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Demand Side Management within Industry: A Case Study for Sustainable Business Models
Available online at www.sciencedirect.com
ScienceDirect Procedia Manufacturing 8 (2017) 270 – 277
14th Global Conference on Sustainable Manufacturing, GCSM 3-5 October 2016, Stellenbosch, South Africa
Demand side management within industry: A case study for sustainable business models D. Khripkoa*, S. N. Moriokab, S. Evansc, J. Hesselbacha, M. M. de Carvalhob1 a
Sustainable Products and Processes (upp), University of Kassel, Germany Production Engineering, Polytechnic School, University of São Paulo, Brazil c Centre for Industrial Sustainability (CIS), University of Cambridge, United Kingdom b
Abstract The transition of the German energy market is primarily based on RES. The main problem of RES like photovoltaic and wind power is volatile availability. This issue can be mitigated through enhanced flexibility of the demand. DSM can be an additional mechanism in smart grids. Energy intensive industry offers a high DSM potential that could be useful to the energy sector. New business models are required that combine economic viability with environmental and social benefits for various stakeholders operating in the energy sector and manufacturing industry. This research analyses opportunities for business model innovation through DSM in industry. The study presents two case studies in which the Value Mapping Tool was applied to identify failed value exchanges with respective stakeholders and DSM. The research proposes a new business model aligned with sustainable development principles that can help the industry to mitigate volatile energy availability in an economically sensible manner. 2016The TheAuthors. Authors. Published Elsevier © 2017 © Published by by Elsevier B.V.B.V. This is an open access article under the CC BY-NC-ND license Peer-review under responsibility of the organizing committee of the 14th Global Conference on Sustainable Manufacturing. (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the organizing committee of the 14th Global Conference on Sustainable Manufacturing Keywords: Sustainable business models; Demand side management; Sustainable Manufacturing; Value mapping tool
1. Introduction The energy consumption has a significant environmental impact and is a major reason for the increasing emissions of greenhouse gases (GHG). According to the IPCC, fossil fuel combustion and industrial processes contributed to about 78 % of the global CO2 emission increase between 2000 – 2010 [1]. In Germany the energy sector and the
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2351-9789 © 2017 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the organizing committee of the 14th Global Conference on Sustainable Manufacturing doi:10.1016/j.promfg.2017.02.034
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manufacturing industry caused 62 % of the total GHG emissions in 2014 [2]. As a result from the Kyoto Protocol agreements and the more recent nuclear incidents in Japan, Germany’s energy market is transitioning towards a sustainable and climate-neutral system [3]. This transition aims to achieve a stepwise reduction in GHG emissions of 95 % by 2050 [4]. The goals include the reinforcement of renewable energy systems (RES) on gross electricity consumption from 50 % in 2030 to 80 % until 2050 as well as increasing energy efficiency [4]. The latter is measured by amount of reduction in primary energy and electricity demand additionally to the raise of energy productivity and combined heat and power (CHP) generation. Changing the energy market is challenging, not only in terms of the regulations and operational processes, but also in regards to the structure of assets. The geographic characteristics of Germany create a “North-South” divide caused by the distance between the main location of the off-shore WP plants and the industrial centres [5]. Moreover, smaller PV and WP generation units are often deployed on the country side. The urgency to replace and to reduce dependency on fossil fuels demands the prioritisation of integration of RES into the public energy grid [6]. However, the volatile availability becomes a driving factor for the increasing fluctuation of residual load in the grid affecting transmission and distribution grids. According to the legal regulations, the transmission grid operators in Germany are responsible for the ancillary services and especially for the frequency control [7]. The procurement of necessary capacities is realised by operating a balancing energy market [7]. The distribution grid operators monitor the voltage [7]. In case of an unbalance between demand and generation, the equalisation occurs with other local grids or aggregates at the upstream grid levels. The conventional solution approach to these issues is grid expansion. However, in a smart grid decentralisation cannot only be focused on the generation side of the system. For a holistic approach of sustainable energy market a “smart customer” is also necessary. Demand Side Management (DSM) can be an additional important mechanism to pointedly use flexibility of the energy demand. Consequently, the transition of the energy market is linked to the technological developments as well as to reassignment of roles to the actors in the market. Furthermore, it establishes opportunities for new sustainable business models (BMs). This research aims to show the opportunities of innovation concerning more sustainable BMs in the energy market. It uses two companies as case studies, a mid-sized polymer processing manufacturer and a distribution grid operator, both located in the state Hesse in Germany. The application of the Value Mapping Tool (VMT) [8] gives support to the evaluation of failed value exchanges between the analysed company and its stakeholders. This leads to identification of innovation opportunities towards more sustainable BMs. By applying this tool to both companies with focus on energy supply and demand dynamics, opportunity for a new BM is derived and discussed. 2. Literature background and theoretical context In the following, the two main concepts used in this research are presented, bringing the main aspects regarding DSM and sustainable BMs in the energy sector. The DSM approach has its roots in the research of Gellings, who classified theoretically the measures for a strategic influence of the power load profile of electric utilities [9]. Currently, the raising energy costs are the main factor driving the industry to change the consumption behaviour. In Germany the annual peak load is a base parameter for billing grid usage expenses. In operating peak-load monitoring systems DSM is often used to smooth the load profile and is a part of internal energy efficiency strategies. Due to the fluctuating energy generation driven by WP and PV plants, DSM can be also used as a measure for the grid operator to equalize the load profile of the grid. In case of over-generation with purpose of a secure supply the extreme situation could require a disconnection of the RES from the grid. To avoid this, the consumption can be increased as a negative DSM capacity. The opposite is the positive capacity, which implicates that the demand can be reduced or the electric power generation could be increased. In a scenario in which energy systems shift towards sustainability, the usage of RES generated electricity should be raised. Hence, the demand side should be managed. For this reason the focus of the present research is on the measures at the consumer´s side. 2.1. DSM potential within industry Electric steel, metal and chemical processing as well as wood, paper and cement industries are sectors characterised by energy intensive processes with a potential for DSM of multiple hundred megawatts. In addition, the cross-sectional technologies for air conditioning, cooling and compressed air supply indicate a significant potential across all
