european and uk pellet market trends - home - rea
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HAWKINS WRIGHT
HAWKINS WRIGHT
HAWKINS WRIGHTHAWKINS WRIGHT
European and UK Pellet Market Trends
Wood Heat 2020
Fiona Matthews, Associate Director
HAWKINS WRIGHT
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
HAWKINS WRIGHT
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
HAWKINS WRIGHT
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
HAWKINS WRIGHT
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
HAWKINS WRIGHT
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
HAWKINS WRIGHT
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
HAWKINS WRIGHT
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
HAWKINS WRIGHT
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.
HAWKINS WRIGHT
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.
HAWKINS WRIGHT
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)