D5.16: +Trondheim sustainable investment and business concepts and models

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The deliverable D5.16: +Trondheim sustainable investment and business concepts and models was submitted by Trondheim Kommune (TK) and Officinae Verdi S.P.A (OV) , with contributions from Trønderenergi AS (TE), NHP Eiendom, and Norwegian University of Science and Technology (NTNU) in February 2023. The executive summary of the deliverable is available below and the full deliverable is at the end for download, as well as an excel file detailing Trondheim’s financial risk sharing model:

This report presents the outcomes and results from the work on sustainable investments performed within the +CityxChange project in Trondheim. The project has focused on developing and fostering the implementation of novel business and investment models for the establishment of Positive Energy Blocks/Positive Energy Districts (PEBs/PEDs). The work comprises financial and economic analyses, and the development and implementation of new, innovative business, investment, and risk sharing models with the objective to show how involved stakeholders can plan for and perform business in PEBs and local energy markets. The models have been improved and adapted to local conditions in cooperation with main actors operating in the PEB. This includes cost and revenue structures for required infrastructure/hardware/software and related financial investments.

The assessment of the sustainability of each investment is described and discussed by applying a defined methodology with a set of belonging indicators. The investment and business models developed, demonstrated, and verified, are targeting real estate companies, the DSO, the local energy market operator (LMO), and solution/technology providers necessary in order to enable the Trondheim PEBs.

Prevailing energy legislation in Norway and energy regulatory issues hamper the establishment of functional and profitable PEBs/PEDs. The +CityxChange project in Trondheim has received a special acceptance from the national regulatory body to trade energy and capacity between actors/assets locally. The Trondheim PEB set-up involving a Local Energy Market (LEM) could not be possible without this acceptance (or a possible dispensation in other cases). The investment and business models and costs/revenues shown in this report are thus only valid for the Trondheim cases, involving energy/capacity trade.

The following models have been developed and applied: Rooftop PV, battery storage, vehicle-to-grid charging (V2G), sector coupling electric – thermal sector, local energy markets (LEM), and a Financing Risk Sharing Model (FRSM) supporting procurement of equipment necessary to establish and operate a PEB. The FRSM provides concrete outputs and results for the calculation of reduced Simple Payback Periods (SPP) and increased return on investment (ROI) for a variety of green and renewable energy measures. The FRSM also supports community development providing the picture of players, investments, revenues, risks, and how they can be shared to optimise business scenarios. All the models represent interventions that, together with energy efficiency measures, make up the constituents of the Trondheim PEBs. In the Trondheim LEMs, energy and capacity are traded between a series of buildings and producers/providers and customers of energy where investment/business models are developed for, and where all assets (PV, battery storage, etc.) work together and are fully interconnected and integrated in order to have fully functional and efficient PEBs. The FRSM is thus a key and a main means to fully analyse the profitability of the Trondheim PEBs.

A relevant and innovative part of the work has been to move from a cost to a value creation focus. In order to succeed with a green energy transition we need to shift focus from “total reduced costs” to “total added value”, understood as the sum of increased revenues including decreased SPP/increased ROI, increased values of assets/equity, value creation through ESG factors for the private stakeholders, societal outcomes and improvements for the city, and reduced investment needs for critical and important infrastructure.

This deliverable includes investment models for the deployment of the Sluppen and Brattøra PEBs in Trondheim, which are prototype PEBs. The PEBs have a total cost of around 4,1 and 3,7 M€ each. 33 % (Sluppen) and 13 % (Brattøra) respectively of those costs are covered through EU funding; Sluppen higher since more companies there have received EU funding. Despite the extensive EU funding, in-kind contributions make up 62 % of the total PEB Sluppen prototype total cost. Investment costs make up appproximately 70% of the total PEB cost. These calculations are based on investment costs and estimated operational costs. The PEB costs are 105 €/m² building floor area for both PEBs in Trondheim. Calculations indicate that commercial level cases have an initial unit cost of 77-80 €/m² (costs prior to applying the project developed investment and finance models).

With an initial global investment for the Sluppen PEB of € 2.791.103 and considering an average cost price of energy of 0,26 €/kWh, the resulting total revenues amount to € 455.438 with a Payback period of 6 years. The model analysis through using the FRSM gives the opportunity to simulate various scenarios and revenues with different energy prices (as duly described in section 5).

