Biomass Fuel (Wood Pellets & Palm Kernel Shell) Market

Overview

The global biomass fuel (wood pellets and palm kernel shell) market was valued at USD 32.4 billion in 2025 and is projected to reach USD 55.8 billion by 2032, expanding at a steady CAGR of 8.1% during 2026–2032. Biomass fuels play a critical role in global decarbonization strategies by providing a renewable, dispatchable alternative to coal and other fossil fuels for power generation and industrial heat applications. Wood pellets and palm kernel shell (PKS) are among the most widely traded and commercially viable biomass fuels due to their relatively high calorific value, established supply chains, and compatibility with existing combustion infrastructure. Utilities, cement manufacturers, and industrial boiler operators increasingly adopt these fuels to meet emission reduction targets while maintaining energy reliability.

Wood pellets dominate biomass co-firing and dedicated biomass power plants, particularly in regions pursuing aggressive climate policies and coal phase-out programs. Palm kernel shell, a by-product of the palm oil industry, has gained significant traction as a low-cost biomass fuel across Asia Pacific, especially in industrial heating and cement kilns. Rising carbon pricing mechanisms, renewable energy mandates, and corporate net-zero commitments accelerate demand for both fuel types. Additionally, advancements in pelletization, logistics optimization, and long-term offtake agreements improve supply security and price stability. As countries seek scalable renewable solutions that leverage existing infrastructure, biomass fuels continue to gain importance in the global energy transition.

Market Size & Share

Market Dynamics

Decarbonization Mandates, Coal Replacement and Renewable Energy Targets is the Key Driver

Global efforts to reduce greenhouse gas emissions and transition away from coal are the primary drivers of the biomass fuel market. Governments across Europe and Asia have implemented renewable energy targets, carbon taxes, and emission trading schemes that encourage utilities and industries to replace coal with biomass. Wood pellets and palm kernel shell offer immediate emission reductions without requiring complete infrastructure overhaul. Utilities increasingly co-fire biomass with coal to lower carbon intensity while maintaining baseload power generation. Industrial sectors such as cement and pulp & paper adopt biomass fuels to decarbonize thermal processes that are difficult to electrify. The ability of biomass to provide continuous, dispatchable energy makes it a key driver in energy transition strategies.

Feedstock Availability Risks, Sustainability Concerns and Price Volatility is the Key Restraint

The biomass fuel market faces restraints related to feedstock availability, sustainability scrutiny, and supply chain variability. Wood pellet production depends on forestry resources, land-use permissions, and certification compliance, while PKS availability is directly linked to palm oil production cycles and agricultural yields. Concerns related to deforestation, biodiversity loss, and lifecycle emissions have led to stricter sustainability regulations in several regions. Compliance with traceability and certification standards increases operational costs for producers and traders. Additionally, fluctuations in agricultural output, weather conditions, and logistics disruptions can impact biomass fuel pricing and supply stability. These combined factors limit rapid and uniform market expansion.

Industrial Biomass Adoption, Long-term Offtake Contracts and Emerging Markets is the Key Opportunity

A major opportunity lies in expanding biomass fuel use for industrial heating and high-temperature processes where electrification is not feasible. Cement plants, food processing units, pulp & paper mills, and manufacturing facilities increasingly adopt biomass fuels to decarbonize thermal energy consumption. Long-term supply contracts between biomass producers and industrial users improve price predictability and fuel security, encouraging capacity expansion and infrastructure investment. These agreements also support better supply chain planning and reduce exposure to spot market volatility. Growth in emerging industrial markets, particularly across Asia Pacific, further strengthens demand. 

Logistics Complexity, Policy Uncertainty and Competing Renewable Technologies is the Key Challenge

The market faces challenges from competing renewable technologies such as solar, wind, and electrification-based heating solutions. Declining renewable electricity costs may limit long-term biomass adoption in power generation and low-temperature heating applications. Infrastructure constraints, including limited port capacity, storage terminals, and inland transportation networks, restrict scalability in certain regions. Biomass fuels also require specialized handling and storage, increasing capital requirements. Policy uncertainty regarding biomass incentives, sustainability eligibility, and carbon accounting further complicates investment decisions. Together, these factors pose challenges to sustained and large-scale biomass fuel deployment.

Key Insights

The report will cover the following key insights:

• Overview of Parent Market.