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industries [10]–[12]. However, the identified potential varies considerably due to the definition of the boundaries of the balanced systems. Because of high capacities, this process flexibility is already partly used by the balancing energy market to control the frequency of the transmission grids. The raise in the percentage of RES in the generation mix affects distribution grids and requires demand side flexibility. Because of their energy demand, the mentioned industries and processes are typically connected to high voltage grids. Their capacities are not available for voltage control. There is a large amount of small- and medium-sized manufacturing companies (SME) in the distribution grids. Their potential spreads across different processes and machines. Thus, DSM potential aggregates from different production areas of a factory, as shown in the Figure 1. One alternative is to use battery technologies to store the electricity directly and to shift the power purchases on that way. However, battery technologies are neglected in terms of their current economic non-profitability. The second possibility for the DSM initiative is the roll out of CHP, which contributes significantly to the flexibility of a polymer processing site. The capability of change between electricity and natural gas as an energy source can be used by grid operators to relief the grids. Simultaneously, the usage of “green” power in times of over-supply reduces the emissions by primary energy demand. flex-supply
power-to-battery
power-to-system Operating system
Redundant system
power-to-storage P
power-to-product
With DSM Without DSM
Z Zeit
Figure 1: Measures classification for direct and indirect energy conservation in a factory [26]
Power is only an intermediate energy for many applications and is converted internally for the production of useful energy in the form of thermal energy or compressed air. Thermal energy and compressed air can be stored considerably cheaper than electric energy. The tolerances of the power demand without affecting the production processes are particularly high in thermal processes due to their inertia. The building services provide the DSM potential in two ways. The buffers as cold water tanks can be used as indirect electricity storages. Another approach is the installation of alternative electric conversion technologies as parallel systems. Thus, electricity substitutes fossil fuels such as natural gas, but these machines could also operate as generally required redundancy. Power-to-product contains special processes in the batch-mode that do not run continuously and their operation does not (or only slightly) affect the value change. They are relatively robust in their control. Their flexibility depends on material storages. E.g. these processes are washing and re-granulation of reject or drying of plastics. 2.2. Sustainable BMs in the energy sector A BM is defined as “a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business logic of a specific firm" [14]-p.3. BMs can be built considering the following elements: product, customer interface, infrastructure management and financial aspects [14]. Alternatively, a value-based approach on BMs indicates three main elements: value proposition, value creation & delivery system and value capture [15]. Traditionally, BMs are related to value delivered to customers [16]. In turn, sustainable BMs consider value exchange not only with customers but also with other relevant actors. This is because corporate sustainability is about meeting needs of both direct and indirect stakeholders including employees, pressure groups, communities, etc. [17]. Sustainable BMs can be seen as the representation of an organization's sustainable value exchange with its stakeholders supporting the description, analysis, management and communication of its sustainable value proposition, sustainable value creation and delivery system plus the value captured by the organization itself and other stakeholders [18]. Given the higher pressure for integrating sustainability aspects into the energy system, actors in the energy sector need to be able to improve infrastructure, but also to innovate the BMs [19]. It is worth noting that public policy is one of the most important incentives to develop and implement innovations towards more sustainable BMs [19] [20]. Opportunities for new BMs in the energy sector towards more sustainable solutions should focus on utility- or
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customer-side [21]. The value proposition regarding the utility-side is related to bulk generation of electricity fed into the grid which often represents a lower threat to utilities in current BMs [19] [21]. The customer-side value proposition encompasses customized solutions and energy related services [21]. These small-scale decentralized renewable projects tend to be less explored by utilities, demanding the development of new competencies and the implementation of new BMs [19]. Focusing on an extreme case of decentralization, Knuckles [22] conducted research on mini-grid electricity as a solution for base of the pyramid markets, identifying various possible BM configurations. To analyse DSM-BMs, Behrangrad [23] indicates the following aspects: DSM transaction characteristics (regarding motivations and hurdles for stakeholders in adopting DSM); RE resource correlation (related to cross-impact between DSM-BM and RE resource penetration); and DSM load control characteristics. The author uses these indicators to present different DSM business configurations. Behrangrad [23] argues that there is no single BM better than the other, but rather the different designs can co-exist and organisational performance depends on each context. 3. Research method The method chosen for the present research is case study, given the exploratory nature of the research objective. Using theoretical (rather than random/sampling) selection criteria, as indicated by the literature [24], two companies are chosen: one mid-sized polymer processing manufacturer (C1) and one distribution grid operator (C2), both located in the state Hesse in Germany. They represent two different points of view for the same BM innovation opportunity. Based on data from these cases, opportunities of a new BM based on DSM were identified and analysed. For this, data collection counted mainly with participant observation, which was complemented and triangulated with internal and public documents. By everyday interactions data collection using participant observation has the advantage that the researcher is inserted in the organization's context, understanding particularities of each case study, identifying eventual incongruous or unexplained facts and making connections with other observed facts [25]. One of the paper's authors was played the role of participant observer, whose interaction with each company focused on raising data on possible benefits of DSM in each organisation. The collected data was analysed according to the VMT [8], shown in Figure 2. The use of this visual tool initiates the definition of a unit of analysis and the identification of company's main stakeholders. These may vary according to the considered company. In the following, the company's sustainable value exchange with each stakeholder is identified, according to the sequence: (1) value captured (associated with current value proposition); (2) value missed/destroyed (negative outcomes or value inadequately captured from the current BM); and (3) value opportunities (new opportunities for additional value creation and capture through new activities and relationships) [8]. By performing this structured analysis, the literature indicates that the VMT enables the identification of innovation opportunities for more sustainable BMs [8]. The present research uses the logic of the VMT to frame empirical evidence for each case study, allowing the identification of innovation opportunities regarding DSM-based BM. One possibility of a BM innovation for sustainability based on DSM is in sequence discussed in terms of value proposition, creation and delivery system as well as value capture, as proposed by Richardson [15]. Figure 2: Value Mapping Tool [8]
4. Results and discussion This section begins with an overview description of each case study, providing context to data analysis based on VTM to identify value opportunities. These results bring evidence regarding potentials for a new BM based on DSM described and discussed in sequence.
