Deliverable 5.4: Business model and market analysis for the new service

In Flexi-sync project, enabling technologies such as storage solutions, control optimization, increased usage of renewable energy sources and waste heat have been included in optimization modelling and form one new service. The new service accounts both for the demand and the supply side of the district heating (DH) system allowing for unprecedented levels of flexibility in DH and electricity sectors. We analyzed different use cases in Austria and Sweden, in which the optimal operation of the supply-side system (the DH network comprising Combined Heat and Power (CHP) plant, central heat pump (HP), and heat-only boiler (HOB)) and the demand-side system (building-level HPs and thermal storage) are integrated into one system to provide flexibility to DH and electricity systems. Amongst the non-academic partners, the unprecedented combination of the demand and supply sides into one service is an important innovation that will allow increased flexibility by means of digital solutions. The new service is yet to go to market.

This report investigates how the conventional business logic does not meet the new business requirements that are brought by this new service in the DH sector.

In the case of Austria, two types of business models are proposed (the component addition and the electricity market participation business model). The first new business model adds new, cross-energy domain components (i.e., a central CHP and a HP) and therefore links the system to the electricity grid, which is not common for rural DH systems in Austria. This inclusion enables additional flexibility to the existing DH network. The second innovated business model is an extension of the first one and adds the Day-Ahead and/or the aFRR balancing electricity market participation of the CHP and HP, because their combination turns out to be a profitable option. Those business models are consolidated by the fact that the use cases of electricity market participation show increased revenues. The cases including operational or investment support for the additional generation technologies are most profitable. This indicates the additional generation technologies and possible electricity market participation are economically viable to utilize flexibility options. In DH systems, the usage of building flexibility is profitable as well (especially for DH networks without existing thermal storage tanks). And when considering network densification, flexibility via utilization of the thermal mass of buildings as a thermal storage can be economically viable. Furthermore, the business model modifications are also analyzed. The stakeholder workshops and a questionnaire are also conducted to receive feedbacks which prove to be in favor of the innovated business models.

In the case of Sweden, two representative business models are developed and elaborated, i.e., the business model of a connected product and of a performance contract. The main difference between these two business models is the investment arrangements and operation modes of HPs. Based on this, different blocks of the Business Model Canvas are modified. Since Business Model Canvas is a widely used method to visualize existing business models for a company and create a visual roadmap of a business model’s evolution. The risks perspective to business models is proposed in this analysis which is rarely considered in other studies. Trust issues between DH company, aggregator, and property owners, possible failures to respond to flexibility signals, and investment risks are proposed to DH companies before they proceed with any new business model. From a product-oriented mindset to better product offering and service-oriented mindset is the prerequisite to adapting to the changing business environment. To achieve a win-win situation, DH companies shall consider adjusting their conventional business logic, designing better offers, establishing dialogue- and trust-based customer relationships, involving new partners, developing innovative activities, channels (such as optimization solutions, installation, and maintenance) and price models.

The policy risks, technical risks, financial risks, and organizational risks are put forward to safeguard future new business models, based on the analysis of business models, policies, and regulations.