HAWKINS WRIGHT

HAWKINS WRIGHT

HAWKINS WRIGHTHAWKINS WRIGHT

European and UK Pellet Market Trends

Wood Heat 2020

Fiona Matthews, Associate Director

HAWKINS WRIGHT

Consultants to the global biomass industry

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Total global demand in 2019 = 37Mt (annual growth of +6%)

Source: Hawkins Wright, The Outlook for Wood Pellets

Note: industrial = power, CHP and large district heating; heating = residential and commercial boilers

EU27 + UK74%

Other Europe6%

North America14%

Russia & CIS4%

Asia2%

Total global heating demand

in 2019 = 17.9Mt

EU27 + UK76%

Asia24%

Total global industrial demand

in 2019 = 19.2Mt

HAWKINS WRIGHT

Breakdown of global heating pellet demand

Source: Hawkins Wright, the Outlook for Wood Pellets

Note: does not include pellets used for CHP or large-scale district heating

Austria 1.0 Denmark

1.0

France 1.6

Germany 2.3

Italy 3.0

Spain 0.6Sweden

0.5

UK 0.6

Other EU272.9

Other Europe 1.1

USA 2.3

Canada 0.3

Asia 0.3

Russia & CIS …

Global heating pellet demand in 2019

=17.9Mt

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The 2019/20 winter was milder than usual

0

500

1,000

1,500

2,000

2,500

3,000

Vienna, AT Clermont-Ferrand,FR

Munich, DE Verona, IT Edinburgh, UK

Hea

tin

g d

egre

e d

ays

5 year average 2014-2019

2019/20 winter

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Demand for heating pellets continues to grow, despite mild temps

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

2014 2015 2016 2017 2018 2019

He

atin

g p

elle

t co

nsu

mp

tio

n, t

on

nes

Italy

Germany

France

Austria

UK

Spain

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Supportive policies are critical to market growth

EU decarbonisation targets and COVID recovery packages are bringing political attention back to heating

Generous boiler (and stove) subsidies, e.g. 45% of costs, with appropriate conditions - emissions, installation standards, boiler efficiency, building energy efficiency etc

•France, Austria, Germany

Restrictions on oil boilers, both existing and new installations

•Germany, Finland, Austria, France

Introduction of carbon taxes on heating oil

•Ireland, France, Sweden, Denmark

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In contrast, UK pellet market has been plagued by policy uncertainty

• Biomass heat deployment has dried up since its peak in 2014, due to RHI degression and

other changes

• Closure of RHI in March 2021/22 will halt project pipeline

Will lead to loss of expertise and damage to established supply chains

• Clean Heat Grant and IETF will not bring about the scale of decarbonisation required Biomass heat is being confined to a very limited role

• Other policies are critically needed Clean Heat Grant extended beyond 2021? Outcome of Nov 2020 spending review New bioenergy strategy Soon (?) - Heat and Buildings Strategy

HAWKINS WRIGHT

COVID-19 is impacting both pellet supply and demand

• Lockdown/labour related production issues

• Impacts on wood fibre availability/costs (not necessarily negative!)

• Financing problems could delay supply chain investment

Pellet supply

• Less use in schools/libraries/public buildings

• Complications due to insolvencies e.g. hospitality

• More residential use due to staff WFH?

• Reduced disposable income means fewer stove sales in FR/IT (less growth in this market segment)

Pellet demand

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UK pellet supply

• Feedstock shortages in some parts of the UK, because of reduced sawmill

operations, caused difficulties for UK pellet producers

• Loss of Verdo has affected UK production capacity, but others have/will expand

(Balcas, Land Energy)

• ENplus production was 271kt in 2019, similar to 259kt in 2018

• Imports are important too (~300kt/y mainly from Baltics and Russia)

Risk of BREXIT related supply disruptions, particularly for bagged pellets in

containers

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European pellet production is rising to meet demand growth

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2016 2017 2018 2019

Wo

od

pe

llet

pro

du

ctio

n, t

on

ne

s

Austria Germany German production

up +17% in 2019

Source: DEPV, ProPellets Austria

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Other trends in pellet supply - impact of bark beetle

• The spruce bark beetle infestation is spreading

across Europe and getting worse.

• The warming climate is exacerbating the

problem of bark beetle infestations.

• The influx of damaged wood is causing

increased sawmill production rates.

• The wood often achieves lower log yield in

sawmills which results in increased sawmill

residue production (good for pellet producers)

• There is concern in many countries that forest

owners are reluctant to replant infected areas

which could lead to wood shortages in the

future.

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Other trends in the market - wildfires and storms

• Wildfires are a growing problem for

forest management. For the first

time, every European country

experienced forest fires in 2019.

• A changing climate is increasing the

frequency and size of storms.

• Some countries (Germany) have seen

a significant rise in wind damage in

forests.

• The influx of damaged timber has

driven high levels of sawmill residues

and lower prices. Some sawmills

have been close to reducing

production until chip stocks were

drawn down.

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Conclusions

• Despite several mild winters, European pellet demand for heating is growing

• Generous subsidies and oil phase out policies are driving the European market

The UK outlook is far less optimistic than its neighbours’

• Wood pellet supply in Europe was ample during 2019/20 winter, a reverse from 18/19

• Wood pellet production through 2020 has been helped by lower wood costs in Europe

although COVID concerns and low industrial pellet prices are deterring production

in some cases

• COVID and BREXIT pose risks to the market (economic and regulatory)