Biomass Pellets Market Size & Share Analysis - Growth Trends and Forecast (2027 - 2032)

Market Trends and Insights

Renewable-Heat and Decarbonization Mandates

RED III prioritizes material uses of woody biomass over energy use, which limits the availability of primary wood for pellet production in the European Union.^[1] The directive requires biomass installations above 20 MW thermal input to demonstrate at least 80% greenhouse gas savings. This requirement directs biomass pellets market investment toward sawmill co-products, forest residues, and agricultural waste. PEFC issued ST 5002:2025 in May 2025 to establish chain-of-custody requirements for forest biomass under the revised RED III criteria.^[2] The European Commission started infringement proceedings in July 2025 against all EU member states except Denmark for missing the April 2025 RED III transposition deadline. Suppliers in North America, the Baltics, and Southeast Asia must meet these standards to retain access to European utility buyers, which increases the value of certified residue-based supply.

Coal-to-Biomass Conversions and CHP Expansion

Coal-to-biomass conversion can generate large pellet demand by using existing generation infrastructure rather than requiring entirely new plants. Drax Power Station will operate under a low-carbon Contract for Difference from April 2027 to March 2031 at a strike price of GBP 157/MWh.^[3] This arrangement provides multi-year revenue visibility for the biomass pellets market supply chain. Drax Power Station also completed a strategic review of its Canadian operations following a GBP 337 million write-down, which may redirect Canadian volumes toward Asian buyers. Idemitsu Kosan began commercial operations at its 120,000-tonne-per-year black pellet plant in Gia Lai Province in October 2025. The plant began full-scale shipments in 2026 to Japanese utilities planning coal co-firing at 600 MW and 700 MW units, supporting demand for fuels compatible with existing coal equipment. Combined heat and power projects can also improve biomass project returns where national programs offer stronger support than for electricity-only plants.

Asian Co-Firing Demand and Long-Term Offtake Contracts

Japan's wood pellet and palm kernel shell imports rose 7.7% year on year in the first half of 2026 as large biomass power stations entered operation. The Tahara plant in Aichi Prefecture and the Sendai Port plant in Miyagi Prefecture started operating in 2025, increasing fuel demand in the biomass pellets market. Vietnam supplied 5.68 million tonnes of wood pellets to Japan in 2025, representing more than 60% of Japanese import volume. Japan has relied more on feed-in tariff backed, longer-term contracts, while South Korean utilities have commonly used contracts lasting 6 to 12 months. This difference affects supplier decisions, as shorter contracts provide less certainty for investments in certification and supply chain controls. Japan's 7th Strategic Energy Plan, approved in February 2025, projected biomass at 5-6% of electricity generation through 2040, indicating that future demand will depend more on fuel switching and industrial decarbonization than on new capacity targets.

Agricultural and Industrial Waste Valorization

Pelletized agricultural biomass is attracting attention in markets where restrictions on open-field burning coincide with limited waste disposal options. India's tighter straw-burning restrictions have increased the availability of crop residues in Punjab and Haryana for energy use. Mobile Servoday Pelletbox units deployed in Andhra Pradesh operate at 1 to 4 tonnes per hour and reduce the need to transport loose biomass to centralized facilities. Producers can generate revenue from waste-gate fees and pellet sales, which improves project economics. In Brazil, Paraná State agri-processors deployed corn stover pelleting equipment in 2025 to meet domestic industrial boiler demand. The biomass pellets market can therefore draw on a broader range of feedstocks, although consistent moisture levels, ash content, and collection systems remain necessary for reliable fuel quality.

Feedstock Competition and Supply Volatility

Forest residues face competing demand from pulp and paper mills, engineered-wood producers, and carbon-offset programs, which limits supply availability for pellet producers. Drax Group produced 1.9 million tonnes of pellets in the first half of 2026, compared with 2.1 million tonnes in the first half of 2025, amid constraints in British Columbia's fiber market. The company's GBP 337 million write-down illustrates how local feedstock constraints can affect asset values and supply decisions. A typhoon disrupted Vietnam's central production zones in November 2025 and affected factory operations during the first quarter of 2026. Large EU operators must meet plot-level geolocation obligations from December 30, 2026, which presents challenges for fragmented supply chains. Germany's average pellet price reached EUR 454.21 per tonne in September 2026, 35.6% above the prior-year level, reflecting lower stocks after winter and tighter sawmill residue availability.