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4.1. Description of each case study: (C1) Flexible blow-film manufacturer and (C2) Grid operator [26] The evaluated manufacturer (C1) produces different plastic films by blow film extrusion. The production is characterized by low complexity of the value chain. Nevertheless, the product can be customized by varying the properties of the design and material of the film. The production process demands different types of energy. Depending on weather conditions, polymer granulates need to be dried before processing. Additionally to the friction, the plasticisation of granulate requires thermal energy. After melting, the polymer exits the die by being blown vertically. The engines of the extrusion machines demand cooling as well as the film itself, before the plastic tube can be rolled. In the post-processing stage of the product, processes involve customised printing, cutting and packing for the delivery. The manufacturer creates his value by mass production. Thus, his research and development focuses on processes and materials. The fields of energy efficiency and polymer recycling are mainly driven by market prices and governmental policies. This family owned company, which is typical for German mid-sized sector, is highly interested in innovation. Therefore, in terms of energy efficiency, a holistic decentralised energy concept based on a gas-fired CHP unit has been developed. The economic viability depends on the grade of waste heat usage, because the generated electricity could be consumed throughout the entire year. During the cold period, the low-level heat is mainly used to heat the office buildings. The innovative approach lies in the usage of thermal energy of exhaust gases by the absorption chiller and the core process that is polymer melting. A thermal oil system replaces the conventional electric cuffs on the extruder [13]. These stages of the implementation are planed modularly. The CHP-based co-generation does not per se relieve the local grid. An intelligent control and operation as well as collaboration with the grid operator are necessary. In a conventional system design the gas fired boilers are used as a redundancy for supply reliability. In the context of smart grid electric technologies could be an alternative. The grid oriented DSM aims to provide the possibility of swapping between natural gas and electricity systems. The compression chillers generate additional potential by sufficient cooling water storage capacity. If available, sprinkler tanks can be integrated in the cooling systems. The dryer and re-granulation are both a batch-process that could be shifted under consideration of material interim storing capacities. The second case study (C2) represents the chosen grid, which is geographically located in the temperate climate zone in the middle of Germany. This area is characterized by a mix of small- and medium sized urban and wide agricultural areas. The grid operator is responsible for the electricity transport at the medium- and low-voltage grid and has to provide access to the customers who are private householders, farmers, service oriented and industrial companies as well as RES operators. The task of the grid operation contents the maintenance of infrastructure, forecasts of grid loads and accounting the usage costs of the grid. In the past the potential value of the grid operation focused on e.g. forecasts' improvement and innovative asset technologies. Now the environmental value is driven by public policies. With the energy market transition, the grid operator has identified the need for a change of focus in the BM. For that reason innovation affinity is high. Nevertheless, the knowhow about the processes on the other side of the electricity meter of the manufacturing factory is not sufficient. 4.2. Analysis of sustainable value exchange opportunities The previous section shows the technological and operational opportunities for DSM. The challenge is the lack of the understanding of the other partners' business and the natural orientation on improving own core competencies. Next, this research evaluates the possibilities of the value exchange. With support of the VMT, value exchange in terms of value captured, value missed/destroyed and value opportunity for each of the companies' stakeholders was identified [8]. It is worth noting that the focus of the tool was around issues related to energy consumption (C1) and grid operation (C2). Value captured by C1's and C2's stakeholders enabled, respectively, by current value proposition includes profit, wage and education for employees as well as delivery of quality products and services. Regarding C2, a relevant captured value in the community is the access to electricity grid in households and industries that is performed with guarantee of stabile and safe infrastructure. Regarding missed/destroyed value, it was identified that C1's current production process presents potentials to address energy waste issues, which result in environmental and financial costs. Besides, the combination of energy demand oscillation of C1 and other local industries contributes to less stable and safe grid. As identified in the case studies, collaboration and knowledge exchange with external partners to develop and implement more energy efficient
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processes are not systematically performed, resulting in lower contribution of C1 and C2 to governmental policies regarding RE targets. Both companies (C1 and C2) have current capacity for technological innovation, which contributes directly to their competitive advantage. However, this capacity is restricted within the boundaries of each company. By exchanging knowledge manufacturers will improve their understanding of the energy market. Equally, grid operators will improve their understanding in manufacturing processes. This exchange enables the development and implementation of innovative and sustainable solutions. Deriving from value captured and value missed or destroyed, opportunities for DSM to create and deliver more value can also be identified, as indicated by Table 1. This is because this approach has potential to enable greener energy mix, more eco-efficient production, pioneering in DSM-BM, more collaboration with partners, more innovative industry in social system, and more sustainable products and services. Following this lead, the next section presents one possible BM configuration based on DSM that addresses these identified opportunities. 4.3. Proposed BM with DSM Combining the results of sustainable value exchange and the benefits derived from DSM, a mutual BM opportunity for C1 and C2 based on DSM can be proposed. It can be seen as a complementary BM that could be conducted parallel to the current ones. Following, the proposed DSM-BM is described in Table 1. Regarding the value proposition from C1's perspective, grid oriented DSM could provide a revenue stream, additionally to the manufacturer profits from a stable and secure supply system. At the same time grid operators could reduce the necessary investments in the grid. Evidence also shows positive effects regarding national economy. The subsidies paid for the RES are not dependent on their effective usage [6]. The resulting inefficiencies will be avoided by DSM in terms of increased utilisation. The flexibility of energy demand supports the possibility to integrate a higher number of RES in the grid, providing advantages towards a more sustainable energy supply. Creation and delivery of this value require an adaptation in equipment and processes as well as in the operational strategies. The grid operator needs to understand the operational and production processes beyond the electricity meters. The realisation of demand flexibility is based on transparency and multi-directional communication. Therefore, planning energy supply in a smart grid demands more holistic approaches. It