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's activity report 2022

Overview

Graanul Invest is an international company, whose main activity is renewable energy: production of wood pellets and production of electricity and heat from biomass.

The company was established in 2003 and operates in four countries: Estonia, Latvia, Lithuania, and

the United States.

Graanul Invest is one of the world's largest producers of wood pellets with a production capacity of 2.7 million tons. The group's wood pellet factories are located in Estonia (4), Latvia (6), Lithuania (1) and the United States

(1).

Graanul Invest's energy production units are located next to the larger pellet factories, supplying them with heat and electricity. The combined heat and power plants have been built considering the heat energy needs of the pellet factory, as a result, all the produced heat energy is used efficiently year-round in the pellet raw material drying process. The total production capacity of the combined heat and power plants is 41 MW of electricity and 100 MW of heat energy. The plants are located in Estonia (3) and Latvia (3).

Wood processing waste and roundwood, which due to its low quality does not find use in other wood processing companies and whose best economic use is in energy, are used in the production of wood pellets. Wood pellets are a carbon-neutral fuel, whose wider use helps to reduce the consumption of coal and other fossil fuels, thus reducing the carbon footprint.

The wood pellet market was significantly affected by the Russian aggression against Ukraine that began in February 2022 and the subsequent strong changes in energy and raw material prices.

The strong dependence of the European energy market on fuels of Russian origin (oil, gas) and the sanctions imposed on Russia caused great uncertainty in the energy market and the disruption of existing supply chains. This led to a rapid price increase in both energy prices and the prices of fuels used for electricity production. The rapid price increase continued throughout the year and culminated in the period of explosions in the Nord Stream gas pipelines at the end of September.

The global market volume of wood pellets (industrial pellet and premium pellet combined) grew by approximately 10% (to the level of 47 million tons; source: Hawkins-Wright) similarly to previous years.

The greater growth took place in the so-called premium pellet market, where the market growth was 12%.

It is noteworthy that the growth of industrial pellets mainly took place in Asia (Japan) in 2022, and for the first time, the market shrank in Europe. The main reason for this was the limited availability of pellets in the first half of the year. In the last months of the year, this was also affected by the rapid price drop of alternative fuels, which made the use of wood pellets economically unreasonable compared to other fuels.

In 2022, there was a significant price increase in the wood pellet market. The spot market price (FOB Riga, Argus

Biomass Markets), which was 150 /ton at the beginning of the year, rose steadily throughout the year and peaked in mid-October, reaching 393 /ton. In the last months of the year, the price increase stabilized due to