Wood pellets as a heating fuel originated in the U.S. during the 1970s in response to high energy prices and is now an increasingly popular co-fire and standalone feedstock for commercial and utility renewable energy applications especially in Europe. There is some pellet consumption in the U.S. In 2006, according to the Wood Pellet Association of Canada, there were approximately 60 U.S. wood pellet mills in operation, producing about 800,000 tons a year. Those pellets were sold exclusively into the residential bagged market, which is big in the Northeast and Pacific Northwest. For 2007, WPAC added 25 producer members to its organization, including three pellet plant projects in development to primarily serve industrial export markets in Europe. In 2008, Green Circle Bio Energy Inc. commissioned a 550,000 ton per year wood pellet mill in Cottondale, Fla., but until there is any real incentive in the U.S. to use pellets in utility-scale or any appreciable commercial operations, the company—owned by Swedish-based JCE Group AB—is exporting all of its product to Europe where pellet markets are insatiable.

“We started production in May, and typically these plants take a few months to achieve full capacity, especially with this being the largest one in the world and one of the few that runs on solid wood instead of wood residues,” says Olaf Roed, president and chief executive officer of Green Circle Bio Energy. Roed says in the spring his company will be evaluating if, when and where to build additional wood pellet plants in the U.S. As for securing U.S. contracts for pellet sales, Roed says, “In the U.S. we still wait for new regulations, and we’re optimistic something will happen in the next Congress as far as carbon regulation is concerned.”

A much smaller appetite for wood pellets exists in the U.S., but high prices recently experienced in the major competitive heating fuels such as fuel oil, propane and natural gas, has spurred growth in U.S. residential wood pellet markets. According to the Pellet Fuels Institute, approximately 1 million pellet stoves and fireplace inserts are used in homes throughout the U.S. and Canada.

U.S. Not Ready for Utility-Scale Consumption
To gain traction in U.S. electrical utility markets, where 50 percent of the power generation comes from cheap and abundant coal, however, a lot of work remains to be done, says Jim Thompson, vice president of Indeck Energy Services Inc. IES, in partnership with Midwest Forest Products Co., is in the early stages of constructing a 90,000-ton-per-year wood pellet plant in Ladysmith, Wis. The name of the pellet mill is the Indeck Ladysmith Biofuel Center. Thompson provides perspective on why there’s little interest in the U.S. to co-fire wood pellets with utility-scale power plants. “I don’t see any reason to sugarcoat this—coal is a cheap fuel,” he says. “Wood pellets compete extremely well with natural gas, propane and home heating oil but, on price, wood pellets don’t compete very well with coal. The whole CO2 (carbon dioxide) initiative is gaining momentum in our country, along with renewable portfolio standards (RPS), but not every state has one.” Wisconsin does have a RPS, but Thompson says it hasn’t gained much traction.

The Indeck Ladysmith Biofuel Center is expected to come on line in July 2009, and Thompson says the company has sold more than half the projected wood pellets for its entire first year of production. “Those are primarily going to the Northeast part of the U.S.—not to Europe,” he says, even though he admits he has seen an extraordinary amount of interest coming from Europe. “There’s a lot of interest overseas,” he says. Thompson says Northeast purchasers shored up lots of contracts for the facility’s premium residential pellets ahead of production next year, and European buyers have already sent letters of interest. That doesn’t mean they are ignoring the potential markets in the mill’s host state of Wisconsin. “We’re reserving a significant amount of pellets for sale right here in northern Wisconsin, where it gets nice and cold—and that’s cold with a capital ‘C,’” Thompson jokes. “To be fair, we are talking with utility companies in Wisconsin, we are talking to the state of Wisconsin about three of their plants in Madison and we’ve done test burns with them—so I think eventually it’s going to happen.” He says within the next year or two there may be a shift in utility and commercial interest in wood pellets for electrical and thermal generation, but utility companies must begin to take carbon reduction seriously. Utilities also must be able to pass along the added cost to the consumer. “I believe you will begin to see this happen but where we are right now, people really don’t want to hear about premium costs for electricity—they just don’t,” Thompson says. “Carbon is trading at $5 a ton on the Chicago Climate Exchange, and that’s not much money. If it goes to $35, $40 or $50 a ton, as it is in Europe, the cost of doing this comes down because the cost of not complying with CO2 reduction goes up. When that happens, we’ll see the markets move.”

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