The European market for pellets in domestic heating

Trends and opportunities Christian Rakos

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European$Pellet$demand$for$the$Heat$Market$

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EU pellet production and demand for heat markets

Pellet production

Heat market demand

Growth p.a. average 10%

Growth p.a. average 15%

Pellet stoves: heating of single rooms Simple low cost solution (1500-3000€)

Pellet boilers: solution for buildings with central heating (10.000- 20.000 €)

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Possible"pellet"boiler"sales"in"key"heat"markets""assuming"average"growth"rates"over"the"last"4"years"

Germany:"17%"

Italy:"30%"last"year"

Austria:"8%"

France:"30%"

Source: AEBIOM statistical report 2013, EPC calculations

Cumulated number of pellet boilers in Austria

425 1.746 3.874 7.340 12.272

16.764

21.957 28.034

36.908

47.375 51.290

62.391

70.837

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111.849

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Bestand an Pelletkesseln in Österreich (Kleinfeuerungsanlagen < 100 kW, jeweils Jahresende)

Quelle:&Ing.&Karl&Furtner&und&DI&Herbert&Haneder,&Landwirtscha;skammer&NÖ&(Prognose&2013&lt.&VÖK&und&ppa);&Grafik&proPellets&Austria;&Jan.&2014&

Bestandswachstum 2010: 11% 2011: 13% 2012: 13% 2013: 10%

Growth of the stock

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Possible"pellet"stove"sales"assuming"the""average"growth"rates"over"the"last"4"years""

Germany:"3%"Italy:""7%"Austria:"7%"France:"40%"

Source: AEBIOM statistical report 2013, EPC calculations

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Sources: e-control, IWO, BMWFJ, proPellets Austria; May 2014

Average annual prices for heating fuels in Austria

Heating oil

Natural Gas

Pellets

Economics is the driver for heat market development

If economics is the driver – why are so few markets developing?

! Because policy support is needed to start market development

! Pellet heating is a new and unknown technology for most EU consumers

! SMEs are driving the development: no financial capacities to do effective promotion

! Higher upfront investment and lack of confidence in new technology is a barrier – investment support is helpful

! Skills and information of professionals is major issue

Is investment support for pellet heating distorting the market?

Investment(subsidy(for(pellet(boiler 3000 €Energy'production'p.a.'(20kW) 30 MWhEnergy'production'during'lifetime 600 MWhSubsidy'/'MWh 5,0 €/MWhSubsidy(/(ton(of(pellets 1,0 €/t

How will growing demand for pellets for the heat market be satisfied?

! European pellet production is levelling off

! North American industrial pellet producers & international pellet trade are discovering the EU heat market

! Sharply increasing imports will stop further increase of pellet prices and wood fiber prices

! In a mid term perspective agricultural byproducts & residues could supply massive volumes of pellets

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"ENplus"cer8fed"pellet"produc8on"capacity"in"North"America"since"1/2013"

Trade routes for wood pellets – projection for 2015

Why are pellet imports from the US increasing so much?

What about the carbon footprint?

Source of emissions CO2 Emissions (kg / mt Pellets)

Supply of raw material USA 17

Pelletproduction 108

Transport to the port 20

Transatlantic shipping (ARA) 55

Assumed transport to end consumer

43

Sum 244

CO2 Reduction: 88% reduction compared to coal (power plant ARA) 81% reduction compared to heating oil (domestic use)

Will the further growth of pellets for heating threaten EU panelboard & paper industries?

! NO!

! No further increase of fiber prices in Europe due to growing pellet imports

! Producers of panelboard and paper outside Europe will also face competition for fiber dedicated to energy use

! Low wood fiber prices cannot be sustained in an environment of high energy prices

Conclusions

! Wood pellet use can significantly contribute to reducing heating costs of EU households

! It will not lead to the decline of EU panelboard and paper industries

! Only few member states have started to develop this opportunity

! EU policies should encourage all MS to emphasize renewable heat generation as a competitive way to meet its RES targets

Thanks for your attention!