is an opportunity for BMs based on leasing models and reallocation of ownership rights. All actors get the possibility of new collaborations. They can generate innovation and profit through knowledge and data exchange. Considering value captured by the companies' stakeholders, the VMT identified the potential value for almost all actors. The shareholders and investors have monetary benefits from selling the flexibility. The higher usage of RES reduces the primary energy demand and raises the energy efficiency. DSM could be used in internal training and education programs for the employees willing to take new responsibilities. Table 1. Opportunities for both actors by integration of DSM in their BM. − Revenue stream from flexibility for industries Value − Reduction of the investment volumes for grid operators proposition − Reduction of implementation costs for renewable energy generation − Adaptation in equipment Value − Adaptation in production process with focus on ICT and creation and communication to connect both sides delivery − Flexible working times (industry) − Energy storage infrastructure Value capture − Shareholders / Investors: Additional profit (from selling flexibility); Pioneer in implementing a more sustainable BM; Cost reduction from energy efficiency − Environment / Society: Greener energy mix, reduction of emissions, reduction of energy cost − Government: Contribution to goals of public policies
− − − − −
More sustainable energy system Expansion of share of renewable energy plants Reduction of carbon emissions Reduction of energy cost for national economy Development of internal knowledge on energy market, technologies and manufacturing processes (understanding each other’s operations) − Development of new collaborations in terms of pooling of capacities − Employees: New responsibilities − Actors in the value chain (customers / suppliers / service): More collaboration / knowledge exchange with new partners; innovation; reduction of energy cost; contribution to more stability and security in the grid
In general, the collaboration between different actors supports knowledge exchange and innovation creation. With the raising fluctuation of energy generation, the stability and security of the supply are again placed in the focus of the market design and are essential for all participants. The DSM approach aims to contribute to more stability and
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security in the grid. Environment and society profit from cleaner energy supply. RES are subsidised independently regardless if the generated electricity was consumed or not. DSM raises the usage rate of RES, helps to avoid cost inefficiency and contributes to public policies. One of the main challenges facing the implementation of the DSM approach in Germany is the legal framework. The price structures for network usage charged by grid operators are strongly monitored by the Federal Network Agency. The unbundling of the energy market intended the market opening towards competition, where a discrimination free access of the consumers to the grid is one key parameter [7]. However, it is also the reason why currently any DSM activities could not be compensated in the course of regular network charges. Additionally, the existing on- and off-peak price systems are not sufficient for the critical grid states that occur locally. The interruptive loads regulation aims the shutting down energy consumption in times of high demand [7]. This strategy only involves end-consumers connected to the low voltage grid [7]. SMEs usually access the medium voltage grid and are therefore not affected by load interruptions. The implementation of DSM gives an opportunity to reduce the investments in the grid expansion. This reduction can be used as an incentive for the industry to encourage a market-oriented behavior. The issue is that investments in grid expansions become refunded by grid usage charges. The opportunity to finance DSM measures is the temporal offset between the investment and the time point of its return, hindering the roll out of a BM. 5. Conclusions This study approached the effects of DMS concerning higher sustainability in the BM, based on case studies performed with a local blow film producer and a grid operator. The investigated DSM potential is linked to financial, environmental and social benefits for each company and its stakeholders. Under consideration of climate change, the results highlight the necessity of a holistic approach in the energy market. Whilst industrial energy efficiency strategies may have early economic advantages, long-term strategies may be required. The interaction between different measures and interests can be used to create an additional value by using synergies. Building from current state (value capture and value missed/destroyed), leading to possible BM (value opportunity), the use of VTM brought evidence to the convergence of value opportunities from industry and grid operators. From this alignment, new BMs based on DSM that integrates industrial and grid operator partners could be deployed (Table 1). Previous studies in the energy sector, found useful application to the following BM elements: value proposition, customer interface, infrastructure and revenue model [28]. The present research brings evidence of an alternative approach, framing the business model into value proposition, value creation and delivery system as well as value capture, as proposed in [15]. Research limitations include the number of case studies as well as interpretation and personal bias intrinsic to the researcher responsible for participatory observation for data collection. However, these choices enabled a deeper understanding of each case study that is given to the exploratory stage of the potential for a sustainable BM with DSM. Future research can investigate issues related to implementation of DSM-based BMs. It requires a deeper analysis of manufacturer and grid operator perceptions before a roll-out of this service and the adoption of country specific legal and technological frameworks can be realised. In Germany options for selling flexibility industrial capacities already exist in form of balancing the energy market. The participation as secondary and tertiary reserve is generally suitable for industry. Also the capability of load control can be used for strategic oriented trade on the energy exchange. Both alternatives however require knowledge and understanding of the market and its data. For industry and particularly for small and mid-sized enterprises, whose core business is commodity production, the effort is only sensible in collaboration with a service provider. The growth of RES share affects the local grid operators in terms of the maintenance of voltage therefore measures need a regional location of flexibility providers. From a political perspective the promotion of singular self-optimization measures has to be involved in the holistic concept of a smart grid. The environmental and social advantages of a greener energy mix and the reduction of emissions require the contribution to goals of public policies of all market participants. 6. Acknowledgments We thank especially Prof. Steve Evans for his support of our research and for his engagement in the international collaboration between the universities. We thank also the National Counsel of Technological and Scientific Development (CNPq). We also thank Ms. Pia Stein and Peter Mr. Holzapfel for their support. The project „INSEL in
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14th Global Conference on Sustainable Manufacturing, GCSM 3-5 October 2016, Stellenbosch, South Africa
Demand side management within industry: A case study for sustainable business models D. Khripkoa*, S. N. Moriokab, S. Evansc, J. Hesselbacha, M. M. de Carvalhob1 a
Sustainable Products and Processes (upp), University of Kassel, Germany Production Engineering, Polytechnic School, University of São Paulo, Brazil c Centre for Industrial Sustainability (CIS), University of Cambridge, United Kingdom b
