Prices for industrial wood pellets used in electricity generation have fallen sharply in Europe this year, despite the ban on importing Russian-origin material, as UK electricity producers have consumed less than expected, market participants indicate.

The price of industrial wood pellets was more than 300 US dollars per tonne at the beginning of 2023, and nearly 400 US dollars per tonne in the second half of last year, but according to information from market sources, the price is now only 170 US dollars per tonne.

This partly reflected the fact that the UK's 2.6 GW biomass power station Drax and the 400 MW biomass power station EPH owned by the Czech company Lynemouth – both located in north-east England – have locked in supply surpluses and are now offering their material back to the market, one European biomass trader noted.

“Drax and Lynemouth were not running at full capacity, which has created a very large surplus of wood pellets, thus helping to prevent a shortfall,” he said.

This shortfall related to approximately 3 million tonnes of Russian and Belarusian wood pellets per year that were exported to Europe before the EU-wide ban in connection with the invasion of Ukraine.

“The economy is too stagnant and these companies have signed contracts for higher volumes than they need, so they have been selling back to the market for at least two months,” the trader pointed out.

“[Both UK plants] can consume 6 million tonnes of stock per year, so this has a major impact on the market,” he said, adding that an increase in demand from both producers could quickly drive prices up again. However, demand on the continent was also weak, and a representative for a Dutch dry bulk terminal that handles wood pellets noted that port stocks are rising due to low consumption levels.

Decrease in imports

According to Eurostat data, the UK imported 7.5 million tonnes of wood pellets last year, and Eurostat also indicates that import volumes fell by 24% in the January-April period of this year compared to the same period last year.

PSO data show that biomass accounted for 4.9% of the UK's electricity balance in the first five months of the year, compared to 5.6% in January-May last year, according to Montel calculations.

“Demand for wood pellets at the Drax plant fluctuates for many reasons, including economic incentives and planned outages,” a Drax plant spokesperson said. “It is perfectly normal for demand to differ from market forecasts, as Drax operations are commercially sensitive and information on demand and status is not disclosed.”