Model 4: Specialized Heat and Electricity Production and Services
This type was formed by seven enterprises specializing in district heating. This type is set apart from the others as it is formed by larger heat and electricity service providers partially operating the grids and being major distributors. The companies also buy biomass based solid fuels for inputs from other types.
Value proposition
The main value proposition is providing residents with high quality and low-cost network bioenergy (thermal energy) in the form of hot water or steam. The sustainable biomass-based energy production replaces fossil fuel-based energy production. Ash from bioenergy production is used as a soil improver (amendment).
Infrastructure
The upstream key partnerships include companies involved in the production and supply of biomass for energy (wood industry). Important aspect is long-term contracts with woodchip suppliers to provide a stable supply for production inputs. Other key partnerships are formed with wood and biomass logistics companies, technological partners – suppliers of components for the construction and operation of technical elements of the heating system and heating nodes, financial providers (e.g., investors, national funds specializing in environmental protection and water management projects, subsidy providers, etc.) and municipal authorities regulating the field and tariffs.
Key activities are purchase of biomass (wood chips, waste and residues), biomass supply, storage and handling for heat and/or biogas production, selling/distribution of electricity and heat, heat network arrangement and selling the digestates and fertilizer, attracting new customers for heat and other products.
The tangible key resources are raw material (biomass, waste and residues), equipment (for heat production, CHP and condensing economizer), and infrastructure (storage area for biomass, distribution network), the plants. Intangible resources are staff, their technical know-how on operating the plant, experience and know how on the biomass market and knowledge of their customers and arrangements on the tariff for power production.
Keyword ratings for enterprises in Specialized Heat and Electricity Production and Services Business Model type
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Customer interface
The enterprises establish their customer relationships through personal direct sales in online or physical locations and contracts with customers are multiannual agreements.
The customer segments are very wide: local private customers (B2C), but also public bodies (incl. B2G) in the area. Customers are from municipal and private housing sector (housing associations, multi-family buildings, single-family houses), public institutions (e.g., hospitals, schools, colleges) and private organizations (commercial buildings, shops, etc.). The distribution network typically belongs to the state (electricity distribution network) or local government (district heating network).
The distribution channels include the national distribution grid for electricity. Heat is sold to the customers by local heat distribution pipelines and nodes, digestate is distributed by mobile transport.
Business Model Canvas for Specialized Heat and Electricity Production and Services Business Model type
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Key partners Wood industry Technology suppliers Logistics companies Municipal authorities Electric and heat grid owners Financial capital and services providers |
Key activities Procurement of biomass Production of heat and electricity Maintenance of distribution network Sales of heat and electricity Sales of digestates and fertilizers |
Value propositions High quality network heat from renewable biomass for local residents and businesses Ash for soil improvement |
Customer relationships Personal direct sales Long-term contracts for heat supply |
Customer segments B2C, B2B, B2G Heat and electricity Municipal byers for municipal buildings (schools, hospitals, nurseries, etc.) Other business customers Local residents using heating and electricity Fertilizers Farmers |
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Key resources Raw materials (biomass, waste and residues) Energy and heating plants Distribution infrastructure Equipment and technology Staff Know-how |
Channels Sales force Delivery National electric grid District heating grid |
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Cost structure Raw material costs Investment into the plant Production costs Maintenance costs Distribution costs Waste (ash) disposal costs Labour costs Environmental taxes |
Revenue streams Sales of heat Sales of electricity Sales of fertilizers Revenues from green energy projects |
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Financial viability
The cost structure included biomass costs (purchase and storage), investment costs, maintenance costs of equipment, piping and nodes, transportation costs (ash disposal), personnel costs, environmental taxes.
The revenue stream comes mainly from the sale of heat and electricity; while smaller revenues come from selling digestates and fertilizers, and in some enterprises also from planning and organizing green energy projects, their development, investments and constant maintenance. District heating revenues are subject to local regulation and tariff approval by national or local authorities.
Socio-economic aspects and novelty
The main economic benefits are the creation of local jobs and supporting of regional economy through use of local biomass, provision of heat and electricity services for local population and industry. Environmental benefits are connected with the reduction of air pollution, more efficient use of energy and waste. Companies uphold local values by using existing knowledge and resources while serving local communities. This Business Model is transferable, but it also depends on the characteristics of the particular location and its grid infrastructure. The Business Model is heavily policy and regulation dependent. This type includes large and specialised district heating providers and those companies are the main subjects of the EU and national bioenergy policy targets requiring adjusting their Business Models. This is demonstrated with the Business Case of Przedsiębiorstwo Energetyki Cieplnej (Case 4.1: Przedsiębiorstwo Energetyki Cieplnej – energy efficient district heating system – Poland), a Polish company shifting its production form coal use towards biomass use.
The novelty of companies is low and lies mainly in shifting from fossil fuel-based energy production towards renewable biomass-based energy production and in increasing the automation and efficiency of production.
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 1: Heat and Fuel from Woody Biomass
Model 2: Fuel and Electricity from Biogas
Model 3: District Heating and Electricity from Various Biomass Sources