Webmaster said:
As to the price of pellets, I am certain that raw materials can change in pricing. I was alluding to a situation where I spoke to an industry member in the pellet manufacturing business who claimed they were tracking the price of oil (by raising their price).
Part of the "oil tracking" is that the transportation costs of the raw materials are so high. Transporting the woodchips and such that are used can easily end up costing more per ton than the actual chips do.
The other part is simple economics: if the cost of oil goes up, the value of alternative fuels go up, as well. That includes cordwood, too, and we've seen cordwood prices track oil this past year.
Let's imagine that I decide it's worth the labor of dealing with wood, provided I can save $1000/year in heating oil. If oil is cheap, and I can't save that much, I'm going to heat with oil. Once oil gets expensive enough that I can save more than $1000 by switching to wood, I do so. Some of my neighbors felt that they would switch if it hit $800, so they already did so. Others need to see $1200 in savings before they will switch. As oil keeps going up, more and more people switch to wood. That means that the supply of wood increases, but lags the demand, so the price goes up.
The wood, itself, is also more valuable just in terms of fuel savings. You can draw two curves, one showing how much sales will drop as your raise the price of wood, and the other showing how much profit you make will make based on more expensive per-cord pricing. The point of maximum profit is where those two curves intersect. The profit profit versus price curve is a relatively stable one, and isn't going to change much unless you modify your harvesting methods or somesuch. The sales curve is going to track the price of oil - as oil goes up, more people will buy wood at a higher price. That slides the point of maximum profit (intersection of the curves) up as oil goes up.
The same goes for pellets, or any other fuel-cost-saving technology. If I have a widget that I can install for $400, which will save you 10% on your fuel bill, a certain number of folks will buy it at that price, and current oil prices. If oil prices go up, I might be able to raise the price to $425 and not lose any sales, and I might be able to raise the price to $450 and lose some sales, but make enough more
per sale on the sales I do have, that I make more per year selling widgets.
Joe