European Union’s (EU) dependence on fossil fuel imports strongly affects its energy supply and economic and national stability. In order to reduce its dependence and maintain the leadership position in GHG emissions reductions and renewable energy consumption, EU has set ambitious targets of reducing GHG emissions by at least 20% compared with 1990, raising the share of renewable energy to 20% and increasing the levels of biofuels in transport fuels to 10% by 2020. While some of the countries, due to their large renewable potential, have already reached set targets, some are still far behind. Biomass, with 69.8% share in gross inland consumption of renewables, has the greatest potential. Since some EU members have low availability of biomass, and are scarce in other renewable sources, they have become biomass importers. As some studies have shown, imports of biomass reduce cost of achieving targets for renewable electricity and increase electricity production from biomass. Wood pellets, as currently the most tradable solid biomass commodity, already reached significant shares in imports and consumption of biomass in some EU countries. The most of pellets were traditionally imported from Canada; however, last year US became the EU’s largest importing partner with 534,000 tons of industrial pellets exported mainly to Belgium and Netherlands. The EU’s increasing demand for wood pellets was a major driver for substantial increase in the wood pellet production capacity in US, with many plants being constructed for export to EU. This thesis evaluates the possibility of producing wood and switchgrass pellets in East Tennessee, assuming three feedstock scenarios, and their export to EU. Results from the base-case model showed that production costs of pellets were $155, $164 and $170 per ton, while price of pellets on the EU market will have to be $207, $216 and $222 per ton in the 100% mill residue, 40/60 blend and 100% switchgrass scenarios, respectively, for the project to breakeven. Sensitivity analysis showed a strong impact of feedstock price, moisture and exchange ratio on project’s return on investment.