Heat-Pump Substitution and Subsidy Reversals

Air-source heat pumps increasingly compete with residential pellet boilers in the biomass pellets market. The International Energy Agency reported in 2025 that annual heat-pump ownership costs were converging with, and in some cases falling below, biomass boiler costs in well-insulated European homes. The UK Boiler Upgrade Scheme provides GBP 7,500 for heat pumps and GBP 5,000 for biomass boilers. Heat-pump grants for off-grid rural properties increased to GBP 9,000 from July 2026, affecting a customer segment that has traditionally relied on biomass boilers. Austria withdrew biomass boiler subsidies in 2025, while Germany recorded a 17% decline in heat-pump sales during the same year. Lower residential sales can reduce demand for higher-margin bagged pellets and pressure European mill profitability, even when utility demand remains stable.

*Our forecasts treat driver/restraint impacts as directional, not additive. The impact forecasts reflect baseline growth, mix effects, and variable interactions.

Biomass Pellets Market Segment Analysis

Forest residues held 27.8% of the biomass pellets market share in 2026, supported by long-established supply links from North American and Baltic sawmills to European utilities. Dedicated port infrastructure and long-term contracts reinforce this position. Sawmill residues remain important as a related source of raw material for pellet plants. Their availability shapes supply conditions in the biomass pellets market, as sawmill throughput limits output in constrained fiber markets. Wood chips and wood waste serve district heating combined heat and power facilities across Scandinavia and Central Europe. These materials require less processing than fuel supplied to large industrial utilities. Food waste and energy crops remain smaller feedstock categories. Separate collection requirements support food-waste use in the European Union, but variable moisture and ash content can restrict combustion performance. Global wood pellet production reached 46.4 million tonnes in 2025, with the United States, Canada, Germany, Vietnam, and Russia accounting for 50% of output.

Agricultural residues are forecast to grow at a 7.5% CAGR through 2032 within the biomass pellets market. Bans on open-field burning in India, Thailand, and Vietnam are encouraging the use of rice straw, corn stover, and cotton stalks in energy applications. India produces more than 120 million tonnes of rice straw each year, although only a portion of this resource reaches energy uses. Farm-scale mobile units can reduce collection and transport costs for dispersed feedstocks. KRONE's Premos 5000 is an in-field pelleting harvester designed for straw and stalks. This equipment can connect field residues with local users in the biomass fuel pellets market without requiring a centralized processing site. Industrial waste, including sawmill fines, paper sludge, and agro-industrial residues, also provides integrated producers with additional raw material options. Residue-based materials can qualify for an exemption from full sustainability certification under RED III, which supports diversification away from primary forest wood. The pace of growth will depend on feedstock preparation, quality control, and reliable local collection systems.

Wood pellets held 80.2% of the pellet-type biomass pellets market share in 2026. Their dominant position reflects established market investment in white-pellet mills, port handling systems, and boiler configurations. ENplus A1 certification remains a widely used standard for residential and small commercial supply. German production operated at 98% A1 compliance, reflecting the importance of consistent quality in that segment. Agricultural residue pellets are a smaller category that attracts industrial boiler operators in South and Southeast Asia seeking lower fuel costs. Agro pellets serve similar uses where local biomass is available. Industrial waste pellets are often consumed within paper mills and agro-processing sites that own the raw material. The Sustainable Biomass Program and ISCC EU provide major compliance references for utility-grade wood pellet transactions in Europe. Their audit processes increasingly overlap with EUDR geolocation requirements for wood imports.

