The Swedish fuel pellets industry : production, market and standardization

Abstract: The production and demand for wood-based fuel pellets has increased considerably both in Sweden and internationally the recent years. Today Sweden is one of the leading nations when it comes to production and use of fuel pellets. Despite the favorable development great challenges wait. The all time high production of saw mill by-products is not enough to satisfy the growing demand for by-products, resulting in increasing raw material prices and competition. Seen in a historic context, the pellet industry has been characterized by fluctuations in supply and demand and uncertainty about how changes in governmental subsidies and the development of competitive substitutes will affect the situation. This study presents a broad overview of the Swedish pellet industry. The study had three purposes; to analyze the business situation for the producers, to examine to what extent product standards and environmental certification instruments were used within the industry, and to make an estimate on future potentials and possibilities for the pellet industry. The study was conducted in the form of a questionnaire survey to the manufacturers of fuel pellets in Sweden and the results are based on answers from 55 % of the producers, accounting for 86 % of the total production capacity. The results indicate a rapidly expanding production capacity and at the same time a strained raw material situation. The production increased with as much as 260 % from 2001 to 2007, and the planned capacity expansion totals 708 000 annual tonnes, or over 40 % of the capacity for 2007. During the same period, the competition for raw materials was getting more intense; one third of the producers experience the raw material situation as the largest threat to the production and the majority of firms have evaluated alternative raw materials in response to the increased competition. Among the alternatives examined are for example roundwood and pulp wood. The majority (47 %) of the production go to small-scale consumers. The greatest part (74 %) of all pellets manufactured are produced according to the Swedish Standard, but among the small-scale producers the use of standardization is low. More than one fifth of the production is certified according to FSC and PEFC (scarcely 300 000 tonnes). The low degree of certification depends in a first instance on the fact that 53 % of the producers do not use environmentally certified raw materials but ultimately on the low demand for environmental certified pellets. Today the pellet industry is very dependent on the demand and supply balance for other forest industry products, a dependence that in a future perspective should be abandoned in favor of alternative and forest industry independent raw materials. To avoid the risks associated with overbuilding capacity, a greater share of the Swedish production should go to the expanding international market.