In the context of global warming and dependence on fossil fuels, modern bioenergy systems have evolved with a large global potential. Small-scale pellet heating systems for space heating of detached houses is one application of bioenergy technology. In Sweden, such systems have advantages over oil-fired and electric boiler systems in terms of the total lifecycle heating cost to consumers. However, the diffusion of this technology into the market has hitherto been rather slow. By combining an extended configuration cycle model with a dynamic multi-level perspective on system innovation, we have studied the factors involved in the diffusion of such systems in Sweden. The results indicate that investment cost may not be the major issue, but that other factors such as annual fuel cost of heating, lack of information, dissatisfaction of early adopters, and technology lock-in are among the most important factors.