Torrefied biomass pellets are projected to expand at an 8.6% CAGR through 2032. These products have higher energy density and better moisture resistance than white pellets. They can reduce covered-storage requirements and can be co-fired in existing coal-mill circuits at ratios of up to 35% without major boiler modifications. Idemitsu Kosan's Gia Lai plant started commercial operations in October 2025 and began supplying Idemitsu Green Energy Pellet to 25 Japanese industrial clients in 2026. Power Wood Holdings secured CAD 84 million (USD 62 million) for two Alberta steam-explosion facilities with 700,000 tonnes of combined annual capacity. The projects are supported by 10-year Japanese take-or-pay agreements. ISO 20024:2020 outlines safe handling and storage practices for commercial and industrial solid biofuel pellets.^[4] Safety and product quality compliance are becoming important conditions in industrial procurement.

Power plants held 36.5% of end-user demand in 2026, representing the largest portion of the biomass pellets market. Much of this demand is covered by 10 to 15-year supply agreements signed during the 2018 to 2023 build-out cycle. These contracts support near-term market volume stability for producers, but also expose suppliers to renegotiation risk as contracts begin to expire in the late 2020s. Drax's new Contract for Difference limits generation to a 27% capacity factor from April 2027, which is close to half the plant's historical average. This lower operating level may release pellet volumes to other buyers or reduce orders from established suppliers. Commercial and industrial facilities use pellets in food processing, textiles, chemicals, and institutional boilers. District heating in Scandinavia, Poland, and the Baltics provides seasonal demand that is commonly served through bilateral contracts. Agricultural users remain a smaller but growing group for crop drying and greenhouse heating.

Transportation is the fastest-growing end-use segment at an 8.2% CAGR through 2032. The segment is linked to efforts to reduce emissions from maritime freight that carries pellets and related fuels. Drax's MV Ultra Yorkshire completed a transatlantic voyage in 2026 using B100 biodiesel and carried more than 29,000 tonnes of pellets from Greater Baton Rouge to Liverpool. Drax estimated that the voyage reduced emissions by 90% compared with standard bunker fuels. A 2025 journal study found that routing optimization could reduce costs by up to 22.1% and CO2 emissions by up to 52.6% in a biomass pellet supply chain. Drax, NYK Line, and Japanese partners signed a 2024 memorandum to develop a commercially operable bioship by the end of 2029.^[5] The concept would use gas generated from biomass onboard bulk carriers and could reduce well-to-wake emissions by 22% if commercialized. These efforts broaden the role of the biomass pellets industry beyond fixed energy facilities.

Geography Analysis

Europe Biomass Pellets Market

Europe held 31.7% of the biomass pellets market share in 2026, supported by residential heating, district energy, and utility co-firing. Germany produced 4 million tonnes of wood pellets in 2025 and had 760,000 pellet heating installations. German output reached 940,000 tonnes in Q1 2026 and 1.034 million tonnes in Q2 2026, with sawmill residues supplying more than 90% of raw material. The United Kingdom will reduce subsidized Drax generation from April 2027 under its new Contract for Difference. Italy, Poland, France, and Spain provide complementary demand, while EUDR rules require large operators to meet full traceability obligations from December 30, 2026.

APAC Biomass Pellets Market

Asia-Pacific is forecast to grow at a 9.5% CAGR through 2032, making it the fastest-growing region in the biomass pellets market. Japan's wood pellet and palm kernel shell imports increased 7.7% year on year in the first half of 2026. Vietnam supplied 5.68 million tonnes, or 60%, of Japan's pellet imports in 2025. Japan's 2040 biomass target of 5-6% is largely met by certified capacity, shifting attention to conversion economics and industrial decarbonization. South Korea's certificate-weight reductions may redirect Vietnamese and Indonesian supply toward Japan, where Idemitsu's torrefied pellets serve industrial users.

The Americas and MEA Biomass Pellets Market

North America remained a major supply hub in 2026, with 74 operating U.S. densified biomass manufacturers and 13.2 million tonnes of capacity. Drax's Canadian review could move British Columbia output toward Asian buyers from 2027. South America is expanding corn-stover processing in Paraná and forestry-residue use in Chile. Middle East and Africa countries are primarily import markets, led by Saudi Arabia, the UAE, and South Africa, while Morocco and Egypt are developing agricultural-residue projects.