Criteria for attractive citizen-centered business models

Implementing innovations for more sustainable local energy systems does not only depend on the mere availability, usability or social acceptability of functioning technology. How various advantages and disadvantages are considered in a decision to do so depends on the values, interests, and norms of the decisionmaker. This balance of advantages and disadvantages however valued can be called a ‘business model’. This report explores the criteria for business models in the context of SERENE’s demonstrator sites and use cases. We map the new activities occurring in each use case (Research Question 1) and determine what citizens/representatives at each demonstration site value when deciding about which innovations to implement (Research Question 2). The data gathered for this report come from the available SERENE deliverables, other project documentation, and dedicated interviews held with representatives of the demonstrator sites. (Section 1)
In the past century, economic theory has developed several different perspectives on how business models can be constructed. These perspectives range from business-focused, micro-economic thinking (“Traditional business economics”, section 2.1), through thinking that incorporates costs and benefits external to the micro-economic context alone (“Social cost-benefit analysis”, section 2.2), a multi-dimensional approach involving different types of ‘capital’ (“Multiple value creation”, section 2.3), to a perspective also taking into account the not so tangible parts of innovation processes such as the efforts required for searching, negotiating, and implementing (“Institutional economics”, section 2.4). All of these approaches use mixtures of quantitative and qualitative parameters to evaluate costs and benefits of an innovation decision, albeit in different mixtures. We also give an overview of the different effects on costs and benefits some common sustainability interventions in the energy domain typically have. (Section 2)
The new activities mapped cover the areas of ‘organization and governance’ (Section 3.1), ‘energy mixes and energy services’ (Section 3.2), ‘flexibility and financial arrangements’ (Section 3.3), and ‘partnerships and contractual arrangements’ (Section 3.4). These areas cannot be seen separate from each other and represent analytical distinctions. For example, in the case of Hylke and Låsby, we see relatively traditional landlord-tenant relationships (albeit with different kinds of actors as landlords), and thus also similar developments in the area of contractual arrangements: the leases are adapted to incorporate the changes made to the energy system, either by increasing the rent or by changing the way in which heating costs are calculated (i.e. differentiated instead of fixed pricing). Similarly, in the Dutch use case of Aardehuizen the energy service provided by the new battery to be installed in the context of SERENE has an influence on the flexibility of the energy system within the community, but also vis-à-vis the general grid the community is connected to. In Przywidz, creating an energy cooperative is a possible option (organization and governance) that should allow the renewable-energy-generating inhabitants of the village use case (energy mixes and energy services) to work together with a mid- to large-scale photovoltaics energy producer close-by (partnership) and might even lead to discounts (financial arrangements). (Section 3)
Assessing the new activities at each SERENE demonstrator site through the lenses of the different ways of thinking about business models paints a diverse picture. First, we have found that the retrofitting projects for housing units from a social housing association (Hylke) and newly constructed homes (Låsby) have been predominantly approached via traditional business economics, in which financial attractiveness is key. The sustainability impacts, while naturally present, seem to play a subordinate role. Second, although the inhabitants in the Dutch use cases are limited in their financial means, we observed more of a multiple value creation approach combined with an awareness of transaction costs. In their decision-making, the inhabitants have an awareness of the environment (natural capital), value the well-being of their neighbours (human capital), and want to play a pioneering role in the direct vicinity of the municipality (social and relationship capital). Third, in Przywidz, decision-making about energy-related innovation also mostly comes down to traditional business economics, but as the municipality tries to take into account the interests of all different inhabitant groups there might also be a budding multiple value approach present. As can be seen, the way the costs and benefits are approached depends on the actor type central to the energy system innovation: businesses tend to value business economics, inhabitants have more freedom to incur financial costs while valuing unquantifiable capitals, and municipalities with a public task have to stick to their budget whilst also creating multiplier effects in lesser quantifiable capital domains. (Section 4)
Comparing the demonstrator sites use cases, we find a dominance of the traditional business economics approach in all except two. The two Dutch demonstrators use cases seem to rely more on a multiple value creation approach. It is possible to trace the dominant business model approach to the kind of actor that initiates the project. This also means that in most cases, apart from the Dutch demonstrators, a break-even point is the main criterion deciding on the feasibility of an energy system innovation. Mechanisms of cost recovery very much align to this image. Finally, there are risks of split-incentive problems in the use cases. Only in the Dutch use cases do the initiators of the projects and the beneficiaries overlap. (Section 5)
We can conclude that citizen-centred business models are currently perceived differently across the different demonstration sites in SERENE and that this is also related to how the role of the citizens in the project is considered. The criteria applied to a ‘good’ business model mostly revolve around the achievement of breaking-even in terms of costs and benefits, with some nuances. However, the role of the citizens in each demonstration site is relevant since there seems to be a difference in the kind of business model applied when citizens are in charge, versus when private, public, or semi-public organisations are leading. Given the traditional business economics approach in most of the SERENE demonstration sites, these need to take extra care to ensure that the innovation is actually citizen-centred. Finally, business models have different interpretations of what role a ‘citizen’ has: i.e., customer, fellow human being, or constituent. While in many cases a citizen is all of them at once, it makes a difference which values are emphasised with each of these ‘roles’. Whether it is possible to achieve sustainable energy systems by focusing solely on one of these, remains to be seen.