Low Carbon Economy, 2013, 4, 41-54
Published Online December 2013 (http://www.scirp.org/journal/lce)
Open Access LCE
Business Model for Local Distribution Companies to
Promote Renewable Energy
Bjoern Buesing, Ming Yang
Global Environment Facility, The World Bank Group, Washington DC, USA.
Email: bjoern.buesing@yahoo.de, ming.yang7@gmail.com
Received August 9th, 2013; revised September 8th, 2013; accepted September 16th, 2013
Copyright © 2013 Bjoern Buesing, Ming Yang. This is an open access article distributed under the Creative Commons Attribution
License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Decentralized or distributed small renewable power facilities are usually installed in local communities for households
and small business companies. These facilities include so lar PV, concentrated solar power, and wind power, etc. In or-
der to promote installations of such facilities, governments in many countries have developed a number of policies and
business models. For example, in Germany and Canada, electricity feed-in tariff policy and business model were de-
veloped; in the USA, tax rebate policies and relevant business models were promoted. These policies and models have
in some but not in large scale promoted decentralized small renewable power in local communities. The key issue is
that these policies and business models do no t provide sufficient incentiv es to local distribution companies (LDC), nor
to renewable power installers and users. This paper’s research covers the creation of a business and communication
model, named as LDC model, to incentivize both renewable power installers/users and LDCs. This LDC model can
play a key role in promoting decentralized small-scale generation (DSG) with renewable energy in local communities.
The core element of the LDC model is a revenue model which serves as an instrument to finance renewable installations
for households and small commercial businesses. A case study is undertaken with real data of a power distribution com-
pany in Toronto, Canada. This paper concludes that with appropriate government policy and with the development of
customized information systems for accessing households and small business via internet, an LDC will be able to take
leadership in investing and installing small renewable power, and consequently enlarge the share of renewable energy
supply in its local power distribution network.
Keywords: Local Distribution Company (LDC); Decentralized Small-Scale Generation (DSG); LDC Model; Business
Model; Renewable Power; Natural Monopoly
1. Introduction
Renewable energy will play an important role to meet
future world energy demand. Based on the author’s ex-
perience and analysis, wo rld primary energy demand will
expand by almost 40% from 2010 to 2030, with an ave-
rage annual growth rate of about 1.6% per year. This
average annual growth rate was 2% over the past three
decades. At the projected rate, total energy demand will
likely reach 16.5 billion tons of oil equivalent (toe) in
2030. New renewable energy (not including traditional
renewable energy) demand will increase from 1.2 billion
toe to 1.8 billion toe, increasing by abou t 33% (Figure 1).
This growth rate is almost as high as those of oil and
natural gas. These projected results are consistent with
those projected by the International Energy Agency [1].
Rising electricity costs are mainly driven by limited
1970 1980 1990 2000 2010 2020 2030
atural gas
New renewables
uclear powe
Hydro power
Figure 1. Projection of world primary energy demand.
and therefore more expensive fossil fuel resources com-
bined with increasing energy demand in transition coun-
Business Model for Local Distribution Companies to Promote Renewable Energy
tries like India and China. Other industrialized countries
try to limit energy costs by focusing on nuclear power,
also expensive but often considered as an environmental-
friendly alternative due to the lack of direct GHG emis-
sions. Large-scale installations of wind and solar energy
are becoming more and more competitive, and their con-
tribution to the global electricity production has increa-
sed significantly over the past 20 years.
During the same time period, the decentralized small-
scale generation (DSG) level has remained low. Conse-
quently, the central research question is, whether an ap-
propriate business model for the local distribution com-
pany(ies) (LDC) and its stakeholders could make DSG
become more profitable and thus could lead to a world-
wide and crucial expansion of DSG. Further, we have
derived the following specific research questions:
Which determinants for the business model follow
from the industry structure of the LDC and the re-
newables market environment?
How can the LDC propose offers to specific customer
segments via internet, including alternatives and com-
plementary products?
How can renewable projects be realized efficiently
and effectively?
The methodology for this research comprises two parts.
At first, we have evaluated existing research on business
model concepts or taxonomies in order to derive a plau-
sible procedure to construct a business model for an LDC
in the DSG context. Second, the bu siness model is being
embedded into the local context of Toronto, which en-
ables a case study. While the first part represents a quail-
tative, conceptual research, the case study will be com-
pleted with a quantitative data analysis trying to verify
the assumptions which follow from the qualitative re-
search. According to the literature review performed by
the authors, applying academic business model concepts
to the LDC industry structure and testing it thru a case
study, represent a new, unprecedented research.
One result of this research shows that a subsidized rate
per electricity amount fed back to the local grid, cur-
rently the only end customer revenue source, can be ex-
tended effectively by offering multiple and customizable
revenue model variants. Thus a broader customer base
could effectively contribute to the DSG market, for in-
stance those risk or investment-avert customers, which
currently do not participate in DSG.
