1. Market Overview and trends
The total North American installed capacity for wood pellet is growing from 1.1 million metric tones in 2003 to reach 6.2 million tones in 2009, and the US accounted for 72% of total capacity in 2009. Most plants are small, relying on sawmill residues for fiber and thus are limited to 100,000 tones or less per year. Over 80% of US pellets in 2008 were shipped to in-country destinations, and by contrast, almost 90% of Canadian shipments were exported, mainly to Europe. 
Chart 1: Capacity, production, and domestic demand for wood pellets in the United States [pic]
The wood biomass energy industry is being driven mainly by non-market forces (i.e., government policies and subsidies). Most industrialized countries have set very aggressive targets for the displacement of non-replaceable fossil fuels (oil, gas, coal, etc.) with renewable forms of energy during the next 10–15 years. Wood fibre is considered a significant renewable energy source. Four key variables are driving the economics of wood biofuel production: • The price of non-renewable oil, natural gas and/or coal (the main substitutes) • The delivered cost of wood biomass feedstock
• Availability of proven conversion processing technology • Government energy and green/renewable resource policies and subsidies.
The US government is targeting 36 billion gallons of renewable fuels by 2022, including 21 billion gallons of “advanced” (non-cornstarch) biofuels. More than 65 major new wood energy projects have been identified, with the bulk being cogeneration, wood pellets and cellulosic ethanol. In addition, the newly introduced (December 2009) Biomass Crop Assistance Program (BCAP) provides a US$514 million subsidy in 2010 to foster the diversification of America’s fuel supply, with an emphasis on renewable biomass alternatives. This subsidy applies to residual wood (wood chips, sawdust,...