preparing a business plan for a district heating project agenda · 2016-04-21 · smartreflex wp3...
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SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Agenda
• Competitiveness of district heating
• Business Model Generation – a template
• Customer contracts – legislation and guidelines
• Articles of association – guidelines
• Measurement – methodology and examples
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Competitive heat supply
Trends in heating Danish homes by different fuels and technologies. Note: Insignificant uses of solid fossil fuels are not shown, nor is
electric heating, which is being phased out in Denmark. NG, biomass, and oil are shown as primary energy supply;...
Anna Chittum , Poul Alberg Østergaard
How Danish communal heat planning empowers municipalities and benefits individual consumers
Energy Policy, Volume 74, 2014, 465 - 474
http://dx.doi.org/10.1016/j.enpol.2014.08.001
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Competitive heat supply
Total annual cost to heat average Danish 130 m 2 house with annual heat demand of 18.1 MWh, with three different heating
resources. Note: The cost for oil-fired central heating is based on a boiler efficiency of 85% and annual O&M costs of 333€...
Anna Chittum , Poul Alberg Østergaard
How Danish communal heat planning empowers municipalities and benefits individual consumers
Energy Policy, Volume 74, 2014, 465 - 474
http://dx.doi.org/10.1016/j.enpol.2014.08.001
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Financing
Financing
Municipalgurantees
Interest rates are below 1 % for most projects
more than 1 billion DKK/yearto Danish DH companies
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Business Model Generation, presentation of tool
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Business Model Generation, the elements – step by step
Business Model Generation
1 Customer segment To whom are we creatingvalue?
To…
2 Value proposition What is the gift for the customer?
Heat supply…
3 Channels Through which channels canwe reach our customers?
Communication…
4 Customer relationship What type of relationshipshould be established?
Co-ownership?
5 Revenue streams Customers’ willingness to pay?
Customers currentexpenses…
6 Key resources Necessary to deliver the value/the product
Energy resources…
7 Key activities Which key activities arecrucial?
Permits…
8 Key partnerships Which partnerships arecrucial?
Who can support?
9 Cost structure What is the cost of providingthe value to the customer?
Cover costs, tariffs
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Business Model Generation – the elements
1 CS
Customer segment
For whom arewe creatingvalue?
Who are our most importantcustomers?
Customer segment types
Mass market, niche market, segmented, diversified, multi-sided platforms
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Business Model Generation – the elements
2 VP
Value proposition
What value do wedeliver to the customer?
Which one of our customer’sproblems are we helping to solve?
What is the reason whythe customer choosesyour company?
Each value proposition consists of a selected bundle of products and/or services
Attributes Customization, ”getting the job done”, design, brand/status, price, cost reduction, risk reduction, accessibility, convenience/usability
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Business Model Generation – the elements
3 CH
Channels
Through whichchannels do ourcustomer segments want to be reached?
How are we reachingthem now?
Communication, distribution and sales
Channel types Own channels (direct)
Partner channels(indirect)
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Business Model Generation – the elements
4 CR
Customer relationship
What type of relationship does eachof our customersegments expect us to establish and maintain?
Relationships are establishedthrough different channels
Influence the overall customerexperience
Types of customerrelationship
Transactional, long-term, personal assistance, dedicatedpersonal assistance, self-service, automated services, communities, co-creation, switching costs
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Business Model Generation – the elements
5 RS
Revenuestreams
The ways your compantgenerates cash from each customer segment
How much does eachrevenue stream contributeto overall revenues in percent of total?
For what value are ourcustomers really willingto pay?
How would they prefer to pay?
Types of revenue stream Asset sale, usage fee, subscription fee, lending/renting/leasing, licensing, brokerage fees
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Business Model Generation – the elements
6 KR
Keyresources
The most importantassets required to makeyour business model work
What key resources do our value proposalrequire?
Our distribution channels? Customer relationships? Revenuestreams?
Types of key resources Physical, intellectualproporty, human, financial
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Business Model Generation – the elements
7 KA
Keyactivities
Most important actions your company must perform to operatesuccessfully
What key activities do our value proposition require?
Our distribution channels? Customer relationship? Revenuestreams?
Key activity types Production, problem solving, platform/network
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Business Model Generation – the elements
8 KP
Keypartnerships
Who areour keypartners?
Who are our keysuppliers? Which keyresources are wereqiuring from partners?
Keypartnershipmotivations
Optimisation and economy of scale
Reduction of risk and uncertainty
Acquisition of particularresources and activities
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Business Model Generation – the elements
9 CS
Coststructure
What are the most important costs inherentin our business model?
Which key resources are most expensive?
Which key activities are most expensive?
