Wood Pellet Market Size & Share Analysis - Growth Trends and Forecast (2026 - 2031)

Global Wood Pellet Market Trends and Insights

Japan-South Korea Biomass Co-Firing Mandates Accelerating Industrial Imports

Japanese utilities import nearly 3 million t of industrial pellets each year under the national feed-in tariff, and South Korean generators are obligated to source certified biomass through the renewable portfolio standard despite a 2024 subsidy haircut. Long-term, take-or-pay contracts signed with U.S. and Canadian suppliers lock in volumes to 2029, providing revenue certainty that underpins new mill investments along the Gulf and Atlantic coasts. Regional buyers are demanding flexible clauses that hedge freight and currency risk because the yen and won remain volatile against the U.S. dollar. Import volumes also hinge on the relative price of palm-kernel shells and ammonia, two competing alternatives under review by Asian utilities planning 2030 decarbonization pathways. If the co-firing mandates survive scheduled policy reviews in 2027, the wood pellet market could secure a durable Asian demand floor that buffers any cyclical softness in Europe.^{[1]Drax Group, “Biomass Sourcing Policy v1.1,” drax.com}

EU REDIII Sustainability Criteria Fueling Demand for Certified Premium Pellets

The Renewable Energy Directive III embeds strict chain-of-custody obligations that de-risk biodiversity and land-use change, effectively bifurcating supply into certified and non-certified streams. Vertically integrated producers holding Sustainable Biomass Program and Forest Stewardship Council credentials now command 5%–10% price premiums, a margin uplift that offsets higher logistics and compliance costs. European utilities are inserting pass-through provisions that claw back penalties if suppliers fall out of compliance, reinforcing a two-tier procurement ecosystem. North American mills have responded by upgrading monitoring technology and expanding catchment-area audits to meet new transatlantic tender requirements. The higher bar for documentation is capital-intensive, but it also locks smaller, non-certified operators out of long-term contracts, consolidating volume among the top five players.

Corporate Net-Zero Contracts Boosting U.S. Export-Grade Production

Hard-to-abate sectors such as aviation, cement, and steel are signing multi-year offtake contracts to secure negative-emission feedstocks that can generate tradable carbon credits. Drax’s 1 million tons per year heads-of-terms with Pathway Energy for sustainable aviation fuel exemplifies this pivot, with deliveries slated to begin in 2029 from expanded capacity in the U.S. Southeast. Contract structures now include inflation pass-through and price-reset mechanisms to avoid the fixed-price traps that sank Enviva during the 2022 spot-price spike. Corporate buyers also prefer shorter tenors of 5–7 years so they can recalibrate sourcing strategies as new decarbonization technologies mature. These shifts diversify end-market exposure for pellet producers and insulate cash flows from regional policy risk.^{[2]Associated Press, “Enviva Files for Chapter 11,” apnews.com}

District-Heating Build-Out in Nordics Propelling Pellet Boiler Adoption

Over 500 district-heating networks across Sweden, Denmark, and Finland supplied roughly 60% of residential heat in 2025. Municipalities are decommissioning oil boilers and installing pellet-fired combined heat-and-power units to comply with carbon-neutrality targets set for 2045–2050. Because Denmark imports about 75% of its pellet needs, certified premium pellets sourced from the Baltics and Canada enjoy reliable baseload demand. Equipment vendors are introducing modular boilers that can toggle between pellets, chips, and agricultural residues, boosting system resiliency against feedstock scarcity. National carbon taxes, alongside bans on new fossil-fuel heating in urban buildings, keep pellet prices competitive even when natural-gas prices revert to pre-crisis levels.

Subsidy Rollbacks in U.K./NL over Lifecycle-Emission Concerns

The United Kingdom scrapped direct biomass subsidies in April 2024, removing roughly GBP 500 million in annual support and triggering a 15% drop in pellet imports during H2 2024. Drax is negotiating a bridging contract-for-difference to keep its 3 million tons per year plant running until carbon-capture infrastructure is commissioned post-2027, but policy uncertainty has depressed investor sentiment and narrowed refinancing options. Dutch regulators are conducting a parallel review focused on near-term carbon intensity, and early drafts suggest stricter limits on forest-sourced pellets could take effect in 2027. Baltic producers that once relied on Benelux utilities now face volume risk, prompting them to court Korean and Japanese buyers instead. The subsidy changes fragment regional demand and complicate long-range capacity planning for the wood pellet market.

Competition from Palm-Kernel-Shell Biomass in ASEAN Power Mix

Palm-kernel shells (PKS), a by-product of palm-oil milling, cost 20%–30% less than imported white pellets on a delivered-energy basis in Indonesia and Malaysia. Coal plants equipped with simple crushing lines can co-fire up to 10% PKS without major capex, satisfying renewable-portfolio quotas at minimal operating cost. The sustainability credentials of PKS are debated, yet local policymakers still classify it as agricultural waste, allowing plants to claim renewable credits. Wood-pellet exporters must therefore target premium segments such as residential heating and industrial boilers that cannot tolerate PKS’s higher ash content. Limited European acceptance of PKS for REDIII compliance also constrains trans-continental trade, capping global volume displacement.^{[3]Argus Media, “Japan-Korea Biomass Demand Outlook,” argusmedia.com}

Segment Analysis

By Feedstock: Agricultural Residue Broadens Supply Optionality

Forest and wood residue generated 57.2% of the 2025 volume, bolstered by expansive fiber baskets in the U.S. Southeast and British Columbia that supply low-grade roundwood and sawmill chips on multi-year contracts. Agricultural residues, notably wheat straw, rice husks, and corn stover, are forecast to post a 7.2% CAGR to 2031 as pelletizers in the U.S. Midwest, Eastern Europe, and India commercialize densification lines that handle higher silica content. The wood pellet market size for agricultural residues is expected to approach 12 million t by 2031, improving regional supply resilience.

