Demand for wood pellets goes on to grow in Europe but the United States has not had the same experience. Industrial demand in Europe combined with greater usage of wood pellet-fired furnaces by residential and commercial customers. “In the United States you have a nascent wood pellet industry but given that so much of the United States is served by natural gas and natural gas heating to the home, we have not seen the same adoption here,” Keppler said. Most of the wood pellets produced in the United States are exported overseas.

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. Wood pellet stove sales increased rapidly at the time when oil prices began to rise. The rapid increase in wood pellet stove users resulted in a rapid increase in the demand for premium wood pine pellets. Wood pellet supply was insufficient to meet this new customer base, and as a result wood pellet prices began to increase. This was partly due to limited supply of raw material softwood and hardwood by-products, but it is also due to how pellet manufacturing currently operates.

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.