Energy production from biomass represents a strategic solution for the achievement of global sustainability goals. In addition, the use of biofuels offers both significant environmental advantages and several socio-economic benefits. In this study, the environmental life cycle impacts associated with the use of woodchips from forest residues for combined heat and power generation in Italy were analyzed. Moreover, the use of woodchips was compared to the use of conventional fossil fuels in similar applications, and different biomass supply scenarios were evaluated to understand their effect on the overall impact related to 1 kWh of electricity. The impacts on “Climate Change” (2.94 × 10−2 kgCO2eq/kWh) and “Resources” (4.28 × 10−1 MJ primary) were revealed to be minimal compared to fossil fuels (reduction of about 95–97%) and forest woodchips emerged as a sustainable alternative for electricity generation. Moreover, impacts regarding “Human health” (3.04 × 10−7 DALY) and “Ecosystem quality” (3.58 × 10−1 PDF·m2·yr) were revealed to be relevant and identified as a research area to be further explored. The findings of this study also highlighted the key role played by the supply mode/distance of the woodchips on the overall life cycle impacts, with the use of “local” biomass representing the best reduction option. Lastly, another aspect to be further investigated is the optimization of the biomass supply.