European experience in the aspect of wood pellets demand
Another key factor which has created rapid increases in the price of wood pine pellets within the last year has been the dramatic fluctuations between wood pellet demand and supply.
Currently pellet manufacturing is mostly big pellet manufacturing. big manufacturing has its advantages in terms of energy efficiency, and when demand is know producing wood pine pellets at a lower price due to economies of scale. However it does have several disadvantages in terms of lack of flexibility to demand changes and competitive pricing.
big wood pellet manufacturing lacks flexibility to react to rapid increases in demand, as the time and cost to increase plant size and capacity are both significant. Therefore big pellet manufacturing plants will not increase capacity until they are sure that market demand is stable and they can guarantee raw material supplies to justify plant capacity.
The answer is a combination of large scale and small-scale wood pellet manufacturing. Small-scale set-up time and cost is much less, and requires less raw material supply to justify the investment. Also small-scale mobile pellet manufacturing applications can move to resources that would otherwise be unfeasible and reduce raw material and pellet transport costs. All of these factors reduce dramatic shifts in wood pellet supply to changes in market demand. This in return keeps prices stable also aided by increased market competition due to the increase in wood pellet producers.