In practice, straw-based pellets suffer from slagging at high furnace temperatures, prompting equipment makers to install refractory linings and automated soot-blowing systems that add capex but preserve boiler uptime. Producers offset lower bulk density by co-locating mills near farm clusters, trimming inbound logistics. Forest residue retains an intrinsic advantage in energy density and ash chemistry, yet its growth ceiling is constrained by biodiversity safeguards and competing demand from pulp mills. A rising share of crop-waste pellets, therefore, diversifies risk and aligns with circular-economy narratives that resonate with corporate buyers seeking verifiable waste valorization claims.

Note: Segment shares of all individual segments available upon report purchase

By Grade: Torrefied Pellets Target Coal-Retrofit Niche

Utility-grade white pellets held 56.7% of shipments in 2025 under long-term supply deals with European and Japanese generators. Premium residential pellets, certified to ENplus A1, captured a niche 18% slice, commanding a 10%–15% price uplift that shields margins during commodity cycles. The highest growth resides in torrefied black pellets, slated for a 9.0% CAGR through 2031, a forecast underpinned by Asian coal-fleet retrofits eager to raise biomass substitution ratios without new pulverizers. Torrefied throughput is expected to surpass 6 million t by 2031, equal to about 3% of the global wood pellet market size.

Market acceptance hinges on scaling pilot plants into 250,000-t commercial modules that spread fixed costs and mitigate the 20%–30% feedstock mass loss intrinsic to torrefaction. Premium-grade white pellets still anchor residential demand because strict ash thresholds avoid chimney fouling and meet urban emission caps. Standard-grade pellets service small industrial boilers and district-heating grids that balance cost and performance. Utility-grade dominance persists, yet policy-driven coal phase-outs in Europe could flatten growth unless torrefied solutions gain a wider footing.

By Application: Power Generation Edges Toward Parity With Heat

Heating remained the top use case at 59.2% of 2025 deliveries, fueled by Nordic district networks and 6 million residential stoves across Germany, France, and Italy. The power sector is projected to clock a 7.1% CAGR, lifting its share to nearly 40% by 2031 as utilities secure long-dated contracts to bridge intermittency gaps until large-scale storage or carbon capture matures. The wood pellet market size for power generation is forecast to top 130 terawatt-hours of output by 2031, equivalent to the annual consumption of Sweden.

Combined heat and power (CHP) plants occupy a steady niche where municipal steam loads or process-heat demand justify higher upfront capex. Corporate offtakes for sustainable aviation fuel, green steel, and bio-cement introduce a nascent but strategic demand wedge that could unlock premium pricing for negative-emission pellets. Heat’s supremacy faces competition from air-source heat pumps subsidized under EU Fit-for-55, yet pellet boilers retain an edge in older building stock lacking ductwork or three-phase electrical upgrades.

By End-User: Commercial Facilities Accelerate Conversion

Industrial and utility customers consumed 46.9% of 2025 volumes, anchored by a dozen European and Asian generators under take-or-pay obligations. Commercial establishments, hotels, hospitals, and universities are predicted to grow at a 7.9% CAGR as carbon taxes and green finance shorten boiler payback to five years. The segment’s share of the wood pellet market is set to approach 23% by 2031, up from 18% in 2025.

Residential demand swings with fossil-fuel price volatility: surging when gas spikes, ebbing when prices normalize. Animal bedding remains a minor but stable outlet, uncorrelated with energy markets, providing producers a hedge against cyclical heating demand. Utilities’ concentrated purchasing power compresses margins, driving suppliers to court commercial buyers that value service quality and emissions branding over lowest cost. Still, any sudden utility exit, as seen in the U.K., can ripple through supply chains, underscoring the importance of diversified customer portfolios.

Note: Segment shares of all individual segments available upon report purchase

Geography Analysis

Europe controlled 72.4% of global demand in 2025, supported by legacy coal-to-biomass conversions in the U.K., Sweden’s and Denmark’s district-heating backbone, and Germany’s subsidy-backed stove installations. Policy risk rose after the U.K. ended biomass subsidies in 2024 and Dutch regulators launched a lifecycle-emission review, but certified supply still enjoys compliance advantages under EU REDIII. The wood pellet market share for Europe is projected to slip modestly as imports plateau, yet its absolute volume remains the world’s largest through 2031.

Asia-Pacific is the fastest riser, forecast to expand at a 14.3% CAGR, propelled by Japan’s 20-year feed-in tariff for biomass co-firing and South Korea’s renewable-portfolio auctions. Japan imported roughly 3 million t in 2024, while Korean utilities sought 1.8 million t despite subsidy cuts. Pilot projects in China’s coastal coal fleet and India’s ag-residue densification initiatives add long-tail upside if policy support matures. Competition from palm-kernel shells caps penetration in Indonesia and Malaysia, but torrefied products could alter the equation once commercial volumes scale.

North America acts chiefly as an export platform, operating 12 million t of annual capacity in 2024.^{[4]USDA Foreign Agricultural Service, “Denmark Bioenergy Update 2025,” fas.usda.gov} Enviva’s restructuring cast a spotlight on leverage risk, yet Canadian mills in British Columbia and Alberta continue to benefit from sawmill residuals and railway access to Prince Rupert and Vancouver ports. Mexican consumption is negligible today, though abundant corn stover offers latent supply potential pending supportive regulation. Domestic U.S. demand is limited outside niche CHP sites, but decarbonization credits in California and New York could birth regional offtake hubs later in the decade.