• Supply Chain Analysis

• Regulatory Analysis

• Industry SWOT Analysis

• Key Industry Developments

• Qualitative Analysis related to Covid-19

Biomass Fuel (Wood Pellets & Palm Kernel Shell) Market Size (USD Billion)

Segmentation Analysis

Analysis by Fuel Type

Wood pellets category held the larger market share of 75% in 2025, due to their standardized quality, high energy density, and widespread acceptance in utility-scale power generation and CHP applications. Utilities prefer wood pellets because they integrate seamlessly with existing coal infrastructure and support automated handling systems. Pellets enable consistent combustion performance, which is critical for large power plants operating under strict efficiency and emission standards. Strong policy support, renewable incentives, and long-term offtake agreements further reinforce pellet dominance. Significant investments in pellet manufacturing capacity, port terminals, and storage facilities improve supply reliability. 

Palm kernel shell category will grow at the faster CAGR of approx. 8.4% during the forecast period, driven by its cost advantage and abundant availability in palm oil–producing regions. Industrial boilers and cement kilns increasingly adopt PKS as a low-cost coal substitute for high-temperature operations. Local sourcing reduces transportation and procurement costs, improving fuel economics for industrial users. PKS also offers favourable combustion characteristics such as low sulfur content and stable heat output. 

Component Type categories include:

• Wood Pellets (Larger Category)

• Palm Kernel Shell (Faster-Growing Category)

Analysis by Application

Power generation category held the largest market share of 55% in 2025, as biomass fuels are extensively used in co-firing and dedicated biomass power plants. Utilities rely on biomass to maintain baseload capacity while meeting renewable energy targets and emission limits. Wood pellets dominate this segment due to consistent fuel quality, ease of long-distance transport, and compatibility with large combustion systems. Government incentives and carbon pricing mechanisms further strengthen biomass-based power generation economics. Utilities also benefit from extending the operational life of existing assets through biomass conversion. These advantages maintain power generation as the largest application segment.

Industrial heating & boilers category will grow at the fastest CAGR of approx. 8.7% during the forecast period, supported by rising biomass adoption across cement, food processing, pulp & paper, and manufacturing industries. These sectors increasingly replace fossil fuels with biomass to reduce emissions and comply with regulatory requirements. Biomass fuels provide reliable thermal energy for continuous industrial processes. PKS plays a significant role due to its affordability and local availability in key industrial regions. 

Application categories include:

• Power Generation (Largest Category)

• Industrial Heating & Boilers (Fastest-Growing Category)

• Combined Heat & Power (CHP)

Analysis by End-use Industry

Utilities & power plants category held the largest market share of 40% in 2025, driven by extensive use of biomass fuels for electricity generation and district heating. Utilities adopt biomass to comply with renewable mandates, reduce carbon emissions, and ensure energy security. Long-term pellet supply contracts support stable operations and cost predictability. Expansion of district heating networks further increases biomass consumption. Continuous coal phase-out initiatives reinforce utility-level adoption. These factors collectively sustain utilities as the largest end-use segment.

Cement industry category will grow at the fastest CAGR of approx. 8.6% during the forecast period, as cement producers increasingly substitute coal and petcoke with biomass fuels to lower carbon intensity. Cement kilns require high-temperature thermal energy, making biomass a suitable decarbonization option. PKS adoption is particularly strong due to cost efficiency and compatibility with kiln operations. Rising construction activity in emerging economies further drives cement production and fuel demand. Investment in alternative fuel handling systems accelerates biomass penetration in this industry.

End-use Industry categories include:

• Utilities & Power Plants (Largest Category)

• Cement Industry (Fastest-Growing Category)

• Pulp & Paper Industry

• Food Processing Industry

• District Heating Operators

Analysis by Distribution Channel

Direct supply contracts category held the largest market share of 60% in 2025, as utilities and large industrial users prioritize fuel security, consistent quality, and stable pricing. Long-term agreements support investment in biomass production, storage, and logistics infrastructure. These contracts reduce exposure to spot market volatility and supply disruptions. Direct sourcing also improves traceability and sustainability compliance. As biomass usage scales, direct contracts remain the preferred procurement model.

Traders & biomass aggregators category will grow at the fastest CAGR of approx. 8.8% during the forecast period, driven by increasing international biomass trade and demand from mid-sized industrial users. Traders aggregate supply from multiple producers and manage cross-border logistics efficiently. They provide flexibility for buyers who do not require long-term contracts. Growing biomass trade volumes and regional supply-demand imbalances strengthen the role of aggregators. This drives faster growth in this distribution segment.

