Model 5: Innovation in Novel Fuels and Bio-chemicals

The type is formed by three enterprises that are in the process of developing novel fuels and biochemical products from wood industry residues, wood and plant biomass. The type is set apart by high R&D intensity. The enterprises in this type include those working with plant protein for food industry for vegetarian and vegan foods and for application in the cosmetics industry, where the raw material can be used for development of new natural emulsions and creams. Other enterprises included into this type work on developing variety of biochemical products (biodiesel, bioplastics, resin, heating oil, turpentine).

Value proposition

The main value proposition is innovative and sustainable biomass based (plant parts and other green plant materials that are not currently used but remain in the fields after the harvest, by-products in the forest industry) fuel and bio-chemical products (biodiesel, bioplastics, resin, heating oil, turpentine, plant protein products).

Infrastructure

Because of the high R&D intensity, the key partnerships are formed with universities and other R&D institutions, technology providers and fuel and wood industry actors in order to develop the innovative products. Besides those, cooperation with different funding organisations as well as biomass providers is required.

Key activities are R&D and technology development as well as processing (the technical and chemical process of refining rest products into biodiesel, the process of making bio-oil, processing plant proteins, and sales of those products. For some of those enterprise, crucial aspect is to scale up the business and creating profitability as well as demonstrating the business potential of R&D outcomes and BM to other stakeholders and investors to achieve strong growth and market diffusion.

The most important resources are intangible: specific technical and chemical process knowledge and the know-how regarding the refining process and the divided ownership.

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Customer interface

At present, the customer relationships are based on direct personal contact, but product development also is based on co-creation as the R&D process requires cooperation from wood and fuel industry and other actors.

The main focus was on B2B sales and customer segments included variety of customers on the world market (from biodiesel to perfume): fuel companies, food industry, and cosmetic industry.

For customer channels, enterprises use their own sales force to create contacts with variety of food, fuel and other industry actors, who will be the intermediaries for the end consumers (private persons).

Business Model Canvas for Innovation in Novel Fuels and Bio-chemicals Business Model type

Financial viability

The costs are related to the development of innovative production process and technology, building plants and production and labour costs. For some of those enterprises, in the current phase the main difficulty is achieving profitability and demonstrating the business potential and scalability of the BM.

Revenue will come from the sales of the products, but also from R&D grants from variety of sources that help to cover the cost of product development.

Socio-economic aspects and novelty

The regional and community impact of the companies is relatively small. The companies employ relatively small number of highly-paid knowledge workers for high-value added product development. The transferability of this Business Model will depend on the access to knowledge resources and labour as the competitive advantage of the companies lies in the combination of specific in-house knowledge and external knowledge and capital network relations that may be hard to replicate. The regulation dependence is low in comparison with other types. The renewable energy policies encourage the R&D, but typically companies in this type are not subject to investment or operation subsidies, although companies benefit from public research funding opportunities.

The novelty of the companies in the cluster is very high with high potential for creating radical product and process innovations. The Business Case of SunPine (Case 5.1: SunPine – an entrepreneurial bio-refinery – Sweden), a Swedish bio-refinery, represents this Business Model type.

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

Model 4: Specialized Heat and Electricity Production and Services