In addition, the LDC is poised to impartially assess
customer locations’ potential for different kinds of re-
newable energy. The research has shown that it can ac-
tively consult and in teract with renewables produ cers and
different end customer groups in order to decisively lift
the DSG share of electricity production. According to our
case study, a moderate community tax could provide ad-
ditional capital, allowing all citizens to contribute to the
DSG expansion.
The target audience of this paper is identical with the
actors of the proposed business model, i.e. renewable
producers, local citizens and the LDC. At present, the
world-wide majority of LDCs play only a minor role in
the promotion of DSG, but this paper shows a way for an
LDC to play a key role and form a strong team with re-
newable producers and local citizens.
2. Literature Review
Major goals of the literature review are to validate
methods to construct a business model in a new context,
and to specify this LDC renewable context related to the
chosen real-world scenario of Toronto. Business model
literature on one hand plus case study literature on the
other form the basis of this review. The literature scope
includes e-commerce and website communication, re-
newables, the LDC industry structure and secondary data
related to the real-world background of Toronto, Canada.
Some of these literature sources will be analyzed and
applied for the first time in the case study chapter, due to
the circumstance that literature analysis and application
to the construction of the LDC model are often insepara-
ble in the chosen domain of research.
Despite the well-established research field of (internet)
business models and related taxonomies, the LDC sector
has not been taken into account at least not as a specific
category. Nor could the authors find inductive research
which tried to apply the available (internet) business
models to LDCs. Two articles are related to this research
but they do not close the aforementioned gaps:
1) Reference [2] examines “the impact of increasing
DG penetration on the DSO [distribution system operator]
business under varying parameters (network characteris-
tics, DG technologies, network management type)” but
their research does not deal with a business model for the
DSO (alias LDC) and its surrounding stakeholders as
proposed in this research.
2) Reference [3] evaluates which “business models
investment managers for renewable energy prefer to in-
vest in.” However, his study does not do any inductive
research to apply business models to LDCs.
2.1. Constructing Business Models
The Internet Business Model (IBM) definition by Wang
and Chan [4] classifies business models by the “transac-
tional flows” between “actors”.
This concept is being used in this research to model
ways of communication and transactions between the
LDC and its stakeholders. The visualization of the LDC
model constructed in Figure 2 follows Wang and Chan’s
concept of an “IBM graph” with arrows symbolizing
transactions between actors. Specifying a transaction and
Open Access LCE
Business Model for Local Distribution Companies to Promote Renewable Energy
Open Access LCE
LDC cu stom erside
Revenuemodelvariants‘ range: [Not- for-profit, LowCosts& Risks] … [Profit, H igh Costs& Risks]
Toro nto H ydro
Electric Systems
Building authority
Toro nto Building
Energy C onserv ation Progr amme
Toronto Energy Efficiency O ffice
Transport Pl anning Office
Toronto City Planning:
Private / Public / Company location for renewable project and associated customer communit y
Solar Panel /
Wind Turbine producerStationary ESC
Hydr o One Ne tworks
Local grid conn ection
Load balan cing via
availab le m obil e ESC
LDC supply side
$ for consum ed el ectricity
Free redundant electricity
LDC owns + m ain tains renew abl e instal lation
Redundant el ectricity
Location ow ns + m aintain s renew abl e in stall ation
$ for redundant electricity
$ fromLDC or cu stomers
Ren ewab le in stall ationESC install ation
$ from LDC or cu stom er s
El ectr icity sal es rat e
$ from LDC
Figure 2. LDC IBM graph model.
its directionality between two actors of the LDC busin ess
follows the IBM methods as applied by Wang and Chan.
Osterwalder et al. [5] propose “Nine Business Model
Building Blocks”, which are given in the following table.
based on four central “value drivers”: novelty, lock-in,
complementarities and efficiency. The resulting value
driver transaction components are broken down to the
transaction level. Each value driver can be split in to three
components, representing the Business Model transaction
levels structure, content and governance, according to the
theoretical and empirical research study of Amit and Zott
[6]. The resulting value driver transaction components
will be transferred to the LDC model in the case study
section 4.5. This section also outlin es how the LDC web-
site will enable these value driver components thru on-
line communication with its stakeholders. There are nor-
med methodologies to measure the effectiveness of the
LDC website [7].
During construction of the LDC model, we have tried
to provide sufficient substance to shape and illustrate a
solid “Customer Interface” taking into account the buil-
ding blocks “Target Customer”, “Distribution Channel”
and “Relationship” in line with the definitions of Tab le 1.
