Internal efficiency and revisited business models is a possible way forward
Apart from unique features, district heating providers need to be innovative when meeting the customer need. Most district heating companies in Sweden have different models for private customers and for the commercial segment. The latter segment is increasingly becoming differentiated to meet customer needs. Some companies offer their professional customers “comfort” whereas other offer everything from traditional heating solutions to temperature specific packages (Lygnerud, 2011). It should be noted that not all changes in customer demand can be easily met. Customers with two heating alternatives (heat pump and district heating) that use district heating only when the heat pumps are not sufficient are an increasing phenomenon in Sweden. This kind of customer erodes rather than strengthens most business models in use in district heating companies, and a major revision of the way that business is conducted must be made if these customers are desirable long term. The Swedish district heating association, Svensk Fjärrvärme, is actively engaged in research and a large effort has been made to enhance knowledge about business models in Swedish district heating companies. The research resulted in checklists and guidelines for revisiting business models. As a result much attention has been paid to the component of price models in Swedish district heating companies. However, focusing on one component of the business model is not enough for long- term competitiveness and will not create a situation where the customer relationship and customer value are revisited. More work remains to be done, something that an increasing number of district heating companies acknowledge. The work must be undertaken from several, different points of departure. The future, successful district heating provider manages external risks efficiently, operates efficiently and establishes customer value in such a way that customers remain loyal to the local and environmentally friendly option.
It is known that business models in use that still yield profit tend to linger on even if they are partially obsolete. One hurdle is fear amongst management that the existing revenue flows will be distorted, which impacts the results in the short term. Taking the many challenges that district heating companies face into account it is no longer possible to base business on economies of scale. The business model of district heating must be updated and the changing customer demand must be met by a revisited customer relationship. District heating companies have some unique selling points. District heating is one of the main reasons why Sweden has been successful in reducing emissions of carbon dioxide. Through the switch from fossil to renewable fuels, more efficient usage of energy, combined heat and power production, and reuse of residual heat and heat from waste incineration, the total emissions of carbon dioxides has been reduced by one fifth in two decades (Svensk Fjärrvärme, 2015). These things are often forgotten in the customer dialogue. The companies must become better at marketing their impact on environmental change. Another, unique, possibility is to create local commitment. District heating companies need a certain level of heat demand to be in business; as a result, there is usually only one company present per locality. District heating companies have the possibility to turn the local monopoly into something positive by showing local commitment and considerations. For example, wood can be acquired locally by entering strategic partnerships with local foresters. Loops can be closed (returning ashes to the forest). Energy can be recovered through incineration of local waste. The next generation can gain knowledge about energy and the need to save it by means of dialogue with their local district heating provider. Once a local, two-sided engagement is established, district heating companies will have strong loyalty to their brand, which is important to meet competition. A strengthened, local customer relationship is however fragile. It does not allow for sudden and large price increases (deviations from a given price level upsets; Lygnerud (2011)), usage of fossil fuels at peak load and not closing the loops.
For further information please contact:
University of Halmstad Att.: Kristina Lygnerud Kristian V’s Väg 3 301 18 Halmstad, Sweden
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