Classes Cost driven
Value driven
Types of costs Fixed costs
Variable costs
Attributes Economies of scale
Economies of scope
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Preparing a Business Plan for a District Heating Project
Business Model Generation, the elements – summing up
Business Model for DH in Italy
1 Customer segment
2 Value proposition
3 Channels
4 Customer relationship
5 Revenue streams
6 Key resources
7 Key activities
8 Key partnerships
9 Cost structure
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Key Aspects of District Heating Customer ContractsLegislation
Regulationon connection
Two options for applying mandatory connection to DH in Denmark
Heat supply act
New buildings
Local planning act
Existing and new buildings
No mandatory off-take (variable payment)
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Key Aspects of District Heating Customer ContractsRecommendations from Danish District Heating Association
Recommendedtotal scope of agreementsbetween the DH utlity and the customer
The contractrelations aresubject to all relevant legislation, including decisions made by authoritiesincluding the courtof law.
Articles of association
Contract conditions for DH supply (elaborated)
Technical conditons for DH supply
Tariff sheet
Agreement on DH supply
Welcome letter
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Key Aspects of District Heating Customer ContractsRecommendations from Danish District Heating Association
Guideline on contractconditionsfor DH supply
Developed since1984
In cooperationwith relevant authorities and DH utilities
Applicable to consumer-ownedas well as municipal DH utilities
Special regulationmay apply for the municipal utilities
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Key Aspects of District Heating Customer ContractsRecommendations from Danish District Heating Association
Scope of guideline
50 pages
Establishment or change of DH supply
Operation and maintenance of equipment
Tariffs
Measurement of DH consumption
Payment
Example of contract on DH supply)
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Key Aspects of District Heating Customer ContractsRecommendations from Danish District Heating Association
Who is the customer?
If technicallypossible, i.e. if a closable connectionand a separate heat meter can beestablished
The DH utility is obliged to establish a directrelationship with the consumer
Regardlesswhether the consumer is owner or tenant
Historically the DH supply has beenbased on agreements between the DH utility and the owner
Change of the the Heat Supply Act in 1997; equal status of owners and tenants
Consequently, payments due are only relevant for the single customer – nolonger the owner
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Key Aspects of District Heating Customer ContractsRecommendations from Danish District Heating Association
Establishment or change of DH supply
DH supply can beestablished
Provided that it is in line with localplanning
Technically and economically feasible
Connection fee; twoelements:
Payment for investment
Payment for connectionpipeline
Connection pipeline and main valves
Until the inside of the outer wall of the customers building
Established, owned and maintained by the DH utility
No longer a customer; principle of ”cleaningup” in economic terms
Only in case there is no mandatory connection
Due payments; consumption, disconnection, capacity
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Key Aspects of District Heating Customer ContractsRecommendations from Danish District Heating Association
Operation and maintenanceof equipment
House installation (heating and hot tap water)
The consumer is responsible for maintenance as regardssafety, operation and regulation
Only authorisedpersons should workon the house installations (”FjR-ordningen.dk”)
Mandatory supply, necessarymaintenence with and without notice
Subject of commonregulation in Danish law
No responsibilitytowars commercialcustomers’ operationallosses
DH utility canchange supplyterms; pressure and temperature
Expenses for the customer payable by the customer
In some cases right to get out of the agreement withoutrelated payments
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Key Aspects of District Heating Customer ContractsRecommendations from Danish District Heating Association
Tariffs The DH utility elaboratesthe tariffs
In accordance with the authorities’ guidelines
The consumer is obligedto inform the utility aboutany changes with influence on the payment
E.g. change of buildingarea or change from residential to commercialuse
The DH utiliy is obliges to inform the customers(with direct contract) about tariffs and changes
By direct contact (mail or e-mail) and on the webpage of the utility
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Key Aspects of District Heating Customer ContractsRecommendations from Danish District Heating Association
Measurement of DH consumption
The DH utility decidesthe necessaryequipment, includingnumbers, size, type and location
Main heat meter is owned and mainined by the DH utility
Secondary meters is no concern of the DH utility
Reading of meters Automatic reading, announced by the DH utility
Self-reading by the customers
Missing or unlikelyreading of meters
Billing can bebased on calculatedconsumption
DH utility i responsible for Functioning of main meters
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Key Aspects of District Heating Customer ContractsRecommendations from Danish District Heating Association
Payment The DH utilitydecides
On accountpayments(e.g. monthly or quarterly)
Can bedifferentiated
In case of missing payments
Standard fees
Procedure includes: closing DH supply after31 days
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
Key Aspects of District Heating Customer ContractsRecommendations from Danish District Heating Association
Exampleof contracton DH supply)
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Organise and Develop a District Heating Company
Guideline from the Danish District Heating Association
Standard articles of association
In 1963 standard articles of association issued by the State
Many municipalitiesissued loanguarantees to private DH companies
Developed since1985
In cooperation with relevant authoritiesand DH utilities
Applicable to consumer-owned DH utilities
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Organise and Develop a District Heating Company
Guideline from the Danish District Heating Association 1/2
Scope of standard articles of association
59 pages
Name, office of the company
Shareholder company with limitedliability
Purpose and supply area Non-profit, conditional taxexemption
Shareholders, consumers Shareholders, ”non shareholders” consuming heat e.g. tenants and ”non shareholders”
Share capital, shareholdersliability and economicresponsibility
1) No share capital (most common) 2) Payment, only liable for paidamount
Conditions of withdrawal Possible provided payment of due payments, related costs and shareof capacity
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Organise and Develop a District Heating Company
Guideline from the Danish District Heating Association 2/2
Scope of standard articles of association
59 pages
General assembly Votes proportional to heat consumption to someextend
Board Eligible: shareholders, heat consumers etc. and oneappointed by the council
Management of the company
Sets the tariffs, Board members can be held personally responsible
Accounting and revision
Auditor elected by the general assembly
Dissolution of the company
Can be decided by the general assembly only
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Why measure heat consumption, main principles
Why measure heat consumption?