However, for the construction of the LDC model not
each of the nine building blocks and the related grouping
into four pillars “Product”, “Customer Interface”, “Infra-
structure Management” and “Financial Aspects” has
been taken into consideration . Nonetheless, the d efinition
of the “Revenue Model” as the “way a company makes
money through a variety of revenue flows” (Table 1)
underlies the generation of revenue model variants (sec-
tion 4.4) and their concrete configuration in the case
study. The LDC revenue model proposed and simulated
in this research will determine how the created DSG
electricity production revenue and the related renewable
installation costs can be shared among the network of
stakeholders. Amit and Zott [6] define a business model
2.2. Literature about Renewables and Electricity
It is advisable to choose an existing electricity LDC and
its environment as a believable real-world scenario. To-
ronto in Canada with Toronto Hydro as LDC was chosen
because the location is embedded in an established fos-
sil-fuel, hydroelectric or nuclear power based electricity
Business Model for Local Distribution Companies to Promote Renewable Energy
The actor s of this scenario (see Table 2), e.g. the City
of Toronto, provide a variety of information via their
For over 50 years, the worldwide electricity industry
has been deeply rooted in centralised electricity genera-
tion with large-scale Renewable (hydroelectric), Nuclear
and Fossil sources (see Figure 3):
Renewables are suitable for DSG and therefore inde-
pendent of the high-voltage transmission grid. However,
renewable electricity production is very “intermittent [...]
compared to conventional sources [e.g. fossil-fuel/nu-
clear power plants]” [15]. Up to now renewables predo-
minately occur as large-scale installation like e.g. wind
farms [16] or large hydro power plants [13].
An important aspect of this research is the local grid as
“natural monopoly” of an LDC; as explained in the OEB
LDC coalition report:
“a contiguous area cannot be serviced economically by
more than one distributor” ([17], pp. 1, 2). The thesis of
an LDC alias DSO acting as a “natural monopoly” is also
supported by De Jode et al. ([2], p. 2908) claiming that
“distribution of electricity is highly asset-specific invol-
ving a large share of capital expenditures relative to op-
erational expenditures, and concerns long lifetime of in-
vestment”. In this context, De Jode et al. ([2], p. 2908)
also analyse the situation of the European Union, where
“prevailing distribution network regulation regimes […]
prevent DSOs from acting as a monopolist”.
Figure 3. Annual world electricity production by source
Table 1. Nine business model building blocks ([5], p. 10).
Pillar Business Model Building Block Description
Product Value Proposition Gives and overall view of a company’s bundle of products and services.
Target Customer Describes the segments of customers a company wants to offer value to.
Distribution Channel Describes the various means of the company to get in touch with its customers.
Customer Interface
Relationship Explains the kind of links a company establishes between itself and
its different customer segments.
Value Configuration Describes the arrangement of activities and resources. Outlines the competencies
necessary to execute the company’s business model.
Core Competency Outlines the competencies necessary to execute the company’s business model.
Partner Network Portrays the network of cooperative agreements with other companies
necessary to efficiently offer and commercialize value.
Cost Structure Sums up the monetary consequences of the means employed in the business model.
Financial Aspects Revenue Model Describes the way a company makes money through a variety of revenue flows.
Table 2. Organization and roles of real-world LDC research context.
Organisation Role
Toronto Hydro Electric Systems [8]aElectricity LDC, central organisation of this research. Affiliate of Toronto Hydro Coope rati on.
City of Toronto [9] City of Toronto is the sole, public shareholder of Toronto Hydro Cooperation.
Hydro One [10] ETC (Electricity Transmission Company) transmits centrally generated electricity to Toronto Hydro.
OPA (Ontario Power Authority) [11]Onta ri o g ov er nm en t a ge nc y , r es p on si bl e f or s et t in g up lo ng - te rm pr o cu rement p la ns f o r a sa fe a n d su st a in ab l e
electricity supply in the interest of all Ontarians. Defines policies, e.g. Conservation Demand Management.
OEB (Ontario Energy Board) [12] Comprised of Ontario Government members, electricity transmission, distribution and
generation representatives, is responsible for the entire regulation of the electricity industry in Ontario.
OPG (Ontario Power Generation) [13] Cooperation of publicly or privately owned Power Generation companies,
accounts for around 70% of Ontario’s electricity demand.
a. Short form used throughout this dissertation: Toronto Hydro.
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Business Model for Local Distribution Companies to Promote Renewable Energy 45
Toronto Hydro, a municipally owned LDC since 1911
[8], has been preferred to Hydro One for this research as
underlying LDC. A municipally owned LDC is less
prone to act as a lobbyist of oligarchic power centralisa-
tion and hence more open to promote DSG. Toronto Hy-
dro receives its electricity from Hydro One, which dis-
tributes electricity to—mainly industrial—end consumers
all over Ontario [18].
Despite deregulation and privatization taking place in
the electricity distribution business [19], the natural mo-
nopoly of an LDC over the local grid—as is the case for
Toronto Hydro—can be assumed as prevailing case
world-wide at present and as well for the middle-term
future. The natural monopoly is independent of the form
of LDC ownership (private or public). In Canada and
Ontario LDCs are by the majority publicly owned with a
“trend towards provincial ownership”, according to The
Canadian Encyclopedia [20].
