Model 1: Heat and Fuel from Woody Biomass

This Business Model type was formed by processing companies using woody biomass aiming to substitute fossil-based energy resources. More specifically, it represented two types of enterprises: companies that produce solid fuels from herbaceous biomass from forests and fields and/or companies that produce heat and fuel from this biomass with some of those involved in both activities of producing pellets and using those in their heating plants.

Value proposition

The main value proposition is the replacement of fossil fuels in heat and thermal energy production with environmentally friendly biomass (wood, wood waste, sawdust, straw, dry grass, hay, reed). The fuel (wood chips, pales, pellets) is completely natural and sustainable, and in some cases, e.g., heat production from hay and reed, it is also cheaper compared to using fossil fuels. Biomass is collected from local fields and forests and used for local heating.

Infrastructure

The key partnerships are with biomass suppliers (farmers and local forest owners, wood industry). Cooperation with public authorities, such as the municipal owners of the heating infrastructure as well as end user of heating and fuel in municipal buildings, is required. Policy-makers setting renewable energy targets and influencing access to investment supports have considerably affected the development of this field. Technology partners (suppliers of parts for the operation and maintenance of equipment), financial providers (e.g., banks, investors, environmental subsidies, etc.) were mentioned as crucial relationships for running those companies.

Key activities for solid fuel and heat producers are somewhat different. The main activities of fuel producers are collection of biomass (two companies) and/or searching for places/companies for biomass acquisition, incl. participation in tenders for the purchase of biomass, storage, quality control and processing, organization of logistics of deliveries to final recipients. The main activities of heat producers are procurement and storage of heating material, energy conversion, and distribution. Some companies produce the fuel themselves and in the next step use it for their heating plants.

The necessary key resources are biomass (wood, wood waste, sawdust, straw, dry grass, hay, reed, wood chips, pales, pellets), equipment and technology for biomass production (incl. for logistics processing and packaging the product), heating plants and storage facilities (biomass warehouses and yards), distribution network (functioning district heating network). A competent staff are essential. Intangible resources are necessary know-how for production and on local markets.

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Customer interface

Entrepreneurs have established close customer relationships through personal direct sales in internet and physical store as well as sales via intermediaries (particularly for pellets). Both short and a long-term contracts for the supply of biomass with energy producers and offer of spot (non-contractual) purchase of biomass were mentioned. The district heating network provides heat and thermal energy to the local community, close relationship with a limited and local group of consumers.

Customers include the central heating and thermal energy end users, including various public institutions and residential buildings, other businesses and private users of wood pellets and other products.

Customer segments of biomass fuel products are heat producers. Most of the pellets, wood chips, dry grass, hay and reed as well as wood residues for heating are used in combustion plants in schools, nursing homes, business buildings, hotels, district/local heating systems, large energy companies, municipal heat energy companies, local heating plants, individual homes. The pellets are also used in small boilers and pellet stoves. The niche market is by-products from the production (pellets and litter) that can be used for pet care and cooking (barbeque). Customers of heat producers are end users as well as potential new users of heating.

Customer channels include enterprise’s own sales force, intermediaries in wholesale and retail networks and are different for different products. The fuel producers reach customers through participation in tenders and public procurement; through direct marketing both online and in physical stores or using intermediaries for selling pellets. Physical delivery takes place by road and rail transport. Heat sales depends on the access to local networks. District/local heating systems and municipal heat energy companies use local networks (hot-water pipes networks).

Business Model Canvas for Heat and Fuel from Woody Biomass Business Model type

Financial viability

Costs are related to collection and purchase of raw/fuel material, processing the fuel from hay, reed and other raw materials, investments into the plants, their operating and maintenance, labour costs, transport of biomass to the recipient, access to and the maintenance of heating distribution networks. Additional potential costs can be contractual penalties for failing in biomass supplies and amounts.

Revenue comes mainly from sales of heat or sales of pellets, wood ships and some cash-flow from selling by-products. In the cases of commercial power engineering and large heating plants, the value of the contract depends on the quality of biomass, most often expressed in the biomass energy value. For smaller installations, the contract value is the amount of biomass and the unit price. In addition, revenue stream includes services provided with own equipment. The revenue of district/local heating systems and municipal heat energy comes mainly from heat sales, but also from a connecting fee and a rental fee for hot-water pipes. Some of the companies provided logistics services for other biomass processors. 

Socio-economic aspects and novelty

Pellet production is particularly important in the region as the countries of Baltic Sea Region include the largest pellets producers in the EU, and for three Baltic States and Poland, pellets are important export items (Stolarski et al., 2020).

The companies representing this Business Model valorise local knowledge and resources, thus serve local communities. The companies provide economic and regional benefits to the local population by providing stable employment. The use of biomass from local sources, incl. private forests and farms, supports regional economies more broadly. The companies in this type are typically specialised to one (e.g., pellet, wood chip production) or two activities (e.g., pellet production and heating). The policy dependency lies in access to investment supports that have been used for establishing the plants. The EU renewable energy targets have considerably facilitated the expansion of pellet production in the Baltic Sea Region in the last two decades.

This Business Model is easily transferable. The novelty of the Business Model and of companies is relatively low. There are examples of incremental product innovations, e.g., the case of Ecopellet (Case 1.1: Ecopellet – environmentally friendly biofuels and pet products from sustainable raw materials – Estonia). The company has broadened the production from heating pellets to grilling pellets and bio-pellets for pets. The other Business Case presented is of Quercus (Case 1.2: Quercus – production of solid biofuels for energy – Poland), a wood chip producer from Poland.

Other related Business Models

Archetype of replacement of fossil fuels with bio-based fuels includes Business Models focusing in substitution of fossil energy with solid, gaseous and liquid bio-fuels for energy production. This archetype was formed from five Business Model types that included Business Models of producers of biofuels and energy companies using biofuels and Business Models with various combination of those activities. Four of those types represent incremental innovations and easily transferable Business Models. In case of converting fossil-fuel based energy production into bioresource based production, Business Model innovation lies in required changes in Business Model elements such as key relationships, key activities, and key resources in order to update their value proposition. Side streams of new activities require identification of new customer segments and channels for reaching them. The archetype also includes more complex knowledge intensive Business Models focusing on innovation in bio-chemistry that have high potential for creating radical product and process innovations and new markets for their biomass use.

Model 2: Fuel and Electricity from Biogas

Model 3: District Heating and Electricity from Various Biomass Sources

Model 4: Specialized Heat and Electricity Production and Services

Model 5: Innovation in Novel Fuels and Bio-chemicals