Abstract The transition of the German energy market is primarily based on RES. The main problem of RES like photovoltaic and wind power is volatile availability. This issue can be mitigated through enhanced flexibility of the demand. DSM can be an additional mechanism in smart grids. Energy intensive industry offers a high DSM potential that could be useful to the energy sector. New business models are required that combine economic viability with environmental and social benefits for various stakeholders operating in the energy sector and manufacturing industry. This research analyses opportunities for business model innovation through DSM in industry. The study presents two case studies in which the Value Mapping Tool was applied to identify failed value exchanges with respective stakeholders and DSM. The research proposes a new business model aligned with sustainable development principles that can help the industry to mitigate volatile energy availability in an economically sensible manner. 2016The TheAuthors. Authors. Published Elsevier © 2017 © Published by by Elsevier B.V.B.V. This is an open access article under the CC BY-NC-ND license Peer-review under responsibility of the organizing committee of the 14th Global Conference on Sustainable Manufacturing. (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the organizing committee of the 14th Global Conference on Sustainable Manufacturing Keywords: Sustainable business models; Demand side management; Sustainable Manufacturing; Value mapping tool
1. Introduction The energy consumption has a significant environmental impact and is a major reason for the increasing emissions of greenhouse gases (GHG). According to the IPCC, fossil fuel combustion and industrial processes contributed to about 78 % of the global CO2 emission increase between 2000 – 2010 [1]. In Germany the energy sector and the
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2351-9789 © 2017 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the organizing committee of the 14th Global Conference on Sustainable Manufacturing doi:10.1016/j.promfg.2017.02.034
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manufacturing industry caused 62 % of the total GHG emissions in 2014 [2]. As a result from the Kyoto Protocol agreements and the more recent nuclear incidents in Japan, Germany’s energy market is transitioning towards a sustainable and climate-neutral system [3]. This transition aims to achieve a stepwise reduction in GHG emissions of 95 % by 2050 [4]. The goals include the reinforcement of renewable energy systems (RES) on gross electricity consumption from 50 % in 2030 to 80 % until 2050 as well as increasing energy efficiency [4]. The latter is measured by amount of reduction in primary energy and electricity demand additionally to the raise of energy productivity and combined heat and power (CHP) generation. Changing the energy market is challenging, not only in terms of the regulations and operational processes, but also in regards to the structure of assets. The geographic characteristics of Germany create a “North-South” divide caused by the distance between the main location of the off-shore WP plants and the industrial centres [5]. Moreover, smaller PV and WP generation units are often deployed on the country side. The urgency to replace and to reduce dependency on fossil fuels demands the prioritisation of integration of RES into the public energy grid [6]. However, the volatile availability becomes a driving factor for the increasing fluctuation of residual load in the grid affecting transmission and distribution grids. According to the legal regulations, the transmission grid operators in Germany are responsible for the ancillary services and especially for the frequency control [7]. The procurement of necessary capacities is realised by operating a balancing energy market [7]. The distribution grid operators monitor the voltage [7]. In case of an unbalance between demand and generation, the equalisation occurs with other local grids or aggregates at the upstream grid levels. The conventional solution approach to these issues is grid expansion. However, in a smart grid decentralisation cannot only be focused on the generation side of the system. For a holistic approach of sustainable energy market a “smart customer” is also necessary. Demand Side Management (DSM) can be an additional important mechanism to pointedly use flexibility of the energy demand. Consequently, the transition of the energy market is linked to the technological developments as well as to reassignment of roles to the actors in the market. Furthermore, it establishes opportunities for new sustainable business models (BMs). This research aims to show the opportunities of innovation concerning more sustainable BMs in the energy market. It uses two companies as case studies, a mid-sized polymer processing manufacturer and a distribution grid operator, both located in the state Hesse in Germany. The application of the Value Mapping Tool (VMT) [8] gives support to the evaluation of failed value exchanges between the analysed company and its stakeholders. This leads to identification of innovation opportunities towards more sustainable BMs. By applying this tool to both companies with focus on energy supply and demand dynamics, opportunity for a new BM is derived and discussed. 2. Literature background and theoretical context In the following, the two main concepts used in this research are presented, bringing the main aspects regarding DSM and sustainable BMs in the energy sector. The DSM approach has its roots in the research of Gellings, who classified theoretically the measures for a strategic influence of the power load profile of electric utilities [9]. Currently, the raising energy costs are the main factor driving the industry to change the consumption behaviour. In Germany the annual peak load is a base parameter for billing grid usage expenses. In operating peak-load monitoring systems DSM is often used to smooth the load profile and is a part of internal energy efficiency strategies. Due to the fluctuating energy generation driven by WP and PV plants, DSM can be also used as a measure for the grid operator to equalize the load profile of the grid. In case of over-generation with purpose of a secure supply the extreme situation could require a disconnection of the RES from the grid. To avoid this, the consumption can be increased as a negative DSM capacity. The opposite is the positive capacity, which implicates that the demand can be reduced or the electric power generation could be increased. In a scenario in which energy systems shift towards sustainability, the usage of RES generated electricity should be raised. Hence, the demand side should be managed. For this reason the focus of the present research is on the measures at the consumer´s side. 2.1. DSM potential within industry Electric steel, metal and chemical processing as well as wood, paper and cement industries are sectors characterised by energy intensive processes with a potential for DSM of multiple hundred megawatts. In addition, the cross-sectional technologies for air conditioning, cooling and compressed air supply indicate a significant potential across all