Experts can analyse the DSG potential of a given loca-
tion, for example to which degree at and which costs
roughly solar PV and wind power can contribute to the
local electricity consumption demand [21]. The case
study will reference manufacturers’ info about the se-
lected renewable products for small-scale solar PV and
wind turbine installations. Even though not a renewable
product per se, small-scale CHP (Combined Heat and
Power) plants, often based on natural gas, can be easily
installed in buildings as demonstrated b y the German uti-
lity EWE ([22], pp. 24, 25). Due to its high efficiency
CHP can also contribute to effectively reduce GHG
emissions on a local level.
3. Approach to Construct the LDC Model
In the previous chapter a set of business model construc-
tions methods have been evaluated and assessed as ap-
propriate for application to the LDC renewable context.
The basic framework of the LDC renewable context has
already been defined with the LDC stakeholders in To-
ronto. This chapter defines the approach to construct the
LDC model combining the construction methods and
specifying a sequence of four steps which will also detail
further the LDC business and website communication
model and its connection to the chosen real-world back-
1) Set up the real-world LDC renewable context based
on the available basic framework (Stage 1).
2) Transform the real-world LDC renewable context
(stage 1) into a basic LDC model. This implies specify-
ing actors and transactions according to th e IBM concept
(Stage 2).
3) Adding the revenue model and the value driver con-
cept to enhance the basic LDC model (Stage 2); thereby
finding detailed answers to the research questions. Re-
venue model variants and value driver components will
be specified in this step (Stage 3).
4) Estimating the value potential of the LDC model,
based on a simulation with in the given boundaries of the
real-world backgro und (Stage 4).
The first three steps will result in the qualitative and
step four in the quantitative part of the case study, see
Figure 4.
4. Case Study
The case s tudy conclude s our research with th e construc-
tion and evaluation of the LDC model embedded in the
real-world back ground with the LDC Toronto Hydro and
its stakeholders.
First, the LDC renewable context, partly set up in the
literature review, will be completed. Th en, the basic LDC
model is constructed in section “Actors and transactions”,
and enhanced in the sections “Flexible revenue model”,
“Value drivers of the LDC model” and “Interactive com-
munication”. Finally, the case study will be completed
thru the quantitative sectio n “LDC model simulation and
4.1. LDC Renewable Context
The basic framework of the LDC renewable context with
a real-world example has been set up in the literature
1. Set ting u pStage 1:
LDC renewable context2. T r ansform into basicStage 2:
LDC Business Model
Stag e 3:
Enhanced LDC
Business Model
4. De ter mine &
carry out evaluation
Stage 4:
Ev aluation of LDC
Business Model
3. Answering
Figure 4. Consecutive research methods and stages.
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Business Model for Local Distribution Companies to Promote Renewable Energy
review to be enriched as follows:
The LDC can counterbalance the intermittent charac-
teristics of renewables and hence DSG through con-
nect ion to the lo cal grid. In times of insufficient elec-
tricity production from microgrids1, the local grid
closes these gaps whereas at times of redundant elec-
tricity production this is fed back to the local grid.
The local grid connection normally d oes not cause ex-
traordinary efforts for the electricity LDC [23,24].
The LDC has no competitive advantage for further
increasing the level of renewable large-scale genera-
tion, as it has to purchase this type of power from
ETCs the same way as for power from central large
scale nuclear/fossil fuel or hydro power plants. This is
illustrated by Bullfrog Power [25], a green energy
producer generating electricity based on renewable
large scale installations2.
In the electricity distribution business, the LDC is the
one and only well-established intermediary between
the local grid and its end customers on the one hand
and the ETCs and central power plants on the other.
Following from the above findings, the LDC could act
as a key player to continually shift the distribution of
power from the central power plants and ETCs towards
the local end customers. Thus, it could gradually increase
the local electricity consumption share of DSG and de-
crease the share of centrally produced electricity accord-
4.2. Electricity in Stock
This case study focuses on introducing a comparatively
small level of DSG via the proposed LDC model. At this
initial stage no extensive Electricity Storage Capacity
(ESC) systems are required. However, this section will
briefly outline the ESC technology so that the proposed
LDC model can also be used later on when a higher DSC
level will necessitate investments in ESC systems. An
Electricity Storage Capacity (ESC) will minimize the gap
between momentarily required versus momentarily avai-
lable electricity within a microgrid and its small-scale
renewable installations. The sum of all local microgrid
ESC systems will balance the aggregated demand and
supply profiles of the local grid.
Two types of ESC systems can be distinguished:
Stationary ESC installations are fixed to the corre-
sponding renewable installations, e.g. located at a
building complex of a renewable project. Thus, a mi-
crogrid becomes more independent of the local grid,
by building up an d releasing electricity reserv es to the
connected end consumers.
Mobile ESC installations refer to all types of vehicles
with inbuilt capability of storing electricity and pro-
viding it to the local grid. The LDC can advance the
respective integration of mobile ESC systems via pro-
viding local grid/microgrid connection points (e.g. at
parking lots or residential or commercial microgrids,
bus stops etc.).
4.3. Actors and Transactions
Starting point for cons tructing the LDC model is the IBM
concept by Wang and Chan [4]. This will provide the
basic network of actors and transactions, which deter-
mine the LDC stakeholder communication. Furthermore,
this basic network reveals the main value sources of the
DSG business.
