This webinar shares information about economics and business models, funding types, risk analysis and pricing supported by examples and best practices from Göteborg Energi.
1. Business cases – overview and challenges
Henry Wynn, Professor of Statistics, London School of Economics
Engagement of the end users at all stages of the project life-cycle is of crucial importance. Some reasons for engagement are to speed up technology change and encourage cost saving via the end users behavioural change, for example those related to energy peak-shaving.
Modelling economies of scale is a high interest issue of when it comes to business models; also case studies directed to business cases can be useful when cities work together with the same goal. A key issue for capital funding of the district heating and cooling (DHC) network is how to actually make a proper business case. In order to make the case strong for district heating and cooling, local enablers are needed, such as a politicians and entrepreneurs who recognize the importance of continuity of supply and demand over a long period of time.
Project objectives are very important, and can be divided into social (e.g. fuel poverty), environmental (e.g. the 20-20-20 targets) and financial objectives (e.g. value for money/return of investment). The end user demand is very important; if that is not satisfied, nobody will fund you. In risk analysis, allocation is important – who is taking the risk? Furthermore, optimism bias must be avoided.
Some lessons have been learned from case studies: Energy Service Companies (ESCOs) can fund projects, fully or partly. They can also consider expansion early as part of a plan, and involve debt investors early due to the fact that price control is essential with long term contracts.
2. Business cases – examples from Göteborg Energi
Dan Bergman, Business Developer, Göteborg Energi AB
“Strategy without tactics will give you a long way to reach your goals. Tactics without strategy is a very fast way of losing.”
For a marketing plan, one strategy is to think of What – Why – When – Who – How. What is the customer journey, and what the customers are experiencing. You can make sure to build customer trust, and then sell offers instead of stand-alone products, such as ”The restaurant package” – you need both electricity grid, gas grid, and cooling. The offer now consists of pieces that can be combined: Peak shaving, long-term storage with customers’ heat pump boreholes, smart heat, and using the energy source that is cheapest for the time being.
Investment points with the customer in focus to be considered can be: 10 years payback for companies, partial refunds if the customer is not satisfied, private houses do not pay anything when we connect them – they only pay for the rent and their use, if >90% of the buildings are connected. Pool heating is offered in the summer, since we then have surplus heat, and will get at least some money for it. For companies, we have different prices for heat over the year.
3. Questions from the audience:
- What is the benefit with having a voluntary price model (Sweden), rather than a law that maximizes the price of district heating (the Netherlands)?
- If you could ask the EU or the European Investment Bank to design a brand new financial mechanism for district heating solutions, what would you recommend them to do?
- Which are the largest risks when developing DHC systems, and how should cities and companies deal with those risks?
- For a city wanting to establish DH, how can one establish a business case when it covers several mandate periods for a local politician? In Gothenburg, it took 50 years…
- What is the most important thing to take into consideration when calculating establishing prices of a DH system?