The final factor, which will affect wood pellet prices over time, is based on pellet burner capabilities and demand for premium wood pellets. Premium wood pellets are a very low maintenance, low ash fuel. As most residential customer are looking for such a fuel as a direct replacement for oil or gas, most manufactures of wood pellet stoves and boilers deign the units with the ability to burn premium pellets and no more. Hence if you try to burn higher ash content pellets or pellets with corrosion and clinker issues, the stove will not operate in an acceptable manor.

Currently as there are sufficient resources to produce premium wood pellets this is not an issues. However as the wood pellet market continues to grow, at its current rate and if pellet stove manufactures keep producing stoves, which can only burn premium wood pellets, this will ultimately lead to price increases. The reason is simple, most pellet customers have purchased a stove, which can only use premium wood pellet so they are trapped into paying for them, not matter what the price. Currently this situation is not an issue for the premium wood pellet producers because it guarantees them the ability to dictate fuel prices, similar to how the oil companies do currently.

The most important point to take from this is when purchasing a pellet stove or boiler research a unit that is as fuel flexible as your budget will allow. This could be regard to maximum pellet ash content, corrosion resistance, ability to deal with clinker and a large ashbin or ash removal system. Even if you currently only intend to burn premium wood pellets, purchasing a burner that can burn different types of pellets will mean you will have a choice to burn other types of pellets when the price of premium pellets increases.

The PelHeat Mobile Pelletizer can process resources including wood into fuel pellets. If you would be interested in registering your interest in the PelHeat Mobile Pelletizer and receiving updates on our progress and informed when the pelletizer is on sale please send us an email to:

Contact @ PelHeat . Com

For more information please visit:

www.PelHeat.com

Thank you for your interest

Another important factor that influences wood pellet prices is market competition. With relatively small numbers of large-scale wood pellet producers, the higher the probability of high prices due to lack of competition. However setting up new large-scale pellet production plant is not an easy task. Firstly the equipment set-up costs easily go into the millions of dollars, and firm guarantees need to be established on raw material supply and market share to justify the investment.

Therefore in many cases the wood pellet market is in a ‘catch 22’ scenario. People will not invest in setting up large-scale wood pellet production plants until there is a guaranteed customer base. And many people will not invest in a pellet stove or boiler until there is a guaranteed supply of wood pellets. Basically it’s the scenario of what comes first the chicken or the egg?

The risks are real with large scale wood pellet production, for example here in the UK over the last year 2 pellet plants went bankrupt as local wood pellet demand was not sufficient they had to look further a field for customers. The transportation costs to give these customers competitive prices dissolved their profit margins and leaded to bankruptcy.

As the wood pellet market is relatively new in many countries and still a young market, small-scale pellet production is a way to reduce the risk both to the pellet producer and the end customer. The pellet producer on a small scale has lower set-up and equipment costs, low raw material demands and therefore lower transportation costs. A small-scale producer requires a much lower customer base, and this could be supplied within the local area reducing pellet transportation costs and thus retaining profit margins to keep in business. These lower pellet transportation costs mean a cheaper fuel for the customer and the environment due to reduced CO2 emissions.

Many small-scale pellet producers compared to a few large scale producers means more market competition and therefore more price comparison points to create a more accurate average on what the price of wood pellets should be.

The PelHeat Mobile Pelletizer can process resources including wood into fuel pellets. If you would be interested in registering your interest in the PelHeat Mobile Pelletizer and receiving updates on our progress and informed when the pelletizer is on sale please send us an email to:

Contact @ PelHeat . Com

For more information please visit:

www.PelHeat.com

Thank you for your interest

Another aspect, which affects the price of wood pellets, is the cost of transportation to the end user, and clearly the further the distance from the wood pellet plant the higher the cost to the end user. However there is another transportation cost, which affects the price the end user pays, and this is the price of raw material transportation to the pellet production plant.

Again these issues relate to the differences between large-scale and small-scale pellet production costs. The benefits of large-scale production for example efficiency are well know, however there are also disadvantages. For example for a large-scale plant to be profitable, it needs a large customer base, this involves establishing customers further and further away from the plant itself. This extra cost is either passed onto the customer or paid for by the pellet production plant, and some companies have gone bankrupt through this process, through high transportation costs eating into profits.

Another transportation cost that large-scale pellet production plants have to cover is the cost to transport raw materials to the pellet production plant. And as stated in the earlier post, a large plant needs lots of resources, therefore it must look for raw materials further and further away from the pellet production plant. Raw material transportation costs are even more of an issue because the raw material, for example sawdust has a much lower density than pellets. So it could take five wagon loads of sawdust to produce one wagon load of pellets. So as you can see transporting raw materials with a low density over longer distances is a huge cost for large-scale pellet production. Currently many large-scale plant are built next to sawmills, however as the pellet market grows there needs to be more pellet plants than sawmills.