The following table summarizes actors and transac-
tions, with the LDC as point of reference. An inwards
transaction is initiated by a stakeholder and directed at
the LDC, whereas an outwards transaction is in itiated by
the LDC and directed at a stakeholder.
For each customer location type listed in Table 3
above, the corresponding transactions 6, 7 and 8 describe
the way of financing the respective renewable installa-
tions which are considered most typical (see section 4.4
on financing thru a system of revenue model variants).
The basic LDC model depicted in Figure 2 reflects the
LDC renewable context in terms of three layers, which
are supply-side companies (yellow boxes), local organi-
zations (yellow-green boxes) like the LDC, and local
customers/citizens (green box). Real-world organisations
are denoted in italic font.
The LDC possesses clear advantages over supply-side
stakeholders to become the key player for advancing
DSG, as outlined in Table 4:
Furthermore, the local grid controlled by the LDC pre-
sents a strong competitive advantag e over all supply-side
stakeholders regarding the intermittence of renewable
energy and the natural monopoly of an LDC enabled thru
its local grid (see Sections 2.2 and 4.1).
4.4. Flexible Revenue Model
The importance of a revenue model for a business model
in general has been outlined in the literature review. In
this section a revenue model will be developed and tai-
lored to fit the LDC renewable context. Customers with
renewable installations will at times produce redundant
electricity and at others consume electricity from the
local grid. But selling back electricity is not necessarily
perceived to outweigh high renewable installation costs
and risks. Even governmental subsidies, like in Ontario
provided through RESOP (Renewable Energy Standard
Offer Program, [30]), tend to evoke only moderate par-
ticipation (see section 4.7). GeoXperts Inc., a venture for
1This text uses the microgrid definition of Kiesling [14] as enabling a
“neighbourhood to form a microgrid and exchange among themselves”.
2Bullfrog Power provides electricity via Hydro One as ETC and To-
ronto Hydro as LDC.
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Business Model for Local Distribution Companies to Promote Renewable Energy 47
Table 3. Actors and transactions.
Actor Inwards transaction Outwards transaction
Solar panel producer
Wind turbine producer
1a) Install and connect renewable product to
the local grid as integrated component of a
renewable project managed by the LDC.
1b) Price negotiation between LDC (acting as
wholesaler) and producer for specific or bundle
of renewable projects. Ownership and payment
may be v ariab ly ass igned to L DC an d cus tom ers.
Stationary ESC producer 2a) analogous to 1a) 2b) analogous to 1b)
Building authority
Toronto [26]
3a) Architectural drawings and plans of site enabling LDC to evaluate the corresponding
renewable potential. Structural engineering info for estimation of installation costs and
construction constraints to assist LDC in decision making/budgeting of renewable projects.
Local energy conservation programme
Toronto [27]
4a) Pro grams to reduce local energy d emand,
e.g. the “Better Buildings Partnerships—
Existing Buildings/-New Constructions”
(BBPEB/-NC) [27].
4b) Coordination of 4a) with LDC regarding
concurrent installations, e.g. of Solar PV
Panels and thermal collectors.
Transport Planning Office
Toronto [28] 5a) Forecast share of (hybrid-) electric
vehicles in public and private transport. 5b) Establish a bidirectional local grid connection
point network scaled according to forecast.
Private location: e.g. apartment houses,
cond omi nium s, single ho use s an d r elat ed e stat es. 6a) Redundant electricity supplied to local
grid 6b) LDC owns and maintains major part of
renewable installation.
Public location: e.g. school buildings, city hall,
fire brigade assets etc. 7a) Redundant electricity supplied to local
grid for free. 7b) LDC owns and maintains renewable
Company location: e.g. production, office,
store and shopping mall buildings and
associated estates.
8a) Redundant electricity sold back to local
grid/LDC. 8b) Company location owners possess and
maintain major part of renewable installation.
Table 4. Relative advantages of LDC over supply-side stakeholders.
Stakeholder Relative advantage of LDC
Solar panel producer
Wind turbine producer The LDC can independently assess the right combination of renewable products tailored to the specific customer
location and can perform necessary security controls like e.g. a static construction analysis for rooftop wind turbines.
ESC producer An adequately sized ESC system would further increase the attractiveness of DSG by essentially lowering the LDC’s
dependency on electricity purchased from ETCs. However, only the LDC can impartially judge the demand for
electricity generation versus storage, related to a customer location.
ETCs The LDC needs to purchase electricity from ETCs for prices set by the appropriate regulator (OEB in Ontario).
Increasing costs for fossil fuel and nuclear power plants [29] are accompanied by renewables continually becoming
less costly. The LDC can impartially and knowledgeably plan the mix of all energy carriers as depicted in Figure 5.
Year 1
Year 5
Year 10
Draft ten-year pla n to c onti nuous l y
distributed smal l-scal e gene ration
Figure 5. LDC’s plan to increase renewables’ share.