How to measure – generations
Flow
Energy (flow and temperature)
Basis for tariffs Motivational tariff –what is that? (Examplefrom Esbjerg)
Smart energy Common with other utility services; water and electricity
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Why measure heat consumption, main principles
http://www.esbjergforsyning.dk/selvbetjening/aarsafkoeling.html
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Aarhus (production)
http://www.aarhus.dk/sitecore/content/Subsites/affaldvarmeaarhus/Home/Varme/Varmeplan-Aarhus/Varmeproduktion.aspx?sc_lang=da
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Considerations of variations in heat load patterns
”To measure is to know!”
Daily variations in district heating systems are low
Only about 5 % of the heat is abovethe daily average heat load in annualbasis
The district heating network has both less daily and seasonal heat load variations than the aggregatedheat loads of the customers
Daily variations are to a large extendsocial heat loads
Geographical diversity
Heat load patterns in customercategories
No standard heat load patterns
Large variations in heat load patterns among different customer categories
”To measure is to know!”, Henrik Gadd, 2012, Licentiate Dissertation, Lund University, Sweden
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Different types of customer relationship
Interface betweendistrictheating companiesand heat customers
CustomerSigns the contract
Is invoiced for the heat
Detached housesOne person is owner, heat user and customer
Multi-dwelling housesHeat included in the rent, i.e. the landlordpays for the heat and is responsible for the heat supply
The tenants are heat users
Larger complexes of multi-dwelling buildings
Substations in each building or a secondary supplysystem
Heat may be included in the rent
Risks in case of incorrectheat load
Inappropriate investments
Reduced competitiveness
Loss of customers
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Ringkøbing
Background and scope
In Ringkøbing: meters from 1995, batterychange in 2015, noremote reading
Alternative: ”drive by” reading(”garbage truck”)
New project including 8 utilities (includingmulti-utilities), heating, electricty and water
113 million Euro
170.000 meters
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Ringkøbing
Purpose (consumers) Portal for
consumers
Easy reading
Data availability (user-web)
Better communication
Services
Energy savings
Alarms
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Ringkøbing
Purpose (utility) Portal for
technicians
Data for operation, GIS data
Analyses, overview,
Optimisation of temperature in the network
Minimise/reduce leakages in the network
Correct and easy decision on renovation of the network
Easy administration
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Ringkøbing
Purpose (utility)
Cooperationwith otherutlities
Common communication network
One user-web for electricity, water and heating
Joint organisation of the installation
Lower prices due to large tender of meters, communication network and web-solutions
Lower operation costs
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Ringkøbing
Investment Heat meters 2.000-2.500 DKK/meter
Communication module in the electricity meter
Communication network
Web solutions
Handling of data
Installation of meters
Total operation costs 50 DKK/meter
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Ringkøbing
Technicians Data for SRO
GIS data
Optimal temperature in the network
Reduce network losses
Support for decision on renovation of network
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Ringkøbing
Consumers Consumption of electricity
Consumption of heat
Consumption of water
Invoices
Advice on savings
News
Own information
Benchmarking according to building type (BBR)
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Ringkøbing
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Ringkøbing
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Ringkøbing
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Ringkøbing
Ownership Buy the system
Decides on development
Standard platform, which can bedeveloped by the utilities
SmartReFlex WP3 Capacity Building for Stakeholders Bologna 19 April 2016Capacity Building on organisational & financial issues Morten Hofmeister
How to Manage Heat Distribution Monitoring and Payment of Heat Supply
Example from Ringkøbing
Portal for consumersBilling
systems
Portal for techniciansGIS-data
SRO data
Data collection Dataserver with webpage