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Value Management - Overcoming barriers to smarter heat solutions in UK homes - Annex 3d: Elements of business model offerings


Citation Frontier Economics Value Management - Overcoming barriers to smarter heat solutions in UK homes - Annex 3d: Elements of business model offerings, ETI, 2015. https://doi.org/10.5286/UKERC.EDC.000505.
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Author(s) Frontier Economics
Project partner(s) Frontier Economics Limited
Publisher ETI
DOI https://doi.org/10.5286/UKERC.EDC.000505
Download SSH_SS1401_11.pdf document type
Associated Project(s) ETI-SS1401: Smart Systems and Heat (SSH) Programme - Value Management and Delivery
Associated Dataset(s) No associated datasets
Abstract This project studied how value can be delivered across a smart energy value chain - in the context of the UK. It built a clear understanding of how smart energy systems can deliver combined consumer value alongside commercial value for market participants - producers, suppliers, distributors. The analysis will help to make the commercial deployment of smart energy systems more likely. This £600,000 project was delivered by Frontier Economics, a leading economic consultancy.

The final report has 11 annexes. This is Annex 3d: Elements of business model offerings

In this work, we have considered how business models may be able to overcome barriers to the uptake of low-carbon heating interventions. Business model providers offering such interventionsmay be able to incorporate various additional elements (for example, contracts that reduce risks) to make the overall proposition more attractive for consumers.However, consumers may also be able to obtain these types of service alongside incumbent technologies such as gas boilers.

In this annexe, we explore the extent to which various business model elements can enable low-carbon interventions to be more competitive.

Overall, the analysis in this section suggests that many barriers to smart systems and heat intervention take-up can be mitigated through an “outcomes provider” business model, which combines elements such as risk reduction, access to finance, and access to information. These will tend to increase the attractiveness of low-carbon interventions relative to the alternative of keeping heating incumbent technologies and avoiding retrofits.Two business model elements in particular may improve the proposition provided by heat pumps compared to gas boilers.
  • Providing fixed-bill contracts
  • Using heat pumps and HEMS to provide DSR servicesto entities such as suppliers, DNOs, and National Grid.
However, it is far from certain how effective such business models would be. The costs and benefits of fixed-bill contracts are difficult to quantify (they depend on consumer behaviour in the presence of uncertainty, which as explained in annex 3a, does not lend itself to bottom-up modelling). The gains from DSR to a household might be less than £50 per year,which seems small in the context of the wider barriers to take-up. Finally, these contracts do not address the barriers to insulation take-up even though (as discussed in the main report), this is likely to be a significant problem for many households.

This document was prepared at the time to contribute to ETI internal thinking and planning only.