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Business Model for Local Distribution Companies to Promote Renewable Energy
geothermal systems in Ontario, provides evidence for a
renewables market with customers not participating in in-
stallation costs: “install the systems for free, but sell the
energy to the customer just like any utility” [31].
In Figure 2, the two canonical categories [Not-for-
profit, Low Costs & Risks] and [Profit, High Costs &
Risks] stand for two extreme revenue model variants.
Different variants should target different customer types
within a customer community, more or less risk-avert
versus more or less profit-oriented customers. For exam-
ple, a customer community may comprise Solar PV
Panel owners and others who do not own any renewable
product but will provide part of the required installation
After the initial renewable project has been implemen-
ted customers may also want to switch to other revenue
model variants or do so partly e.g. when the customer
community decides to extend the scope by adding an
ESC system or roof-top wind turbines to existing Solar
PV Panel installations.
The LDC Website communication has to support a
credible dialogue with the customer to illustrate flexibil-
ity and limitations of available financing options, so that
each customer can make an informed decision about his/
her preferred revenue model variant. The initial revenue
model variants and possible combinations proposed for
this case study are described in Table 5.
4.5. Value Drivers of the LDC Model
The basic LDC IBM needs to be expanded in order to
form a concrete Website communication model. In the
following, selected value driver components of Amit and
Zott’s business model ([6], pp. 511 - 514, introduced in
section 2.1) will be transferred to the LDC renewable
context and the Website communication model. Each of
the following four tables, Tables 6-9 show how the au-
thors have defined value driver components for the four
value drivers (efficiency, complementarities, lock-in and
novelty) for the LDC renewable context. These com-
ponents are being facilitated thru online/website based
communication. In the following, the term website refers
to the website owned by the LDC.
4.6. Interactive Communication Enabled by the
LDC Website
The LDC website should be design ed in a way that it en-
courages its interactive usage for both, potential and ex-
Table 5. Revenue model variants and value appropriation.
Revenue model variant Category Value appropriationa
High initial electricity tariffs Customer agrees on high electricity rates for the first contract years
and a discount afterwards, each compared to the conventional rate
charged to customers who do not participate in a renewables project.
Customer participates in
Not-for-profit, Low Costs & RisksCustomer contributes to installation costs, e.g. 25% to 50%
and consumes electricity for free during the first contract years.
Afterwards a discount on the conventional rate will be agreed.
RESOP option Customer in Ontario receives 42 cent/kWh for solar and 11 cent/kWh for wind
based electricity sold back to local grid and bears entire installation risk and costs.
LDC participates
in installation
Customer initially finances 50% to 75% of installation costs and pays back
remainder by feeding back redundant electricity for free during the first contract
years. LDC pays initial remainder to participating renewable producers.
Renewable producer
credit on installation costs
Profit, High Costs & Risks
Prod ucer s gi ve a cred it t o th e pu blic -sect or L DC, e.g. over 20% - 50% o f ins talla tion
costs. This sub-variant can be combined with [Customer participates in installation]
or with [LDC participates in installation].
a. Refers to appropriating value understood as “extracting profits in the market place” [32]; based on a network/ e-Business perspective [6].
Table 6. Can a LDC model enable efficiency?
Value driver component Transferred to LDC context
“Access to a large number of products, services,
information” (EFFICIENCY-STRUCTURE 2) Website can easily provide information about different renewable
product and project types to its customers.
“Demand aggregation”
Renewable projects aggregate demand for renewable products related to private/public/company
locations. Development of this demand can be communicated online if form of interactive
graphs e.g. split by project or product type (e.g. public locations or wind turbines).
“Supply aggregation”
(EFFICIENCY-STRUCTURE 4) Supply aggregation follows demand aggregation so renewable producers
will offer essential discounts to the LDC, acting as intermediary/wholesaler.
“Information made available as a basis for
decision-making; reduces asymmetry of
information [a]bout goods [and a] bout
participants” (EFFICIENCY-CONTENT 1)
LDC can provide online database with up-to-date price/technical info (e.g. design and size of
rooftop wind turbines) about renewable products; can be used for project scope & stages,
and product mix decisions, by LDC, customer communities and individual customers.
Open Access LCE
Business Model for Local Distribution Companies to Promote Renewable Energy 49
Table 7. How can a LDC model promote complementarities?
Value driver component Transferred to LDC context
(COMPLEMENTARIES—STRUCTURE 1) Website might encourage customer communities to purchase thermal collectors,
insulation improvement products, (hybrid-) electric vehicles or ESC systems.
“Combination of on-line and off-line
transactions” (COMPLEMENTARIES—
Customers’ interest in LDC model, initiated by website, may be complemented later in the
sales process by customer community meetings with renewable producer and LDC representatives.
