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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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    References listed on IDEAS

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    1. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    2. Okkonen, Lasse & Suhonen, Niko, 2010. "Business models of heat entrepreneurship in Finland," Energy Policy, Elsevier, vol. 38(7), pages 3443-3452, July.
    3. Schoemaker, Paul J H, 1982. "The Expected Utility Model: Its Variants, Purposes, Evidence and Limitations," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 529-563, June.
    4. Bertoldi, Paolo & Rezessy, Silvia & Vine, Edward, 2006. "Energy service companies in European countries: Current status and a strategy to foster their development," Energy Policy, Elsevier, vol. 34(14), pages 1818-1832, September.
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    Citations

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    Cited by:

    1. Kindström, Daniel & Ottosson, Mikael, 2016. "Local and regional energy companies offering energy services: Key activities and implications for the business model," Applied Energy, Elsevier, vol. 171(C), pages 491-500.
    2. 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.
    3. Helms, Thorsten, 2016. "Asset transformation and the challenges to servitize a utility business model," Energy Policy, Elsevier, vol. 91(C), pages 98-112.
    4. repec:eee:enepol:v:107:y:2017:i:c:p:345-355 is not listed on IDEAS
    5. repec:gam:jsusta:v:9:y:2017:i:4:p:591-:d:95606 is not listed on IDEAS
    6. 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.
    7. Majbouri, Mahdi, 2016. "Oil and entrepreneurship," Energy Policy, Elsevier, vol. 94(C), pages 10-15.

    More about this item

    Keywords

    ESCo; Heat entrepreneurship; Business model;

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