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Wood pellets can be used to heat homes or as energy in factories.Tatyana Aleksieva-Sabeva/Getty Images/iStockphoto

European countries are increasing their demand for Canadian wood pellets to heat their homes and generate energy in their factories, but just two decades ago this product was garbage – literally.

"This is an industry invented from nothing," explains Gordon Murray, executive director of the Wood Pellet Association of Canada.

Part of the biomass industry and used as a heating fuel, wood pellets resemble a popular bran cereal and are made from compressed sawdust, shavings and other unsellable lumber byproduct that less than 20 years ago was burned as waste.

"The industry got started by a bunch of entrepreneurs that found a use for the waste material that went into beehive burners," says Mr. Murray. "What's been in our favour is that we have a big sawmill industry with a lot of residue, sawdust, bark and so on."

Since the new millennium, Canadian companies have delved into this market and are being rewarded with a positive global outlook from Europe and an emergent Asian market, inspiring more production and heavier export.

"North America is becoming a major producer. Our production in Canada and the U.S. has grown in leaps and bounds in the last 10 years from very little to probably producing [a combined] five million tonnes this year," explains Gerry Van Leeuwen, vice-president of International Wood Markets Group (IWMG).

According to a report by the IWMG last November, estimated pellet consumption was 14.4 million tonnes in 2011 with Europe making up 84 per cent. But demand is expected to balloon by more than 300 per cent to 45 million tonnes by 2020.

The report calls Canada's wood pellet industry "one of the few bright lights in the wood industry since the housing crash of 2008-09," with almost 40 wood pellet plants across the country and companies anxious to expand.

Industry experts such as Mr. Van Leeuwen attribute the expected increase to the mandate set by the European Union in 2010 to hit a target of more than 20-per-cent renewable energy usage by 2020. Right now, most European countries are using less than 10 per cent.

"Europe is basically leading the world in terms of the green and energy movement … and that's because they don't have their own energy forms, like oil or natural gas," explains Mr. Van Leeuwen. "So they've been under a lot of pressure because they are so dependent on foreign oil."

To help reach this coming target, some European plants and factories, which have been historically coal dependent, have been converted to allow for the simultaneous consumption of both coal and wood pellets – a technique referred to as co-firing. It's this industrial market that has Canadian companies wanting to ramp up pellet production.

Originally, Pinnacle Renewable Energy Group concentrated on the residential sector, supplying wood pellets for home heating use. "We've now shifted our focus to industrial applications," explains Leroy Reitsma, the company's president and chief operating officer.

The majority of Pinnacle's exports will go to the building European demand, but there is also growing interest from Asia, mostly Japan and South Korea, where the British Columbia-based company plans to expand its reach.

To produce wood pellets only requires lumber-waste materials, heat and pressure, so producers are drawn to its simplicity and relatively low cost. But why would residential and industrial consumers reach for a bag of wood pellets instead of relying on other renewable energies like solar or wind?

Because it lacks the unpredictable, co-dependent relationship with Mother Nature, Mr. Reitsma says.

"Biomass is a good solution if you want on-demand power," he says. "When you look at solar and wind, they're intermittent sources and biomass provides peaking capacity so it can be turned on when you want, not just when the wind blows or the sun shines."

Like Pinnacle, Vancouver-based Viridis Energy Inc. started off its wood pellet business with a focus on the residential sector, but has since revised its market to include the product's industrial applications.

"We realized that the residential market can be very lucrative, however, it's not ever going to grow as fast as the industrial market in either Asia or Europe," says Michele Rebiere, the chief financial officer at Viridis Energy.

As the only publicly traded wood pellet corporation in Canada, Viridis Energy has put most of its "clean-tech" business into the biomass sector because that's where it sees the most potential. The company has snapped up two wood pellet plants in Canada in the past two years – one in British Columbia and the other in Nova Scotia – so the business can take advantage of exporting from both sides of the country, Ms. Rebiere says .

"We're intending to acquire plants or build them or expand the ones we have to reach the target that we've set of one million tonnes a year," she says. "There's a significant imbalance in the supply and demand in the favour of producers such as us."

She adds: "Most of our competitors are looking at some form of expansion or ongoing increases in capacity just because the demand is so great."

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