“Access to complementary products,
services, and information [f] rom firms [,…]
partner firms [and f] rom customers”
Online database (see EFFICIENCY—CONTENT 1) encompasses complementary products
(see COMPLEMENTARIES—STRUCTURE1) The LDC could also connect other stakeholders which
are n o t d i rect l y i n volve d i n the LDC mode l . Fo r i n stan c e , on t h e w e b s i te i t c o u l d adve rtis e f ood d e l i very
serv ic es p r ov id ed b y l o ca l su pe rm a rke ts (t o a vo id /r e d uc e t r an sp o rt e n er gy ). Or i t c ou l d p romote t he id e a
of tele-commuting listing those local companies which have or want to increase the level of
tele-commuting (to avoid/reduce energy spent on mobility).
“Incentives to develop co-specialized
LDC acts as wholesaler of co-specialised resources like an ESC system offering standardised
maintenance and insurance contracts, thereby building up the required customer confidence. Website
can simulate LDC’s third party offerings and purpose of co-specialised resources.
“Alliance capabilities of partners”
Alliances of rooftop wind turbine, Solar PV Panel and complementarities producers all shaped by LDC
for conjoint, efficient management and realisation of ren ew ab le p roj ec ts . Website will restrict access to
team members only, for instance of a condominium renewable project.
Table 8. Does a LDC model increase lock-in?
Value driver component Transferred to LDC context
“Direct network externalities”
High number of customers participating in renewable project will decrease installation costs per
customer, e.g. for shared ESC system or wind turbine installations. Website demonstrates these
effects and thus the attractiveness of renewable projects.
“Indirect network externalities”
High demand for renewable products promotes economies of scale, thereby lowering renewable
product prices. Website publishes microgrid electricity supply and demand capacity profile data. This
provides valuable information for existing and prospective customer communities, including “lessons
learned” effects, which increases likelihood of follow-up renewable projects or enhancement stages.
“Promotion of trust through third party”
(LOCK-IN—CONTENT 1) Website provides unbiased, producer independent information focusing on the right.
product mix for a given customer location.
“Customized and/or personalized
offerings and features”
Website enables customized offering dependent on customer location &
community and individual preference for revenue model variants.
“Customers control use of personal
information” (LOCK-IN—GOVERNANCE 1)
Online access to information, e.g. distribution of revenue model variants, restricted to
corresponding customer community and online access to personal data
(e.g. chosen revenue variant and investment sum) only to the respective individual.
“Importance of community concept”
(LOCK-IN - GOV ERNANCE 2) LDC fac ilit ates on line com mu nic atio n of cu stom er comm uni ty rega rdi ng issue s l ike ren ewab le p rod uc
mix, installation time plan or successive enhancement stages, thus preparing in-person meetings.
Table 9. LDC model and novelty?
Value driver component Transferred to LDC context
“New participants”
Website informs about flexible model of financing alternatives, about advantages related to the
customer community concept (compare LOCK-IN—STRUCTURE 1 and LOCK-IN—
GOVERNANCE 2), thereby attracting new participants.
“New links between participants”
Website facilitates strong connections within a customer community, with the LDC and
furthermore, project based alliances (controlled by LDC) of renewable producers
“New (combinations of) products, services,
information” (NOVELTY—CONTENT 1) Novel tailoring of renewable projects and product mix according to customer community
and LDC needs, simulated through Website.
isting renewable project customers.
Interests may look at existing renewable projects and
compare it to their own situation. At an early stage, the
LDC Website should allow simulating effectively dif-
ferent revenue model variants or renewable product
mixes. Customers of existing renewable projects may re-
trieve current project status information or an as-is costs
and benefits analysis. Existing online metering functions
can be enhanced to let a customer community monitor
their aggregated renewables’ electricity supply and de-
mand capacity profile.
A customer community meeting and in-person discus-
Open Access LCE
Business Model for Local Distribution Companies to Promote Renewable Energy
sion are effective measures to follow-up information re-
trieval from the LDC website as described above, for
instance to decide upon the (initial/extended) scope of a
renewable project. This combination of “new [e.g. web-
site] and traditional media [e.g. in-person meeting] ac-
cording to their strengths [would] achieve synergy—the
sum is greater than its parts” according to Chaffey ([33],
p. 407). One way of raising the necessary interest in re-
newable projects promoted by the LDC could be an in-
teractive three-dimensional prototype simulation (sket-
ched in Figure 6) accessible thru the LDC website.
The success of this LDC model depends on the partici-
pation of citizens and renewable producers. Each cus-
tomer community and participating renewable producers
form a team together with the LDC. The results of this
teamwork can be displayed on the LDC website by
comparing the aggregation of all actually implemented
renewable projects with the LDC business plan (Figure
4). LDC customers could use the website to drill down in
order to see the contribution of a certain project type, e.g.
condominiums, or a certain time span, e.g. the second
and third year of the LDC business plan.
