Pellet fuels (or pellets) are fuels made from compressed organic matter, or, biomass. Pellets can be made from any one of five general categories of biomass: industrial waste and co-products, food waste, agricultural residues, energy crops and virgin lumber. Wood pellets are the most common type of pellet fuel and are generally made from compacted sawdust and related industrial wastes from the milling of lumber, manufacture of wood products and furniture, and construction.[citation needed] Other industrial waste sources include Empty Fruit Bunches [EFB], palm kernel shells, coconut shells, and tree tops and branches discarded during logging operations. So-called "black pellets" are made of biomass, refined to resemble hard coal and were developed to be used in existing coal-fired power plants. Pellets are categorized by their heating value, moisture and ash content, and dimensions. They can be used as fuels for power generation, commercial or residential heating, and cooking. Pellets are extremely dense and can be produced with a low moisture content (below 10%) that allows them to be burned with a very high combustion efficiency.

Further, their regular geometry and small size allow automatic feeding with very fine calibration. They can be fed to a burner by auger feeding or by pneumatic conveying. Their high density also permits compact storage and rational transport over long distance. They can be conveniently blown from a tanker to a storage bunker or silo on a customer's premises.

A broad range of pellet stoves, central heating furnaces, and other heating appliances have been developed and marketed since the mid-1980s. In 1997 fully automatic wood pellet boilers with similar comfort level as oil and gas boilers became available in Austria. With the surge in the price of fossil fuels since 2005, the demand for pellet heating has increased in Europe and North America, and a sizable industry is emerging. According to the International Energy Agency Task 40, wood pellet production has more than doubled between 2006 and 2010 to over 14 million tons. In a 2012 report, the Biomass Energy Resource Center says that it expects wood pellet production in North America to double again in the next five years.