preparing a business plan for a district heating project agenda · 2016-04-21 · smartreflex wp3...

SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister

Preparing a Business Plan for a District Heating Project

Agenda

• Competitiveness of district heating

• Business Model Generation – a template

• Customer contracts – legislation and guidelines

• Articles of association – guidelines

• Measurement – methodology and examples



Competitive heat supply

Trends in heating Danish homes by different fuels and technologies. Note: Insignificant uses of solid fossil fuels are not shown, nor is

electric heating, which is being phased out in Denmark. NG, biomass, and oil are shown as primary energy supply;...

Anna Chittum , Poul Alberg Østergaard

How Danish communal heat planning empowers municipalities and benefits individual consumers

Energy Policy, Volume 74, 2014, 465 - 474

http://dx.doi.org/10.1016/j.enpol.2014.08.001



Competitive heat supply

Total annual cost to heat average Danish 130 m 2 house with annual heat demand of 18.1 MWh, with three different heating

resources. Note: The cost for oil-fired central heating is based on a boiler efficiency of 85% and annual O&M costs of 333€...

Anna Chittum , Poul Alberg Østergaard

How Danish communal heat planning empowers municipalities and benefits individual consumers

Energy Policy, Volume 74, 2014, 465 - 474

http://dx.doi.org/10.1016/j.enpol.2014.08.001



Financing

Financing

Municipalgurantees

Interest rates are below 1 % for most projects

more than 1 billion DKK/yearto Danish DH companies



Business Model Generation, presentation of tool



Business Model Generation, the elements – step by step

Business Model Generation

1 Customer segment To whom are we creatingvalue?

To…

2 Value proposition What is the gift for the customer?

Heat supply…

3 Channels Through which channels canwe reach our customers?

Communication…

4 Customer relationship What type of relationshipshould be established?

Co-ownership?

5 Revenue streams Customers’ willingness to pay?

Customers currentexpenses…

6 Key resources Necessary to deliver the value/the product

Energy resources…

7 Key activities Which key activities arecrucial?

Permits…

8 Key partnerships Which partnerships arecrucial?

Who can support?

9 Cost structure What is the cost of providingthe value to the customer?

Cover costs, tariffs



Business Model Generation – the elements

1 CS

Customer segment

For whom arewe creatingvalue?

Who are our most importantcustomers?

Customer segment types

Mass market, niche market, segmented, diversified, multi-sided platforms




2 VP

Value proposition

What value do wedeliver to the customer?

Which one of our customer’sproblems are we helping to solve?

What is the reason whythe customer choosesyour company?

Each value proposition consists of a selected bundle of products and/or services

Attributes Customization, ”getting the job done”, design, brand/status, price, cost reduction, risk reduction, accessibility, convenience/usability




3 CH

Channels

Through whichchannels do ourcustomer segments want to be reached?

How are we reachingthem now?

Communication, distribution and sales

Channel types Own channels (direct)

Partner channels(indirect)




4 CR

Customer relationship

What type of relationship does eachof our customersegments expect us to establish and maintain?

Relationships are establishedthrough different channels

Influence the overall customerexperience

Types of customerrelationship

Transactional, long-term, personal assistance, dedicatedpersonal assistance, self-service, automated services, communities, co-creation, switching costs




5 RS

Revenuestreams

The ways your compantgenerates cash from each customer segment

How much does eachrevenue stream contributeto overall revenues in percent of total?

For what value are ourcustomers really willingto pay?

How would they prefer to pay?

Types of revenue stream Asset sale, usage fee, subscription fee, lending/renting/leasing, licensing, brokerage fees




6 KR

Keyresources

The most importantassets required to makeyour business model work

What key resources do our value proposalrequire?

Our distribution channels? Customer relationships? Revenuestreams?

Types of key resources Physical, intellectualproporty, human, financial




7 KA

Keyactivities

Most important actions your company must perform to operatesuccessfully

What key activities do our value proposition require?

Our distribution channels? Customer relationship? Revenuestreams?

Key activity types Production, problem solving, platform/network




8 KP

Keypartnerships

Who areour keypartners?

Who are our keysuppliers? Which keyresources are wereqiuring from partners?

Keypartnershipmotivations

Optimisation and economy of scale

Reduction of risk and uncertainty

Acquisition of particularresources and activities




9 CS

Coststructure

What are the most important costs inherentin our business model?

