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The Energy Services Company (ESCo) as business model for heat entrepreneurship-A case study of North Karelia, Finland

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  • Suhonen, Niko
  • Okkonen, Lasse

Abstract

Energy Services Companies are widely implemented for improving energy efficiency both in the public sector and industry. The model has also been introduced as a business model for biomass-based heat entrepreneurship. However, the residential sector has been problematic with regard to ESCo adoption and constitutes a minor share of ESCo operations. The barriers, both social and economic, are many. This paper focuses on the application of ESCo as a business model for heat entrepreneurship in Finland. First, we present the ESCo model and a review of the main barriers. Second, we present the modelling with aspects of profitability and risk sharing. Third, we demonstrate the operation in the residential sector by using 26 housing associations as a case study. We simulate the energy investment, profitability of operation, and the sharing of risks between the customer and the ESCo. The results indicate that the ESCo model is challenging in our case area. Low profit levels and the assumed customer's preference for achieving cost savings from the beginning of energy renovation can result in long contract periods tying up the capital. The ESCo model is unattractive in the current business climate, requiring modifications or integration with other maintenance services of housing associations.

Suggested Citation

  • Suhonen, Niko & Okkonen, Lasse, 2013. "The Energy Services Company (ESCo) as business model for heat entrepreneurship-A case study of North Karelia, Finland," Energy Policy, Elsevier, vol. 61(C), pages 783-787.
    • Handle: RePEc:eee:enepol:v:61:y:2013:i:c:p:783-787
    DOI: 10.1016/j.enpol.2013.06.047
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    5. Polzin, Friedemann & von Flotow, Paschen & Nolden, Colin, 2016. "What encourages local authorities to engage with energy performance contracting for retrofitting? Evidence from German municipalities," Energy Policy, Elsevier, vol. 94(C), pages 317-330.
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    8. Juha Laitila & Robert Prinz & Lauri Sikanen, 2019. "Selection of a chipper technology for small-scale operations - a Finnish case," Journal of Forest Science, Czech Academy of Agricultural Sciences, vol. 65(4), pages 121-133.
    9. Daniel Wacinkiewicz & Szymon Słotwiński, 2023. "The Statutory Model of Energy Performance Contracting as a Means of Improving Energy Efficiency in Public Sector Units as Seen in the Example of Polish Legal Policies," Energies, MDPI, vol. 16(13), pages 1-15, June.
    10. Yao, Xing & Zhong, Ping & Zhang, Xian & Zhu, Lei, 2018. "Business model design for the carbon capture utilization and storage (CCUS) project in China," Energy Policy, Elsevier, vol. 121(C), pages 519-533.
    11. Klinke, Sandra, 2018. "The determinants for adoption of energy supply contracting: Empirical evidence from the Swiss market," Energy Policy, Elsevier, vol. 118(C), pages 221-231.
    12. M. Ajide, Folorunsho & A. A. Soyemi, Kenny, 2022. "Oil rent, entrepreneurial start-ups, and institutional quality: Insights from African oil-rich countries," Working Papers 20, Department of Economics, University of Ilorin.
    13. Fang Dong & Chengdong Shi & Weitong Yu, 2022. "Coordinated Decision-Making in Embedded Supply Chain from a Sustainable Development Perspective," Sustainability, MDPI, vol. 15(1), pages 1-19, December.
    14. Bertoldi, Paolo & Boza-Kiss, Benigna, 2017. "Analysis of barriers and drivers for the development of the ESCO markets in Europe," Energy Policy, Elsevier, vol. 107(C), pages 345-355.
    15. Hyein Yi & Sanghyo Lee & Jaejun Kim, 2017. "An ESCO Business Model Using CER for Buildings’ Energy Retrofit," Sustainability, MDPI, vol. 9(4), pages 1-21, April.
    16. Beccali, Marco & Bonomolo, Marina & Ciulla, Giuseppina & Galatioto, Alessandra & Lo Brano, Valerio, 2015. "Improvement of energy efficiency and quality of street lighting in South Italy as an action of Sustainable Energy Action Plans. The case study of Comiso (RG)," Energy, Elsevier, vol. 92(P3), pages 394-408.
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