Prime Minister John Key today opened Solid Energy's new $34 million wood pellet fuel plant in Taupo today, as the plant's first big export order heads to Europe.

The plant, operated by the coal miner's Nature's Flame business, processes pine wood residues from North Island sawmills into pellets for domestic and international customers.

"Our substantial plantation forestry resource means New Zealand has the potential to be a leading supplier of quality wood pellet fuel and we are confident that Nature's Flame can compete very well in the premium end of this market," said Solid Energy chief executive Don Elder.

The plant in Taupo's Aratiatia industrial park will initially produce 40,000 tonnes of pellets. The company said the pellets are clean-burning and low carbon.

The plant's first major shipment of 6500 tonnes is now being assembled at the Port of Napier for loading from March 10. It is part of a three-year, $15 million contract with the European utility sector.

The wood pellets are also being exported to Italy for the home-heating market and to Japan, for use by electricity generators and the horticulture sector to heat glasshouses. They are used by 40 schools in New Zealand.

Transfield Worley was the lead contractor during the design and building of the plant.

The project was completed on time, on budget and with no loss time injuries.