Business plan for Lund

Kraftringen Energi Ltd has set up a business plan for the LTDH in the city district Brunnshög in Lund. We asked Sara Kralmark and Klara Ottosson from Kraftringen to summarize the business plan development.

What is the main purpose of the deliverable?

The purpose has been to look into new possible price models and contract boundaries for LTDH. Furthermore, the goal has been to develop and present a business model that is optimal for the LTDH in the demonstration area Brunnshög in Lund, promoting energy efficiency, flexibility in supply options (e.g. from local renewable energy sources) and ensuring low return temperatures.

Tell us about the challenges in constructing the Brunnshög business model!

In Brunnshög, the main LTDH heat source is the large research facility MAX IV, whose cooling and heat recovery central is owned and operated by the utility Kraftringen. Kraftringen has the ambition to make the performance of the waste heat recovery at the MAX IV energy central as efficient as possible, a mission that requires a good business model.

One of the main challenges with the LTDH in Brunnshög is that the network will have significantly fewer customers than the conventional DH network in Lund. This means that each customer will have a greater impact on the system than traditionally. Thus, it will be of importance that the price model encourages well-functioning substations, giving low return temperatures – preferably around 35 °C. Also, the price per MWh needs to cover Kraftringen’s LTDH investment at 65 °C supply temperature in a reasonable pay-back time.

Another challenge is that the LTDH in Brunnshög has relatively large and early investments, which makes it especially important to process and secure customer relations and supply agreements in early stages. Since DH is already generally trusted to be a reliable and sustainable heating option, the way to create good customer relations is less about the technique and more about good customer service as well as  transparent and fair price models that are simple to understand.

In general words, how is Kraftringen’s business model constructed?

The business model is composed of a numerical part – a price model – describing cash flows, as well as a theoretical part which concerns the understanding of the customers and their needs. The theoretical part is described more in the report. The price model of Kraftringen’s LTDH is constructed so that all customers are charged with a connection fee based on the gross floor area (GFA) of the connected building. In addition, they pay a minimum energy price, supplemented by an increasing return temperature fee that is divided into three levels (the higher the return temperature, the higher the price):

• ≤ 20 °C no return temperature fee
• 20 – 35 °C temperature fee increasing by a fixed “level one” amount of SEK per °C
• 35 – 55 °C temperature fee increasing by a fixed “level two” amount of SEK per °C

The price model is self-regulating so that the customers never pay less than the minimum energy price, and never more than the energy price plus the maximum “level two” return temperature fee (which is the price at ≥ 55 °C return temperature). At a return temperature of 35 °C the total energy cost becomes just enough to cover Kraftringen’s LTDH investment at 65 °C supply temperature in a reasonable pay-back time. This price model is believed to give the customers plenty of incentives to decrease their return temperatures to a satisfying level.

What happens now?

Kraftringen is continuously talking to potential customers at Brunnshög, offering them to connect their buildings to the LTDH network.

Read the report

Since this is a confidential report, you will not be able to download it. However, if you are interested in learning more, please contact Sara Kralmark (sara.kralmark@kraftringen.se) or Klara Ottosson (klara.ottosson@kraftringen.se) at Kraftringen Energi Ltd.