Owing to the rapidly increasing importance of pellets as high-quality biomass fuel in Austria and Europe within the last years, many companies, mainly from the wood industry, are thinking of entering this market. The calculation of the production costs before starting a pellet plant is essential for an economic operation. Based on comprehensive investigations within the EU-ALTENER project "An Integrated European Market for Densified Biomass Fuels" calculations of the pellet production costs loco factory for different framework conditions with basic data based on already realised plants as well as a questionnaire survey of pellet producers in Austria, South Tyrol and Sweden have been performed. The production costs for wood pellets are mainly influenced by the raw material costs and, in the case of using wet raw materials, by the drying costs. Depending on the framework conditions these two parameters can contribute up to one-third of the total pellet production costs. Other important parameters influencing the pellet production costs are the plant utilisation (number of shifts per week) as well as the availability of the plant. For an economic production of wood pellets at least three shifts per day at 5 days per week are necessary. An optimum would be an operation at 7 days per week. A low plant availability also leads to greatly increased pellet production costs. A plant availability of 85-90% should therefore be achieved. The calculations show that a wood pellet production is possible both in small-scale (production rates of some hundred tonnes per year) as well as in large-scale plants (some ten thousand tonnes per year). However, especially for small-scale units it is very important to take care of the specific framework conditions of the producer, because the risk of a non-economic pellet production is considerably higher than for large-scale systems. The direct comparison of typical pellet production costs in Austria and Sweden showed the Swedish pellet production costs to be considerably lower due to larger plant capacities, the combination of pellet production and biomass CHP or biomass district heating plants and the implementation of technologies which allow an efficient heat recovery from the dryers. Moreover, another difference between the Austrian and the Swedish framework conditions is the price of electricity, which is much lower in Sweden. (C) 2004 Elsevier Ltd. All rights reserved.