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industries [10]–[12]. However, the identified potential varies considerably due to the definition of the boundaries of the balanced systems. Because of high capacities, this process flexibility is already partly used by the balancing energy market to control the frequency of the transmission grids. The raise in the percentage of RES in the generation mix affects distribution grids and requires demand side flexibility. Because of their energy demand, the mentioned industries and processes are typically connected to high voltage grids. Their capacities are not available for voltage control. There is a large amount of small- and medium-sized manufacturing companies (SME) in the distribution grids. Their potential spreads across different processes and machines. Thus, DSM potential aggregates from different production areas of a factory, as shown in the Figure 1. One alternative is to use battery technologies to store the electricity directly and to shift the power purchases on that way. However, battery technologies are neglected in terms of their current economic non-profitability. The second possibility for the DSM initiative is the roll out of CHP, which contributes significantly to the flexibility of a polymer processing site. The capability of change between electricity and natural gas as an energy source can be used by grid operators to relief the grids. Simultaneously, the usage of “green” power in times of over-supply reduces the emissions by primary energy demand. flex-supply
power-to-battery
power-to-system Operating system
Redundant system
power-to-storage P
power-to-product
With DSM Without DSM
Z Zeit
Figure 1: Measures classification for direct and indirect energy conservation in a factory [26]
Power is only an intermediate energy for many applications and is converted internally for the production of useful energy in the form of thermal energy or compressed air. Thermal energy and compressed air can be stored considerably cheaper than electric energy. The tolerances of the power demand without affecting the production processes are particularly high in thermal processes due to their inertia. The building services provide the DSM potential in two ways. The buffers as cold water tanks can be used as indirect electricity storages. Another approach is the installation of alternative electric conversion technologies as parallel systems. Thus, electricity substitutes fossil fuels such as natural gas, but these machines could also operate as generally required redundancy. Power-to-product contains special processes in the batch-mode that do not run continuously and their operation does not (or only slightly) affect the value change. They are relatively robust in their control. Their flexibility depends on material storages. E.g. these processes are washing and re-granulation of reject or drying of plastics. 2.2. Sustainable BMs in the energy sector A BM is defined as “a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business logic of a specific firm" [14]-p.3. BMs can be built considering the following elements: product, customer interface, infrastructure management and financial aspects [14]. Alternatively, a value-based approach on BMs indicates three main elements: value proposition, value creation & delivery system and value capture [15]. Traditionally, BMs are related to value delivered to customers [16]. In turn, sustainable BMs consider value exchange not only with customers but also with other relevant actors. This is because corporate sustainability is about meeting needs of both direct and indirect stakeholders including employees, pressure groups, communities, etc. [17]. Sustainable BMs can be seen as the representation of an organization's sustainable value exchange with its stakeholders supporting the description, analysis, management and communication of its sustainable value proposition, sustainable value creation and delivery system plus the value captured by the organization itself and other stakeholders [18]. Given the higher pressure for integrating sustainability aspects into the energy system, actors in the energy sector need to be able to improve infrastructure, but also to innovate the BMs [19]. It is worth noting that public policy is one of the most important incentives to develop and implement innovations towards more sustainable BMs [19] [20]. Opportunities for new BMs in the energy sector towards more sustainable solutions should focus on utility- or
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customer-side [21]. The value proposition regarding the utility-side is related to bulk generation of electricity fed into the grid which often represents a lower threat to utilities in current BMs [19] [21]. The customer-side value proposition encompasses customized solutions and energy related services [21]. These small-scale decentralized renewable projects tend to be less explored by utilities, demanding the development of new competencies and the implementation of new BMs [19]. Focusing on an extreme case of decentralization, Knuckles [22] conducted research on mini-grid electricity as a solution for base of the pyramid markets, identifying various possible BM configurations. To analyse DSM-BMs, Behrangrad [23] indicates the following aspects: DSM transaction characteristics (regarding motivations and hurdles for stakeholders in adopting DSM); RE resource correlation (related to cross-impact between DSM-BM and RE resource penetration); and DSM load control characteristics. The author uses these indicators to present different DSM business configurations. Behrangrad [23] argues that there is no single BM better than the other, but rather the different designs can co-exist and organisational performance depends on each context. 3. Research method The method chosen for the present research is case study, given the exploratory nature of the research objective. Using theoretical (rather than random/sampling) selection criteria, as indicated by the literature [24], two companies are chosen: one mid-sized polymer processing manufacturer (C1) and one distribution grid operator (C2), both located in the state Hesse in Germany. They represent two different points of view for the same BM innovation opportunity. Based on data from these cases, opportunities of a new BM based on DSM were identified and analysed. For this, data collection counted mainly with participant observation, which was complemented and triangulated with internal and public documents. By everyday interactions data collection using participant observation has the advantage that the researcher is inserted in the organization's context, understanding particularities of each case study, identifying eventual incongruous or unexplained facts and making connections with other observed facts [25]. One of the paper's authors was played the role of participant observer, whose interaction with each company focused on raising data on possible benefits of DSM in each organisation. The collected data was analysed according to the VMT [8], shown in Figure 2. The use of this visual tool initiates the definition of a unit of analysis and the identification of company's main stakeholders. These may vary according to the considered company. In the following, the company's sustainable value exchange with each stakeholder is identified, according to the sequence: (1) value captured (associated with current value proposition); (2) value missed/destroyed (negative outcomes or value inadequately captured from the current BM); and (3) value opportunities (new opportunities for additional value creation and capture through new activities and relationships) [8]. By performing this structured analysis, the literature indicates that the VMT enables the identification of innovation opportunities for more sustainable BMs [8]. The present research uses the logic of the VMT to frame empirical evidence for each case study, allowing the identification of innovation opportunities regarding DSM-based BM. One possibility of a BM innovation for sustainability based on DSM is in sequence discussed in terms of value proposition, creation and delivery system as well as value capture, as proposed by Richardson [15]. Figure 2: Value Mapping Tool [8]
4. Results and discussion This section begins with an overview description of each case study, providing context to data analysis based on VTM to identify value opportunities. These results bring evidence regarding potentials for a new BM based on DSM described and discussed in sequence.
