Residential use for heating, about 40 percent of the total pellet market, fluctuates annually but is relatively stable compared to industrial heat and power generation. The demand depends on winter temperatures and fossil fuel prices, although medium-sized pellets for energy generation by industries or public buildings such as hospitals and swimming pools is generally less dependent on weather conditions.

In Italy, Germany, France and Austria pellets are mainly used in small-scale private residential and medium-sized industrial boilers for heating. In some EU Member States, such as Sweden, Germany, Austria, France, Spain and the Czech Republic household heating with biomass as input receives subsidies or tax deductions by the federal and local governments. In most countries, however, government funding is limited.

Italy is the largest European market for the household use of pellets. According to the National Renewable Energy Action Plan statement, the use of pellets will increase further to 5 mmt in 2020 from about 3.8 mmt in 2018. However, only 15 percent of the demand is met by domestic production, with the remaining 85 percent being covered by increasing imports. Bagged pellets represents almost the total market.