Bio-oil is a dark brown liquid and has a similar composition to biomass. It has a much higher density than woody materials which reduces storage and transport costs. Bio-oil is not suitable for direct use in standard internal combustion engines. Alternatively, the oil can be upgraded to either a special engine fuel or through gasification processes to a syngas and then bio-diesel. Bio-oil is particularly attractive for co-firing because it can be more readily handled and burned than solid fuel and is cheaper to transport and store.

Co-firing of bio-oil has been demonstrated in 350 MW gas fired power station in Holland, when 1% of the boiler output was successfully replaced. It is in such applications that bio-oil can offer major advantages over solid biomass and gasification due to the ease of handling, storage and combustion in an existing power station when special start-up procedures are not necessary. In addition, bio-oil is also a vital source for a wide range of organic compounds and speciality chemicals.