Within the TEMPO project, six innovations related to networks, digitization thereof and building optimization undergo final development. To ensure these innovations become successfully implemented on the market, this report analyzes business models by setting up a framework consisting of different business model components that can be combined in different ways depending on the needs of the specific DHC network. To properly understand the needs of a DHC network, the framework considers 5 internal project characteristics (network age, network generation, type of buildings, energy sources and DHC goal) and 3 external (urban versus rural environment, market maturity and regulation) project characteristics that typify most projects. As such, the framework can analyze how such project characteristics influence business model decisions.
The business model components taken up and analyzed within the framework are the type of partners (stakeholders) involved, potential ownership models and contractual relationships, financing options and the revenue model. When it comes to stakeholders, DHC systems typically involve a significant number of stakeholders that are needed before the project can take place and succeed. Proper stakeholder management and engagement is therefore important through the entire project from the planning of the district heating system to its operation. The framework therefore describes over 20 roles that take place in the context of a DHC project. It then categorizes these roles under 3 dimensions, indicating 1) the timing when a stakeholder is active (pre-feasibility, feasibility, commercialization, design & build, operation & maintenance, customer service), 2) indicating in which part of the DHC system it is active (cross-sectional, generation, distribution, end-usage), 3) and indicating which type of activities the role is related to (physical flows, information or functional tasks). The multitude of roles and stakeholders shows that many roles are interdependent, pointing to the need of a proper understanding of different market organizations. The report discusses different market organizations ranging from bundled to unbundled markets. The more roles one stakeholder is responsible for, the higher the level of market bundling.
When it comes to ownership models and contractual relationships, for the future success of TEMPO innovations it is key to understand, who is deciding, implementing and finally operating the system. The correct ownership is therefore important to be able to communicate with the real decision maker. The framework distinguishes four major types of ownership, ranging from public to private control: (1) not-for-profit community-owned cooperatives, (2) full public control models, (3) public-private partnerships, and (4) full private control models. Nevertheless, the report also points out that next to a specific ownership structure, a DHC project is likely to be involved in multiple simultaneous contractual relationships, which further describe its responsibilities and liabilities.
Highly linked to ownership, is the financing structure of the DHC project. This is often a challenge for DHC projects as DHC networks require high upfront investments, even before revenues are delivered. There is a clear investment/revenue time lag. To this end, the framework categorizes financing forms depending on the timing of costs. Financing directly related to investments in key components of the DHC system (generation/distribution) are likely to be done through equity, grant capital and or loans. However, financing related to important components linked to the DHC system end-user (substations, connection to buildings, investments in building adaptations…) and financing related directly to the operation, maintenance and further development of the system could be done through other means.
One of the later means we refer to, is the revenue model of the DHC grid. This is the final part of the business model framework. The framework distinguishes between 4 key categories of income. That is, income directly related to the delivery of heat (with an extensive description of different heat tariff types), indirect sources of income related to the delivery of heat (for instance subsidies for saved CO2 emissions), income not linked to the delivery of heat (that is, income from selling components), and finally, more innovative revenues related to more efficient working of DHC grids.
For each of these business model components, it is examined how the different types of DHC projects fill in these business model components. This isconcretized for each of the three original TEMPO demo sites, leading to 3 new extended service business models for each of the TEMPO solution packages.
As a final note, it should be noted that the business model framework did not take into account the value proposition itself, as this is part of another TEMPO deliverable where it was examined in much more detail.
D6.2 is a confidential deliverable in the TEMPO project. However, we will be happy to answer your questions if you are interested in similar solutions.
Please contact: Janka Vanschoenwinkel (VITO, [email protected])