With small-scale wood pellet production on the other hand, both raw material and pellet transportation is reduced. Therefore the reduction in efficiency can be compensated by reduced transportation costs. This is referred to as a local energy loop, where local resources are used locally to make pellets to be used locally. Also it should be noted the transportation costs are not only measured in money but also CO2. As more raw material and pellet transportation means more CO2 produced reducing the ‘green’ credentials of pellets.

The PelHeat Mobile Pelletizer can process resources including wood into fuel pellets. If you would be interested in registering your interest in the PelHeat Mobile Pelletizer and receiving updates on our progress and informed when the pelletizer is on sale please send us an email to:

Contact @ PelHeat . Com

For more information please visit:

www.PelHeat.com

Thank you for your interest

Another key factor which has created rapid increases in the price of wood 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 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 production currently operates.

Currently pellet production is mostly large-scale pellet production. Large-scale production has its advantages in terms of energy efficiency, and when demand is know producing wood 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.

Large-scale wood pellet production lacks flexibility to react to rapid increases in demand, as the time and cost to increase plant size and capacity are both significant. Therefore large-scale pellet production 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 production. 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 production 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.

The PelHeat Mobile Pelletizer can process resources including wood into fuel pellets. If you would be interested in registering your interest in the PelHeat Mobile Pelletizer and receiving updates on our progress and informed when the pelletizer is on sale please send us an email to:

Contact @ PelHeat . Com

For more information please visit:

www.PelHeat.com

Thank you for your interest

The recent problems with pellet supply and high prices are partly due to limited raw material supply and availability. Premium wood pellets today are produced from softwood and hardwood by-products. The supply of these by-products is dictated by the supply and demand of other markets. Which means the wood pellet price is dictated by those changes.

Utilizing wood by-products is very important, however it cannot be the only source of raw material for wood pellet production. At PelHeat we do promote the use of many types of biomass pellets, however we do understand for much of the residential market only low ash, low maintenance pellets are suitable.

Therefore the wood pellet producers need to source more wood by-products from more industries from simply sawmills. Tree surgeon co-operatives could sell much of the wood they produce, as currently much of this goes for landfill. Government intervention needs to take place to manage the supply of more woody biomass for pellet production, to construct a price system for the value of woody biomass. To help stabilize prices.

For the wood pellet market to grow to its full potential, more than by-products need to be available for wood pellet production. Short rotation coppice Willow and Hemp could be purposefully grown for wood pellet production that would produce a relatively low ash, low price, low maintenance pellet.

If the raw material supply is not addressed pellet shortages will occur again in the future and further damage the reputation of the wood pellet market. This lack of supply will then cause further increases in wood pellet prices.

The PelHeat Mobile Pelletizer can process resources including wood into fuel pellets. If you would be interested in registering your interest in the PelHeat Mobile Pelletizer and receiving updates on our progress and informed when the pelletizer is on sale please send us an email to:

Contact @ PelHeat . Com

For more information please visit:

www.PelHeat.com

Thank you for your interest

The wood pellet market as a whole is composed of users who consume the pellets and those who produce the pellets. For the market to work efficiently there needs to be a balanced relationship between the volumes of production and consumption. With any relatively new growing market, establishing this correlation can cause problems, and potentially damage market reputation.

The Recession and Wood Pellet Prices

An example of unstable prices appeared recently in the US. As the housing market slowed down due to the recession, housing construction and renovation decreased. Therefore less wood was purchased and less timber was processed, resulting in less softwood and hardwood by products. As the premium wood pellet market depends on these by-products to produce their pellets, pellet production also decreased. With a decrease of supply and an increase in demand in pellet stoves due to high oil prices, the pellet price would only go up, leading to pellet prices at $300 per 1000KG. The lack of supply of pellets and high prices frustrated many new pellet stove customers, as they purchased the stove as cheaper alternative to oil or gas. And due to the high prices of pellets the benefits we reduced. Unstable prices can severely damage market reputation, and steps should be taken to address these issues.

There are several factors, which affect wood pellet prices:

1. Raw Material Supply and Availability
2. Wood Pellet Demand and Supply
3. Wood Pellet Transportation Costs
4. Wood Pellet Market Competition
5. Wood Pellet Burner Capabilities

Over the next few days I will write articles discussing the above factors and how lessons can be learnt to keep pellet prices stable and ensure sufficient pellet supply.

The PelHeat Mobile Pelletizer can process resources including wood into fuel pellets. If you would be interested in registering your interest in the PelHeat Mobile Pelletizer and receiving updates on our progress and informed when the pelletizer is on sale please send us an email to:

Contact @ PelHeat . Com

For more information please visit:

www.PelHeat.com

Thank you for your interest