Which key resources are most expensive?

Which key activities are most expensive?

Classes Cost driven

Value driven

Types of costs Fixed costs

Variable costs

Attributes Economies of scale

Economies of scope



Business Model Generation, the elements – summing up

Business Model for DH in Italy

1 Customer segment

2 Value proposition

3 Channels

4 Customer relationship

5 Revenue streams

6 Key resources

7 Key activities

8 Key partnerships

9 Cost structure


Key Aspects of District Heating Customer ContractsLegislation

Regulationon connection

Two options for applying mandatory connection to DH in Denmark

Heat supply act

New buildings

Local planning act

Existing and new buildings

No mandatory off-take (variable payment)


Key Aspects of District Heating Customer ContractsRecommendations from Danish District Heating Association

Recommendedtotal scope of agreementsbetween the DH utlity and the customer

The contractrelations aresubject to all relevant legislation, including decisions made by authoritiesincluding the courtof law.

Articles of association

Contract conditions for DH supply (elaborated)

Technical conditons for DH supply

Tariff sheet

Agreement on DH supply

Welcome letter



Guideline on contractconditionsfor DH supply

Developed since1984

In cooperationwith relevant authorities and DH utilities

Applicable to consumer-ownedas well as municipal DH utilities

Special regulationmay apply for the municipal utilities



Scope of guideline

50 pages

Establishment or change of DH supply

Operation and maintenance of equipment

Tariffs

Measurement of DH consumption

Payment

Example of contract on DH supply)



Who is the customer?

If technicallypossible, i.e. if a closable connectionand a separate heat meter can beestablished

The DH utility is obliged to establish a directrelationship with the consumer

Regardlesswhether the consumer is owner or tenant

Historically the DH supply has beenbased on agreements between the DH utility and the owner

Change of the the Heat Supply Act in 1997; equal status of owners and tenants

Consequently, payments due are only relevant for the single customer – nolonger the owner



Establishment or change of DH supply

DH supply can beestablished

Provided that it is in line with localplanning

Technically and economically feasible

Connection fee; twoelements:

Payment for investment

Payment for connectionpipeline

Connection pipeline and main valves

Until the inside of the outer wall of the customers building

Established, owned and maintained by the DH utility

No longer a customer; principle of ”cleaningup” in economic terms

Only in case there is no mandatory connection

Due payments; consumption, disconnection, capacity



Operation and maintenanceof equipment

House installation (heating and hot tap water)

The consumer is responsible for maintenance as regardssafety, operation and regulation

Only authorisedpersons should workon the house installations (”FjR-ordningen.dk”)

Mandatory supply, necessarymaintenence with and without notice

Subject of commonregulation in Danish law

No responsibilitytowars commercialcustomers’ operationallosses

DH utility canchange supplyterms; pressure and temperature

Expenses for the customer payable by the customer

In some cases right to get out of the agreement withoutrelated payments



Tariffs The DH utility elaboratesthe tariffs

In accordance with the authorities’ guidelines

The consumer is obligedto inform the utility aboutany changes with influence on the payment

E.g. change of buildingarea or change from residential to commercialuse

The DH utiliy is obliges to inform the customers(with direct contract) about tariffs and changes

By direct contact (mail or e-mail) and on the webpage of the utility



Measurement of DH consumption

The DH utility decidesthe necessaryequipment, includingnumbers, size, type and location

Main heat meter is owned and mainined by the DH utility

Secondary meters is no concern of the DH utility

Reading of meters Automatic reading, announced by the DH utility

Self-reading by the customers

Missing or unlikelyreading of meters

Billing can bebased on calculatedconsumption

DH utility i responsible for Functioning of main meters



Payment The DH utilitydecides

On accountpayments(e.g. monthly or quarterly)

Can bedifferentiated

In case of missing payments

Standard fees

Procedure includes: closing DH supply after31 days



Exampleof contracton DH supply)


How to Organise and Develop a District Heating Company

Guideline from the Danish District Heating Association

Standard articles of association

In 1963 standard articles of association issued by the State

Many municipalitiesissued loanguarantees to private DH companies

Developed since1985

In cooperation with relevant authoritiesand DH utilities

Applicable to consumer-owned DH utilities



Guideline from the Danish District Heating Association 1/2

Scope of standard articles of association

59 pages

Name, office of the company

Shareholder company with limitedliability

Purpose and supply area Non-profit, conditional taxexemption

Shareholders, consumers Shareholders, ”non shareholders” consuming heat e.g. tenants and ”non shareholders”

