In this paper we introduce a microeconomic modelling framework for the analysis of the adoption and diffusion of wood pellet heating systems that explicitly takes into account the cost of competing systems, differences in service and maintenance costs, and system switching costs. We also introduce an aggregate technology diffusion model that allows for the inclusion of economic explanatory variables and a limited degree of heterogeneity among adopters. Furthermore, we touch upon the issue of system boundaries in the context of technology adoption decisions, how alternative environmental and energy policies may affect the adoption and diffusion of pellet heating systems, and what guidelines welfare economics theory proposes regarding the optimal speed of technological diffusion.