It is essential for developing a pellet production project to have a clear idea about how to market the pellets. In principle there are three options for marketing pellets:
Firstly Marketing for local use in households, institutional use or commercial use ,
Secondly; Marketing to Europe for use as domestic heating fuel.
Thirdly; Marketing to power plants IN Europe or Asia for electricity generation. Each market has its challenges and the decision for a certain market has far reaching implications for the raw materials that can be used, for quality requirements that need to be met and for volumes that can be contracted.
The most relevant benefit of local marketing are the low transport costs to the consumer. This allows for higher margins and the majority of pellet producers worldwide rely on local marketing. In an African context another benefit is, that restrictions in terms of raw materials that can be used and quality certification are substantially lower. The challenge of local marketing is the chicken and egg problem of production and use: unless pellets are available they cannot be used. In an African context usually, a local market does not exist before pellets are produced. This creates a substantial risk for investors building a pellet plant. A work around this problem is, to import pellets to build a market and then start investing in a plant. Another work around can be to focus on large users that immediately create a substantial demand that justifies investing into production.
Developing a local market with pellet cookstoves is of particular interest as fuel costs, especially in urban areas are very high and allow for substantial margins. Also, gasifying cookstoves can handle pellets from agricultural residues and are very tolerant to varying quality of pellets. Commercial use of pellets with pellet burners or pellet boilers can be more sensitive to pellet quality and pellets from agricultural residues may be difficult or impossible to use. Careful investigations need to be made in advance to clarify the issue of technical requirements for local commercial or industrial pellet use.
Marketing to European domestic heating markets
In Europe pellets are more and more used for domestic heating in winter. They are an excellent replacement for heating oil (paraffin, kerosene) and deliver heat at significantly lower costs. However, pellets used in domestic stoves and boilers are built exclusively to handle wood pellets. They cannot operate with pellets from agricultural residues. Also, woodpellets must meet strict quality criteria and must have an ENplus certification. For more details see PELLET QUALITY . If these conditions can be met, it is recommended to cooperate with traders familiar with European Markets and with international shipment of pellets.
Marketing to power plants
There is a large market for so called industrial pellets that are mainly consumed by power plants in Europe, Japan and South Korea. Selling to the industrial pellet market has the advantage that large volumes can be sold to individual customers reducing effort and cost of marketing considerably. Also, long term offtake contracts can be concluded that can be used as collateral for bank loans to finance pellet plants. Industrial pellets are usually also based on wood as raw material and it may be challenging to market pellets from agricultural residues. Also, strict sustainability criteria need to be met which require that sustainable sourcing of raw material is proven. Also very detailed documentations of energy consumption for raw material sourcing, pellet production and transport of pellets to the customer must be provided. European power producers will currently only accept pellets which have a SBP certification for this purpose. Japanese regulators are currently also discussing sustainability requirements that could end up in similar needs for certification.
Traders assisting in marketing
If you are interested in international pellet either to power plant or for domestic use, it is strongly recommended to co-operate with experienced international traders. The following companies are trading pellets internationally.
The core product in our portfolio remains wood pellets. We do however trade many different types of wood pellets. The two main categories are industrial and premium/residential pellets, but both can be divided into many sub categories, varying sustainability and quality requirements depending on country and/or end user specific needs and preferences.