Share capital, shareholdersliability and economicresponsibility

1) No share capital (most common) 2) Payment, only liable for paidamount

Conditions of withdrawal Possible provided payment of due payments, related costs and shareof capacity



Guideline from the Danish District Heating Association 2/2

Scope of standard articles of association

59 pages

General assembly Votes proportional to heat consumption to someextend

Board Eligible: shareholders, heat consumers etc. and oneappointed by the council

Management of the company

Sets the tariffs, Board members can be held personally responsible

Accounting and revision

Auditor elected by the general assembly

Dissolution of the company

Can be decided by the general assembly only


How to Manage Heat Distribution Monitoring and Payment of Heat Supply

Why measure heat consumption, main principles

Why measure heat consumption?

How to measure – generations

Flow

Energy (flow and temperature)

Basis for tariffs Motivational tariff –what is that? (Examplefrom Esbjerg)

Smart energy Common with other utility services; water and electricity



Why measure heat consumption, main principles

http://www.esbjergforsyning.dk/selvbetjening/aarsafkoeling.html

http://www.esbjergforsyning.dk/selvbetjening/aarsafkoeling.html



Example from Aarhus (production)

http://www.aarhus.dk/sitecore/content/Subsites/affaldvarmeaarhus/Home/Varme/Varmeplan-Aarhus/Varmeproduktion.aspx?sc_lang=da

http://www.aarhus.dk/sitecore/content/Subsites/affaldvarmeaarhus/Home/Varme/Varmeplan-Aarhus/Varmeproduktion.aspx?sc_lang=da



Considerations of variations in heat load patterns

”To measure is to know!”

Daily variations in district heating systems are low

Only about 5 % of the heat is abovethe daily average heat load in annualbasis

The district heating network has both less daily and seasonal heat load variations than the aggregatedheat loads of the customers

Daily variations are to a large extendsocial heat loads

Geographical diversity

Heat load patterns in customercategories

No standard heat load patterns

Large variations in heat load patterns among different customer categories

”To measure is to know!”, Henrik Gadd, 2012, Licentiate Dissertation, Lund University, Sweden



Different types of customer relationship

Interface betweendistrictheating companiesand heat customers

CustomerSigns the contract

Is invoiced for the heat

Detached housesOne person is owner, heat user and customer

Multi-dwelling housesHeat included in the rent, i.e. the landlordpays for the heat and is responsible for the heat supply

The tenants are heat users

Larger complexes of multi-dwelling buildings

Substations in each building or a secondary supplysystem

Heat may be included in the rent

Risks in case of incorrectheat load

Inappropriate investments

Reduced competitiveness

Loss of customers



Example from Ringkøbing

Background and scope

In Ringkøbing: meters from 1995, batterychange in 2015, noremote reading

Alternative: ”drive by” reading(”garbage truck”)

New project including 8 utilities (includingmulti-utilities), heating, electricty and water

113 million Euro

170.000 meters




Purpose (consumers) Portal for

consumers

Easy reading

Data availability (user-web)

Better communication

Services

Energy savings

Alarms




Purpose (utility) Portal for

technicians

Data for operation, GIS data

Analyses, overview,

Optimisation of temperature in the network

Minimise/reduce leakages in the network

Correct and easy decision on renovation of the network

Easy administration




Purpose (utility)

Cooperationwith otherutlities

Common communication network

One user-web for electricity, water and heating

Joint organisation of the installation

Lower prices due to large tender of meters, communication network and web-solutions

Lower operation costs




Investment Heat meters 2.000-2.500 DKK/meter

Communication module in the electricity meter

Communication network

Web solutions

Handling of data

Installation of meters

Total operation costs 50 DKK/meter




Technicians Data for SRO

GIS data

Optimal temperature in the network

Reduce network losses

Support for decision on renovation of network




Consumers Consumption of electricity

Consumption of heat

Consumption of water

Invoices

Advice on savings

News

Own information

Benchmarking according to building type (BBR)




Ownership Buy the system

Decides on development

Standard platform, which can bedeveloped by the utilities




Portal for consumersBilling

systems

Portal for techniciansGIS-data

SRO data

Data collection Dataserver with webpage

preparing a business plan for a district heating project agenda · 2016-04-21 · smartreflex wp3...

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