According to indirect impacts analysis, the initial Sluppen PEB investments generated a further € 28 million cascade investments with linked indirect 181 jobs with an estimated leverage factor equal to 1:10 (€ 28 million/€2,7 million). This can be defined as “seed money”, i.e. with a potential to generate further investments and impacts.

The main conclusion from the Trondheim PEBs is that they have positive payback periods (SPP) and return on investment (ROI), coherent with stakeholders’ expectations, and where each investor/stakeholder shares a different financial risk related to the pro-quota invested and related revenues.

Single intervention investment models are important for benchmarking costs and revenues in PEBs/green energy neighbourhoods. However, an FRSM is a crucial model and tool for concluding whether an area based approach to energy interventions (i.e. PEBs) is profitable or not.

Detailed FRSM analyses further show that:

  • The total revenue is positive for all actors of the Trondheim PEBs; the highest for the building owner (R Kjeldsberg in this case)
  • The cash flow is also positive for all actors
  • Simple payback times vary from 2 – 17 years, with an average SPP of 6 years
  • ROI varies from 1 – 17%, with an average of 7,8%; for building owner RK it is 10,3%
  • For the LEM which is novel and important for the whole PEB solution in Trondheim: Investments take 11 years to be recovered (SPP), and the ROI for the LEM (Aneo – Trønderenergi) is 1,9%
  • An ESG oriented company/business has more easy access to the financial capital market. Lower debt cost (KD) of capital means lower cost debt and lower financial risk
  • If a company increases its ESG CSR score by 1 point (i.e they add an additional strength in one of the areas of ESG – CSR or are no longer engaging in an activity deemed as a ESG_CSR concern), there should be a cost debt reduction of around 0,5 points

Other important outcomes and results from the Trondheim cases/PEBs:

  • Rooftop PV systems may exhibit net positive revenues from year 8 on when financed through an annuity loan at 5 % interest rate. This requires sales of surplus production in the LEM during 4 Summer months, and a depreciation scheme with a variable monthly (albeit fixed annual) depreciation dependent on the monthly PV production
  • The PV case may be profitable from year 1 if, in addition to the factors above, the PV investment receives interest rate support of 3 %. Interest rate support for such a case could for instance be through a national/international funding instrument, or through a mix of public and private incentives (private for instance through a green loan)
  • Interest rate support is a far more efficient use of money than one-off funding schemes, in the way that 5 times more PV systems can be funded from year one for the same cost
  • The battery storage case is not itself economically profitable due to high investment costs. A battery storage is, however, crucial in PEBs/LEMs involving PV, and a local battery storage being part of a LEM will significantly improve the cost situation. The value of battery storage of 200 kWh can be 13.560 €/year which is close to 70 €/kWh of battery storage capacity
  • V2G chargers may have net positive revenue from year 1 if charge/discharge is optimised, and energy/capacity from the EV batteries are sold in a LEM. ROI may be close to 11 % already from year 1, and 27 % from year 8. Total revenues over the assumed technical lifetime of the V2G charger of 10 years are close to € 70.000 for 10 EV chargers at one location, e.g. connected to a commercial EV sharing scheme

PEBs/PEDs/smart energy neighbourhoods are complex systems claiming a larger and precisely defined set of stakeholders. Having such ecosystems becoming economically profitable is even more complex to ensure. A series of lessons are already learnt during the process of setting up and implementing the PEBs, and implementing viable business and investment models for the PEBs:

  • Joint cooperation among private and public actors-local authorities is a fundamental success factor
  • Building Owner/Real Estate developer and in the Trondheim cases the Local Market Operator (LMO) are core players in the PEB implementation success
  • PEB implementation needs public funding at an early stage in order to design and test tailored business models in the pilot phase
  • A public body/local authority is needed as driver and facilitator for escalation to PED, replication and for overall profitability
  • Moving to a total value concept is a long and complex process that requires a long planning phase, strong dialogue among local stakeholders, system thinking and a collaborative mindset. This process has to be governed, preferably by a player that can be a recognised public authoritative stakeholder or a cooperative team

The work on sustainable investments has brought about innovative investment and business models including solutions on how to analyse and calculate the cost structure and profitability of Positive Energy Blocks. Experiences have been gained and processed from the PEBs, local energy markets and use cases. The report also addresses how the financial models and analyses fit in and can be applied for the operation of smart, green energy neighbourhoods.

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