Wood pellets are typically more expensive than natural gas, wood or coal, but less expensive than propane, electricity or heating oil. The prices of different types of heating fuel fluctuate, with some heat sources becoming very expensive due to a variety of causes. Wood pellet pricing fluctuates as well, but generally not in such an extreme manner as some fuels, including propane and heating oil.
All heating fuel source pricing is impacted by demand. Typically during colder or prolonged winter periods, most fuel prices will increase. Several other factors influence wood pellet pricing, including industrial and European demand, the cost of sawdust and lumber, and other energy costs.
The European Union's push to switch industrial manufacturing to renewable energy sources has increased the competition for resources in the international wood market, as of 2015. This has caused some price increases but should level out over time as the wood pellet industry adapts its capacity.
Wood pellets use sawdust and waste wood for much of their composition. Other industries such as paper and paper products also use these materials. Due to the increase in electronic publishing, overall paper production has been decreasing and should reduce the competition for materials and lower the price of raw materials.
The price of other fuels can be a major factor in the cost of wood pellets as well. Most factories use electricity to produce the pellets and diesel fuel to distribute the finished product by truck or rail.