Distribution Channel categories include:

• Direct Supply Contracts (Largest Category)

• Traders & Biomass Aggregators (Fastest-Growing Category)

• Spot Market / Short-term Contracts

By Region

Biomass Fuel (Wood Pellets & Palm Kernel Shell) Market Regional Analysis

Asia Pacific held the largest market share of 40% in 2025, driven by the region’s strong biomass fuel supply base, rapid industrialization, and high adoption of cost-effective alternatives to coal. Countries such as Indonesia, Malaysia, and Thailand generate substantial volumes of palm kernel shell as a by-product of palm oil production, creating an abundant and low-cost biomass fuel source for industrial users. Cement plants, industrial boilers, and manufacturing facilities across the region increasingly adopt PKS to reduce fuel costs and comply with tightening emission norms. Rising infrastructure development, urbanization, and construction activity further increase thermal energy demand, supporting higher biomass consumption. Government initiatives promoting alternative fuels, along with investments in biomass-compatible boilers and fuel-handling systems, reinforce large-scale adoption.

North America will grow at the fastest CAGR of approx. 9.0% during the forecast period, supported by increasing adoption of wood pellets for power generation, CHP systems, and industrial decarbonization. Utilities and industrial operators in the U.S. and Canada increasingly deploy biomass fuels to meet emission reduction targets while maintaining reliable and dispatchable energy supply. Well-established pellet production capacity, port infrastructure, and logistics networks support steady market expansion. Policy supports for renewable energy, corporate net-zero commitments, and long-term pellet supply contracts further accelerate adoption. Growing use of biomass in industrial heating and district energy systems adds incremental demand. 

Countries and region include:

• North America (Fastest-Growing Regional Market)

o U.S. (Larger and Faster-Growing Country Market)

o Canada 

• Europe 

o   Germany (Largest Country Market)

o   U.K. (Fastest-Growing Country Market)

o   France

o   Italy

o   Spain

o   Rest of Europe

• Asia Pacific (Largest Regional Market)

o   China (Largest Country Market)

o   India (Fastest-Growing Country Market)

o   Japan

o   South Korea

o   Australia

o   Rest of APAC

• Latin America

o Brazil (Largest Country Market)

o Mexico (Fastest-Growing Country Market)

o Rest of LATAM

• Middle East and Africa

o   Saudi Arabia (Largest Country Market)

o   South Africa (Fastest-Growing Country Market)

o   U.A.E.

o   Rest of MEA

Market Share

The biomass fuel market is fragmented in nature because supply is driven by raw-material availability and regional sourcing rather than centralized manufacturing dominance. Wood pellets are produced by hundreds of small and mid-sized mills located near forestry resources in North America, Europe, and Russia, while palm kernel shell (PKS) supply is dispersed across numerous palm oil mills in Southeast Asia, especially Indonesia and Malaysia. This geographically scattered feedstock base prevents capacity concentration. The market operates largely through long-term utility contracts and spot trading, where buyers source from multiple suppliers to manage price volatility and supply risk.

Key Players Covered

• Enviva Inc. (U.S.)

• Pinnacle Renewable Energy Inc. (Canada)

• Drax Group plc (U.K.)

• Westervelt Renewable Energy LLC (U.S.)

• Wilmar International Limited (Singapore)

• IOI Group Berhad (Malaysia)

• Sime Darby Plantation Berhad (Malaysia)

• Musim Mas Group (Indonesia)

• Rentech, Inc. (U.S.)

• Pacific BioEnergy Corporation (Canada)

Market News

• In October 2025, Enviva Inc. expanded wood pellet production and export capacity to support rising demand from power utilities and industrial users across North America, strengthening long-term supply security and decarbonization efforts.

• In August 2025, Drax Group plc increased biomass fuel sourcing from North America to support renewable power generation projects, enhancing cross-border biomass trade and long-term offtake stability.

• In June 2025, Wilmar International Limited scaled palm kernel shell distribution across Southeast Asia to meet increasing demand from cement and industrial boiler operators transitioning away from coal-based fuels.

• In February 2024, Pinnacle Renewable Energy Inc. invested in pellet logistics and storage infrastructure to support growing biomass consumption across North American power and industrial markets.

Frequently Asked Questions