Figure 1: An example of a DH company’s net present value (NPV) for different combinations of connection rate and size of up-front payment. The analysis shows the results for all combinations of connection rate and fee; but two parameters are correlated. The two lines illustrate two situations where the connection rate depends differently on the connection fee (up-front payment). Source: The report that this article is based on.
company should consider that a discount alone might not be enough and use other tools to improve trust and interest. In the case of low trust, a high up-front payment might even re- inforce the distrust if people feel the DH company is trying to transfer all the risk to them. How to get a higher connection rate The up-front payment plays a role, but the most important tool is effective communication. Keeping people informed, being transparent, building trust, and sharing information about the benefits of having DH. Here are some examples of how Danish DH companies have worked to increase the connection rate: Contact large potential customers directly. They are es- sential for the connection rate and the system’s long-term efficiency. Set the scene for a long-term collaboration and scout for potential suppliers of surplus heat. Arrange information meetings at the local school, sports arena, assembly hall, or anywhere with enough room. Make an offer and a process that is attractive and easy to under- stand for potential customers. Address all concerns and bring a DH unit so people can see what it looks like and how little space it takes up in a home. Collaborate with the municipality. The municipality can as- sist with the process, is used to stakeholder involvement, and share a common goal, as establishing more sustainable DH will help the municipality reach its climate goals. Find the right level for the connection fee. Low enough not to be a barrier to the connection rate and high enough not to jeopardize company liquidity or the ability to invest in other projects. Give customers a choice between owning the unit or having a service agreement with the DH company. The new service agreement option has become very popular in Denmark, with about 90% of new customers choosing this option and existing customers asking for the chance to join as well.
Analyses like this can help DH companies decide on the crite- ria for going ahead with a project and to better understand the consequences of some of the risks involved. For their company and this project, is it better to ask for 1.700 € in connection fee and aim for a 70% connection rate, or to ask for 10.100 € and aim for a 50% connection rate if they are satisfied with a calculated break-even after 20 years? Or if increasing cost levels are a concern, perhaps they recalculate to better understand the consequences of that risk and decide to play it more safely. A discount alone is not enough. A good DH project must be attractive to the customers and a robust investment for the DH company. In any given situation, the DH company has a range of parameters that can be adjust- ed to create the most suitable solution. The size of the up-front payment is one parameter, and others are related to financing, depreciation, tariff structure, and assessment period. Figure 2 illustrates simplified advice on when to focus on the up-front payment.
Trust & interest to join low
high
?
low
Up-front- payment
high
When trust and interest are moderate or high, there is room to adjust the up-front payment and balance it against needs such as the ability to secure cheap financing, agility to make the most of strategic opportunities, risk mitigation, and com- pliance with a regulation. Investigating the ability and willing- ness to make up-front payments and using sensitivity analyses to understand the risks can help DH companies decide which offer to make to potential customers in a new DH area. If the trust and general interest in joining DH is low, the up- front payment would still have an effect, but it would not address the principal risks of the project. In this case, the DH Figure 2: Changing the up-front payment has an impact and can be a valuable tool, but the correct use depends on the circumstances – an illustration based on experience and analyses.
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