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The heating plant became a commodity
Varmalämmitys Ltd has introduced a new business model to the energy sector: the company will provide thermal energy capacity as a service to Finnish heat producers, such as municipal energy companies and industry. What’s novel in the model is that the customer pays a monthly fee for using the heating plant but may sell or use the energy produced. The first concept-based heating plant will be built this year in Kälviä, located in western Finland.
Varmalämmitys supplies the boilers along with a 10- to 25-year energy supply contract. At its most comprehensive, the contract covers the design, construction, operation and maintenance of the heating plant. It is the customer’s responsibility to procure the building site for the plant and to specify how much heat is required for the district heating network.
“We will ensure throughout the contract period that the heating plant is working. It is up to the customer to decide how much responsibility they want to take for the plant. For example, the customer can take care of the maintenance themselves if they have enough staff for that. This of course means a smaller monthly fee. But planning and carrying out the annual maintenance work is always our responsibility,” says Laura Männistö, an expert at Varmalämmitys Ltd.
The service is easy and carefree for the customer: the monthly fee is the same for the entire contract period, which makes budgeting easier since the plant’s maintenance costs won´t cause any surprises.
The size of the heating plants ranges from three megawatts to up to 50 megawatts. The plants are manufactured in Finland using internationally recognized clean energy technology. As for the source of energy, the plants will use renewable fuels such as wood chips, bark and forest residues and, if necessary, other fractions that are not suitable for reuse in the circular economy.
The heating plants will be equipped with PlantSys, KPA Unicon’s digital service platform. PlantSys will digitalize and make transparent the lifecycle management of the plant. Mobile-operated fuel and maintenance services are available in real time and will make using the plant easy and reliable. Timely and readily available information on the plant’s maintenance and production conditions increases predictability.
PlantSys makes remote plant operation possible, allowing the plants to be connected to KPA Unicon’s service center in Haapavesi. From the service center, KPA Unicon will manage daily operations, and potential defects requiring manual repair will be resolved in co-operation with a local operator.
The service concept responds to The Medium Combustion Plant Directive of the EU, which requires heat producers to reduce emissions. This will require heat producers to invest in new technology or at a minimum to convert old technology to meet the tightening regulations. Investments in turn require capital and burden the profit and loss statement. However, the capacity fee of Varmalämmitys is recorded in the operating expenses of the company and therefore does not increase pressure to use loans.
For a customer, the partnership is a risk-free, cost-effective and reliable alternative. The concept enables the customization of the service according to the customer’s own needs. It also guarantees that there will be a reliable partner who is responsible for the heating plant for its entire lifespan.
“It’s not necessary for municipal energy companies to spend capital on infrastructure. With this service, energy companies can reduce their business risks and focus on their core business—energy distribution and sales. We free up capital for other needs,” says Aleksi Graan, Chairman of the Board of Varmalämmitys Ltd.
Varmalämmitys is supplying its first plant to Kokkolan Energia Ltd. The plant has a capacity of 3 megawatts, and it will be completed in autumn 2019. In the early stages, the aim of Varmalämmitys is to procure 15–20 customers.
Varmalämmitys Ltd is a joint venture between Infranode, a Nordic infrastructure investor and KPA Unicon Ltd, a Finnish boiler supplier. Infranode is responsible for project funding, and KPA Unicon is responsible for the design, construction and operation of the heating plants throughout the contract period.
Infranode’s goal over the next few years is to invest in Finland through Varmalämmitys, using around 100 million euros of capital from the following sources: LähiTapiola, the European Investment Bank and some Nordic pension insurance companies.
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The heating plant became a commodity
a new service concept is breaking the traditions of the energy sector