dramatic growth.
While in Sweden pellets were primarily produced for use in large power plants, Austria became the first European country where they were produced exclusively for domestic heating. In the past few years Sweden and Denmark have followed suit as high taxes on fossil fuels created an economic incentive to use wood fuels in large municipal district heating plants with heat or combined heat and power production.
In Austria, the boom in the use of wood pellets for domestic heating seems to have been due mainly to consumer appeal – they have a pleasant appearance and smell. Austria also has large numbers of dedicated biomass boiler manufacturers who used to produce wood chip boilers and had long-term experience with wood fuels. They were able to bring out boilers designed for the domestic market soon after pellets were introduced. As an added incentive, the Austrian government provides subsidies of up to 30% of investment costs for households which switch to wood fuel.
Maintenance and costs
In Sweden heating domestic heating with pellets is now cheaper than using oil and the cost of installing pellet-burners on existing oil boilers is low. The disadvantage is that the boilers need to be manually cleaned fairly frequently to avoid ash build-up and decreasing efficiency. In contrast, Austrian pellet boilers have automatic cleaning devices and need virtually no maintenance except removal of ash two or three times a year.
Pellet production costs can vary considerably between €60-90 per tonne. They can be influenced by raw material costs, plant capacity, equipment availability, heat demand for drying and specific heat costs as well as operating hours and investment costs. Market prices for pellets in Austria and Germany are around €170 per tonne for small consumers and approximately €120 per tonne for operations using several hundred tonnes a year.
It is estimated that 2kg of pellets provide almost the same amount of energy as one litre of fuel oil. Consequently a kilogram of pellets must cost less than half of a litre of fuel oil to be competitive. In fact, given the significantly higher costs for pellet boilers in comparison with conventional oil boilers, pellets need to be reasonably cheaper than fuel oil to motivate the consumer to switch. The higher the heat demand of a building is, the less important are higher investment costs of the boilers if the fuel is cheaper. For this reason large buildings are economically particularly attractive as consumers of wood energy.
Market development
The secret to creating a viable wood pellet market is simultaneous development of supply and demand. In Austria businesses started the market by importing pellets and then, as demand started to grow, established production facilities. It is also possible to develop the market the other way around, by producing pellets for export while developing the local market. In considering the viability of both options it is necessary to distinguish the opportunities of large scale, bulk markets that offer high volumes at low prices and small-scale domestic markets that develop more slowly but offer significantly higher prices.
In the bulk market for power plants pellet quality does not play a significant role, but in the domestic heating market it is fundamental for success. Domestic markets demand pellets of very high quality, low dust content and high mechanical stability and also excellent fuel delivery services.
Introducing a new energy carrier into the market is a complex management task. It needs people dedicated to the project and co-operation within the timber sector. It also demands collaboration between the timber industries and other sectors and public bodies involved in offering financial incentives and capable of creating beneficial conditions for market development.