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4.1. Description of each case study: (C1) Flexible blow-film manufacturer and (C2) Grid operator [26] The evaluated manufacturer (C1) produces different plastic films by blow film extrusion. The production is characterized by low complexity of the value chain. Nevertheless, the product can be customized by varying the properties of the design and material of the film. The production process demands different types of energy. Depending on weather conditions, polymer granulates need to be dried before processing. Additionally to the friction, the plasticisation of granulate requires thermal energy. After melting, the polymer exits the die by being blown vertically. The engines of the extrusion machines demand cooling as well as the film itself, before the plastic tube can be rolled. In the post-processing stage of the product, processes involve customised printing, cutting and packing for the delivery. The manufacturer creates his value by mass production. Thus, his research and development focuses on processes and materials. The fields of energy efficiency and polymer recycling are mainly driven by market prices and governmental policies. This family owned company, which is typical for German mid-sized sector, is highly interested in innovation. Therefore, in terms of energy efficiency, a holistic decentralised energy concept based on a gas-fired CHP unit has been developed. The economic viability depends on the grade of waste heat usage, because the generated electricity could be consumed throughout the entire year. During the cold period, the low-level heat is mainly used to heat the office buildings. The innovative approach lies in the usage of thermal energy of exhaust gases by the absorption chiller and the core process that is polymer melting. A thermal oil system replaces the conventional electric cuffs on the extruder [13]. These stages of the implementation are planed modularly. The CHP-based co-generation does not per se relieve the local grid. An intelligent control and operation as well as collaboration with the grid operator are necessary. In a conventional system design the gas fired boilers are used as a redundancy for supply reliability. In the context of smart grid electric technologies could be an alternative. The grid oriented DSM aims to provide the possibility of swapping between natural gas and electricity systems. The compression chillers generate additional potential by sufficient cooling water storage capacity. If available, sprinkler tanks can be integrated in the cooling systems. The dryer and re-granulation are both a batch-process that could be shifted under consideration of material interim storing capacities. The second case study (C2) represents the chosen grid, which is geographically located in the temperate climate zone in the middle of Germany. This area is characterized by a mix of small- and medium sized urban and wide agricultural areas. The grid operator is responsible for the electricity transport at the medium- and low-voltage grid and has to provide access to the customers who are private householders, farmers, service oriented and industrial companies as well as RES operators. The task of the grid operation contents the maintenance of infrastructure, forecasts of grid loads and accounting the usage costs of the grid. In the past the potential value of the grid operation focused on e.g. forecasts' improvement and innovative asset technologies. Now the environmental value is driven by public policies. With the energy market transition, the grid operator has identified the need for a change of focus in the BM. For that reason innovation affinity is high. Nevertheless, the knowhow about the processes on the other side of the electricity meter of the manufacturing factory is not sufficient. 4.2. Analysis of sustainable value exchange opportunities The previous section shows the technological and operational opportunities for DSM. The challenge is the lack of the understanding of the other partners' business and the natural orientation on improving own core competencies. Next, this research evaluates the possibilities of the value exchange. With support of the VMT, value exchange in terms of value captured, value missed/destroyed and value opportunity for each of the companies' stakeholders was identified [8]. It is worth noting that the focus of the tool was around issues related to energy consumption (C1) and grid operation (C2). Value captured by C1's and C2's stakeholders enabled, respectively, by current value proposition includes profit, wage and education for employees as well as delivery of quality products and services. Regarding C2, a relevant captured value in the community is the access to electricity grid in households and industries that is performed with guarantee of stabile and safe infrastructure. Regarding missed/destroyed value, it was identified that C1's current production process presents potentials to address energy waste issues, which result in environmental and financial costs. Besides, the combination of energy demand oscillation of C1 and other local industries contributes to less stable and safe grid. As identified in the case studies, collaboration and knowledge exchange with external partners to develop and implement more energy efficient
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processes are not systematically performed, resulting in lower contribution of C1 and C2 to governmental policies regarding RE targets. Both companies (C1 and C2) have current capacity for technological innovation, which contributes directly to their competitive advantage. However, this capacity is restricted within the boundaries of each company. By exchanging knowledge manufacturers will improve their understanding of the energy market. Equally, grid operators will improve their understanding in manufacturing processes. This exchange enables the development and implementation of innovative and sustainable solutions. Deriving from value captured and value missed or destroyed, opportunities for DSM to create and deliver more value can also be identified, as indicated by Table 1. This is because this approach has potential to enable greener energy mix, more eco-efficient production, pioneering in DSM-BM, more collaboration with partners, more innovative industry in social system, and more sustainable products and services. Following this lead, the next section presents one possible BM configuration based on DSM that addresses these identified opportunities. 4.3. Proposed BM with DSM Combining the results of sustainable value exchange and the benefits derived from DSM, a mutual BM opportunity for C1 and C2 based on DSM can be proposed. It can be seen as a complementary BM that could be conducted parallel to the current ones. Following, the proposed DSM-BM is described in Table 1. Regarding the value proposition from C1's perspective, grid oriented DSM could provide a revenue stream, additionally to the manufacturer profits from a stable and secure supply system. At the same time grid operators could reduce the necessary investments in the grid. Evidence also shows positive effects regarding national economy. The subsidies paid for the RES are not dependent on their effective usage [6]. The resulting inefficiencies will be avoided by DSM in terms of increased utilisation. The flexibility of energy demand supports the possibility to integrate a higher number of RES in the grid, providing advantages towards a more sustainable energy supply. Creation and delivery of this value require an adaptation in equipment and processes as well as in the operational strategies. The grid operator needs to understand the operational and production processes beyond the electricity meters. The realisation of demand flexibility is based on transparency and multi-directional communication. Therefore, planning energy supply