The Development of a Business Model for Exploiting Geothermal Energy: A Finnish National Project

The Development of a Business Model for Exploiting Geothermal Energy: A Finnish National Project

Esa Stenberg (University of Turku, Finland)
DOI: 10.4018/978-1-61350-344-7.ch011

Abstract

This chapter analyzes the development of a business model for exploiting geothermal energy. There are a number of small and large firms operating in these markets, but the main challenge facing renewable energy is its commercialization. Developing new types of business models would help in meeting such challenges. The focus is on the Finnish national development project for exploiting geothermal energy. There is obviously growth potential for this energy form in Finland, given that the share of geo-energy of all energy consumption is one percent compared to 10 percent in Sweden, and that the geological environment in the two countries is quite similar. The chapter begins with a discussion of the geo-energy business in general. The empirical part describes the business models of various operators in this field, based on Osterwalder’s (2007) business-model configuration. The product concepts, partnership networks, added value, target groups, customer relationships and costs and revenues are analyzed through these pilot case studies.
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Introduction

The aim in this chapter is to show how an underexploited renewable energy form can be brought closer to the commercialization stage through analyzing the business models of the various operators in connection with a publicly funded development project. The major concerns are: (1) There is a large number of small and large firms operating in various energy sectors, but there are almost no network-based business models; (2) There are advanced technologies in the geothermal energy sector, but the main challenge still lies in their commercialization.

Finland as a member of the European Union is committed to the EU goals of increasing the share of renewable energy by 20 percent, reducing greenhouse gas emissions by 20 percent, and improving energy efficiency by 20 percent by the year 2020. The EU’s objective is to have cleaner, more secure and more competitive energy in the future. Among the EU-27 the current share of renewable energy of all energy consumption is 8.5 percent, hence the performance gap to be filled is 11.5 percent. The targets vary by member state, depending on the country’s starting point and income level. The national target of Finland is to increase its share from 28.5 percent in 2005 to 38 percent by 2020. The development of a market for renewable energy sources and technologies will support national, regional and local development, export prospects and employment opportunities, especially among small and medium-sized undertakings and independent power producers. It seems obvious that political and social demands for renewable energy will continue to increase, and the increasing costs of traditional generation and the potential price of carbon will make it increasingly attractive. However, different tariff regimes and levels of political backing will result in different levels of growth in different countries. Moreover, there are several barriers impeding the wide-scale deployment of renewables: relatively high costs, performance validation and experience, market inertia and risk adversity, and infrastructure limitations (Peterson, 2008).

According to Lund (2009), currently the main challenge in developing renewable energies is to reduce the price to a competitive level. In practice the higher price needs to be compensated by government subsidies in order to enable market penetration. Alternatively, traditional energy sources need to be penalized for not fulfilling societal goals, through internalizing their external costs, for example. Lund emphasizes the fact that public support is justified in terms of combating climate change, for example, but it is also a question of budgetary expenditure competing with other societal needs. It is therefore important to consider the effects of energy policies beyond their impact on energy and more in terms of their industrial impact. Among the most persuasive arguments for public subsidies are those related to the direct employment and export opportunities that energy, and in particular energy technologies, will generate.

Heating and cooling represent the largest energy market in Europe, larger than electricity and transport. Approximately 50 percent of the EU’s primary energy consumption is used for heating and cooling in buildings, domestic hot-water supply, and heat for industrial processes and the service sector, whereas the respective figures are 20 percent for electricity and 30 percent for transport (Renewable heating, Action plan for Europe, European Renewable Energy Council, EREC, 2007). Renewable energy sources currently account for only 10 percent of all heating and cooling. Renewable heating and cooling technologies (solar thermal, biomass, geothermal) could replace significant amounts of fossil fuels and electricity. Renewable energy sources (RES) used for heating and cooling purposes have attracted relatively little attention compared with those used to generate electricity and produce transport fuels. This is surprising because the demand for heat consumes the largest share of primary energy supply, and RES could offer a practical alternative to fossil fuels in many cases. The potential to increase the use of solar, geothermal and biomass sources for renewable-energy heating and cooling is therefore large (Jurczak, 2006). The specific focus of this chapter is on the increased exploitation of geothermal energy in Finland.

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