Is it a good idea for municipalities to manage their own energy production, or should the money be directed elsewhere?
Several million euros are spent annually on municipalities’ energy production. Other uses could be found for this money, as many municipalities have many development projects to focus on. Municipalities that partner up in their energy production have more opportunities to influence their energy production and the cost of it, through various contractual models. Index-linked prices, for instance, are transparent and predictable.
In Finland many municipalities own district heating networks and boiler houses. This means that millions and often even tens of millions of euros of capital is tied up in energy infrastructure, even though energy production is not necessarily one of the core tasks of municipalities. The aging equipment may be nearing the end of its life cycle and require additional investments and is perhaps not quite in line with today’s energy-efficiency standards, not to mention emission-reduction possibilities.
Environmental requirements must be met – who will invest?
When energy production or maintaining energy infrastructure is not part of a municipality’s core tasks, it often means that investments in the latest technology to improve energy efficiency and reduce emissions have not been made. It is also possible that even basic repairs have been postposed as investments are put on hold for extended periods. The repair backlog for energy production equipment has grown.
If a municipality assigns its energy production to a partner like Adven, what does this mean in practice? It means that the money that is tied up in energy infrastructure is freed up for the municipality to use for other purposes. In addition, Adven assumes overall responsibility for the municipality’s energy production: the required investments, the environment, emissions, operation and maintenance, energy efficiency and, of course, operational reliability and possible risks.
A partner in implementation; pricing remains the municipality’s responsibility
If the fear is that the district heating costs of the municipality’s residents will rise, a good option for the municipality is to bear responsibility for the pricing of the end customers’ district heating. Adven will draw up a wholesale heating agreement, in which, for example, the price of the energy to be supplied to the district heating network is tied to a specific index that follows the development of the general price level and fuel prices. Fuels can also be procured on the open book principle, whereby the municipality’s local fuel production is utilised co-operatively. The prices are thus transparent and predictable. The municipality is left with the decision of what price level to set for its residents.
Advantages of different agreement models for municipalities in Finland
1. Wholesaling: Adven purchases the energy production equipment from the municipality, but the municipality retains the customer accounts. Not only is the municipality’s capital freed up, but at the same time, it can decide on what price to set for the end customers’ heating.
2. Business divestment: Adven purchases all of the municipality’s energy production equipment and district heating network, and also takes over the customer accounts. The municipality benefits from the freed-up capital and account management. Long contractual periods guarantee that the municipality’s success is as important to Adven as it is to the municipality itself.
3. Joint venture: A limited liability company is established for energy production, with a certain share of ownership divided between the municipality and Adven. Both parties invest their expertise and capital in developing the operations. The agreement can specify who decides on the pricing of the end customers’ district heating. The municipality continues to retain part of its energy production, but benefits from Adven’s energy industry expertise and a development partnership.
You can read about the Parikkala municipality’s experiences when Adven assigned for its district heating business.
Partnership with us never means individual projects. Rather than short-term agreements, we always enter into long-term agreements that often extend for more than 15 years. Our entire business logic is based on our customers’ future success. And the more efficient, cost effective and high-quality energy production we can provide to our customers, the better their performance will be.
Adven is ready to invest in the municipal sector and to make a decades-long commitment to keeping municipalities thriving. If you are interested and would like to know more, leave us your contact information!
The writer, Leo Toivonen, is a Sales Manager at Adven.