in a smart grid demands more holistic approaches. It is an opportunity for BMs based on leasing models and reallocation of ownership rights. All actors get the possibility of new collaborations. They can generate innovation and profit through knowledge and data exchange. Considering value captured by the companies' stakeholders, the VMT identified the potential value for almost all actors. The shareholders and investors have monetary benefits from selling the flexibility. The higher usage of RES reduces the primary energy demand and raises the energy efficiency. DSM could be used in internal training and education programs for the employees willing to take new responsibilities. Table 1. Opportunities for both actors by integration of DSM in their BM. − Revenue stream from flexibility for industries Value − Reduction of the investment volumes for grid operators proposition − Reduction of implementation costs for renewable energy generation − Adaptation in equipment Value − Adaptation in production process with focus on ICT and creation and communication to connect both sides delivery − Flexible working times (industry) − Energy storage infrastructure Value capture − Shareholders / Investors: Additional profit (from selling flexibility); Pioneer in implementing a more sustainable BM; Cost reduction from energy efficiency − Environment / Society: Greener energy mix, reduction of emissions, reduction of energy cost − Government: Contribution to goals of public policies
− − − − −
More sustainable energy system Expansion of share of renewable energy plants Reduction of carbon emissions Reduction of energy cost for national economy Development of internal knowledge on energy market, technologies and manufacturing processes (understanding each other’s operations) − Development of new collaborations in terms of pooling of capacities − Employees: New responsibilities − Actors in the value chain (customers / suppliers / service): More collaboration / knowledge exchange with new partners; innovation; reduction of energy cost; contribution to more stability and security in the grid
In general, the collaboration between different actors supports knowledge exchange and innovation creation. With the raising fluctuation of energy generation, the stability and security of the supply are again placed in the focus of the market design and are essential for all participants. The DSM approach aims to contribute to more stability and
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security in the grid. Environment and society profit from cleaner energy supply. RES are subsidised independently regardless if the generated electricity was consumed or not. DSM raises the usage rate of RES, helps to avoid cost inefficiency and contributes to public policies. One of the main challenges facing the implementation of the DSM approach in Germany is the legal framework. The price structures for network usage charged by grid operators are strongly monitored by the Federal Network Agency. The unbundling of the energy market intended the market opening towards competition, where a discrimination free access of the consumers to the grid is one key parameter [7]. However, it is also the reason why currently any DSM activities could not be compensated in the course of regular network charges. Additionally, the existing on- and off-peak price systems are not sufficient for the critical grid states that occur locally. The interruptive loads regulation aims the shutting down energy consumption in times of high demand [7]. This strategy only involves end-consumers connected to the low voltage grid [7]. SMEs usually access the medium voltage grid and are therefore not affected by load interruptions. The implementation of DSM gives an opportunity to reduce the investments in the grid expansion. This reduction can be used as an incentive for the industry to encourage a market-oriented behavior. The issue is that investments in grid expansions become refunded by grid usage charges. The opportunity to finance DSM measures is the temporal offset between the investment and the time point of its return, hindering the roll out of a BM. 5. Conclusions This study approached the effects of DMS concerning higher sustainability in the BM, based on case studies performed with a local blow film producer and a grid operator. The investigated DSM potential is linked to financial, environmental and social benefits for each company and its stakeholders. Under consideration of climate change, the results highlight the necessity of a holistic approach in the energy market. Whilst industrial energy efficiency strategies may have early economic advantages, long-term strategies may be required. The interaction between different measures and interests can be used to create an additional value by using synergies. Building from current state (value capture and value missed/destroyed), leading to possible BM (value opportunity), the use of VTM brought evidence to the convergence of value opportunities from industry and grid operators. From this alignment, new BMs based on DSM that integrates industrial and grid operator partners could be deployed (Table 1). Previous studies in the energy sector, found useful application to the following BM elements: value proposition, customer interface, infrastructure and revenue model [28]. The present research brings evidence of an alternative approach, framing the business model into value proposition, value creation and delivery system as well as value capture, as proposed in [15]. Research limitations include the number of case studies as well as interpretation and personal bias intrinsic to the researcher responsible for participatory observation for data collection. However, these choices enabled a deeper understanding of each case study that is given to the exploratory stage of the potential for a sustainable BM with DSM. Future research can investigate issues related to implementation of DSM-based BMs. It requires a deeper analysis of manufacturer and grid operator perceptions before a roll-out of this service and the adoption of country specific legal and technological frameworks can be realised. In Germany options for selling flexibility industrial capacities already exist in form of balancing the energy market. The participation as secondary and tertiary reserve is generally suitable for industry. Also the capability of load control can be used for strategic oriented trade on the energy exchange. Both alternatives however require knowledge and understanding of the market and its data. For industry and particularly for small and mid-sized enterprises, whose core business is commodity production, the effort is only sensible in collaboration with a service provider. The growth of RES share affects the local grid operators in terms of the maintenance of voltage therefore measures need a regional location of flexibility providers. From a political perspective the promotion of singular self-optimization measures has to be involved in the holistic concept of a smart grid. The environmental and social advantages of a greener energy mix and the reduction of emissions require the contribution to goals of public policies of all market participants. 6. Acknowledgments We thank especially Prof. Steve Evans for his support of our research and for his engagement in the international collaboration between the universities. We thank also the National Counsel of Technological and Scientific Development (CNPq). We also thank Ms. Pia Stein and Peter Mr. Holzapfel for their support. The project „INSEL in
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Hessen – Intelligente Steuerung elektrischer Industrie-Lasten in Hessen“ (TI 0015/2014 – 0/575/71112485) is funded by the European Regional Development Fund (ERDF) 20072013, RWB-EFRE-Program and by the funds of State Hesse. References [1] [2]
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