September 5, 2018

Outsourcing district heating benefits municipalities

Many municipal energy companies are currently looking into ways to develop the district heating system and their customer service to meet the needs of municipal residents while at the same time being faced with rising oil and natural gas prices.

“Statutory tasks, i.e. education and social services, are at the core of municipalities’ expertise, but they are not necessarily that focussed on energy production and its development,” says Elli Ikonen, the Account Manager in charge of Adven’s district heating business.

Small companies may lack not only expertise but also equity capital. This has prompted municipalities to consider whether it pays to take a loan and commit municipal residents’ tax money to investments required for district heating. Is energy production in general something that a public actor should be tasked with?

When does it pay off to outsource district heating?

“If it is clear that investments are needed in a municipal energy company, it is worthwhile to weigh the options. For example, when heat production is based on natural gas or oil and the objective is to reduce the carbon footprint, fossil fuels must be replaced with something else – usually domestic wood,” says Ikonen.

A company specialising in energy production is in a position to invest in developing technology and know-how on an altogether different scale. Adven has a wealth of experience in renewable biofuels and developing municipal energy production. Oil has been largely replaced by carbon-neutral wood-based fuels. The use of less expensive wood has also been reflected in the price of district heating for Adven’s customers.

“In many municipalities, agricultural and industrial by-products could be used in heat production. For a player like Adven, development projects requiring special expertise and a more comprehensive understanding of energy systems are entirely possible,” Ikonen says.

Other arguments in favour of outsourcing district heating are being able to offer customer service that meets current demands, or a need to invest in remotely readable meters, the monitoring of consumption data or online transactions.

Who will benefit?

Ikonen understands the concerns that the outsourcing trend may raise: when energy production is entrusted to a larger company, the impacts on personnel and on the municipality’s finances must be considered. It is true that the decisions require detailed calculations extending long enough into the future, taking into account the municipality’s other investment needs, for example.

However, the markets are fair: people make their choices and companies need to bring their A game. Adven’s energy plants’ centralised 24/7 remote monitoring and competent personnel, in terms of both operating the plants and customer service, enable top service regardless of the location of the network. In Parikkala, where Adven recently took charge of the municipality’s energy production, continuous operation is guaranteed by an on-call service team.

It is good to note that heat production cannot be outsourced to low-cost countries; local personnel is always required. When working for a larger company, local employees can take part in a new kind of competence development, and they are backed by a larger expert network.

What about the price of district heating?

The heating bill of municipal residents is mostly made up of the fuel price. When it comes to putting fuels out to tender, a bigger buyer is naturally in a better position than a small one.

“Adven is not committed to specific fuel suppliers; we are constantly looking for the best options. We can choose the supplier based on both the price and sustainability,” Ikonen explains. “This approach will also benefit the customer. When choosing energy modes, price is a significant factor, followed by reliable service. Our sourcing approach promotes stable price development.”

The price of district heating is always determined locally, and heat producers relying solely on fossil fuels face the highest pressure to raise prices. However, the investments required for using domestic fuels can pose a major challenge.

Did you know?

Adven assists municipalities in evaluating various energy production models in order to find the best option in each case. A municipality can, for example, continue to own the district heating plant buildings but outsource the business. Alternatively, the municipality can sell its energy plants but continue as the owner of the district heating network.

Read more:

Adven took over the Parikkala municipality’s district heating business

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