The LDC website and its information about renewable
projects may raise the interest of people in different loca-
tions (of the world) to consider implementing an LDC
model which would effectively promote renewable en-
4.7. LDC Model Simulation and Evaluation
In this section the constructed LDC business model will
be linked to the real-world environment in order to enable
an as possibly realistic simulation and evaluation. To-
ronto Hydro has published a price comparison [34], Table
10, of competing electricity retailers, which will serve as
Mini grid
Local g rid
Electricity Storage Capacity
Step 1:
rooft op win d turbine + therm al colle cto rs
Step 2:
Solar PV Panels
Step 3:
Solar PV Panels + ESC system
Figure 6. Stepwise renewable installation at customer loca-
scale for electricity prices of the simulated DSG scenario:
Ontario is planning to increase its renewable electricity
production share by 20% between 2005 and 2025 [35],
see Figure 7:
According to the OPG, the current 23% renewables
contribution are mostly based on large-scale hydropower
plants with capacities between 1 and 1400 MW, far be-
yond a small-scale renewable installation ([13,36]).
Beginning of 2009, the contracted RESOP capacity
had exceeded 1400 MW meaning ca. 4% of Ontario’s
total capacity demand of 31,667 MW. OPG produces a
capacity of 19,000 MW respectively ca. 60% of On-
tario’s total capacity demand for 2010 ([13,37]). Ac-
cording to ([38], p. 9), in May 2008 there were around
2500 MW capacity either already contracted or to be
contracted corresponding to a number of around 400 re-
newable energy projects. Hence, the RESOP projects
refer to an average size of over 6 MW, clearly above the
small-scale renewable installation range of 1 to 100 kW
[39], which is underlying the following simulation and
the targeted range of the proposed LDC business model.
Around 700,000 Toronto Hydro customers receive
“approximately 19% of the electricity consumed in On-
tario” ([40], p. 1). Toronto covers an area of 641 square
km with 2.48 million inhabitants [9].
The market of renewable products is very dynamic and
consistent, complete information about renewable prod-
ucts is difficult to obtain. Therefore we selected ju st three
renewable products as basis for our case study evalua-
Only installation and replacement costs need to be
considered as maintenance and operations costs for
small-scale renewable installations can be neglected ac-
cording to Table 11 and the referenced producers’ war-
ranty/expected lifetime. The following assumptions un-
derlie the subsequent qu antitative assessment (Table 12):
A lifetime span depreciation factor of 0.25 for solar
PV panels and 0.4 for wind turbines due to technol-
ogy advances, increasing price competition and eco-
nomy of scale effects predicted by renewable pro-
Installed Generation Capacity (%)
Electricity Pr oduc tion (%)
Coal Natural Gas Gasification Renewables Nuclear
Source OPA: Note: Figures shown take into account the reduction in demand
due to conservation activities
Installed Generation Capacity Electricity Production
21% 27% 19% 6%
Figure 7. Direction for Ontario’s electricity system deve-
opment. l
Open Access LCE
Business Model for Local Distribution Companies to Promote Renewable Energy
Open Access LCE
Table 10. Electricity retailer price comparison.
List of Retailers Price Comparison
Canada Energy
Wholesalers LTD. 4.0 cents/kWH variable price
Direct Energy
Marketing Ltd. 6.99 cents/kWH 3 years contract
Just Energy No rates found
MyRate Energy 7.09 cents/kWH for 5 years contract
Toronto Hydro
RPP Tiered Pricing: 7.8 cents/kWH for first 600
kWh per 30 days and 9.1 cents/kWH for the rest
RPP Time-of-Use Pricing: 12.4 cents/kWH
Highest Price (On-Peak), 10.4 cents/kWH Mid
Price (Mid-Peak), 6.7 cents/kWH Price
ducers ([44], FAQ 5) and independent organisations
[51]. The depreciated value corresponds to the re-
placement cost.
The electricity price is the quotient of installation
costs and the expected lifetime electricity yield.
A renewable product price discount of 50% conceded
to the LDC, which would act as effective demand
Toronto Hydro would like to achieve a 5% DSG share
in its 25,635 GWh total consumption ([40], p. 4), three
years after implementing the proposed LDC business
model. This consumption share value of 1282 GWh anu-
ally is used to calculate the required number of installa-
tions and the corresponding total installation costs/area
The electricity prices for the rooftop wind turbines is
already less than double of the current electricity resale
prices as given in Table 10. A successive after-lifetime
installation at replacement costs would yield competitive
prices for all products (values in brackets). How can the
LDC provide the required finance to cover the installa-
tion costs of $6 billion? By utilizing the revenue model
variants listed in Table 5. The LDC would first need to
determine its budget and time span for achieving the
planned increase of DSG. The following table illustrates
three potential scenarios for distributing th e initial in stall-
lation costs over LDC, customers and renewable produc-
In 2010, the total installation costs of $6 billion would
have amounted to the 91-fold of Toronto Hydro’s net
income of $66 million ([40], p. 4; with one CAD simply
assumed to be equal to one USD).
Table 13 summarizes three different financing sce-
narios. Hence, the LDC could finance its scenario 1 in-
stallation costs share in 5 years and 8 months, sup-
Table 11. Exemplary product mix for DSG.
Product Type Technical Data RESOP subsidy ([41,42])
Rooftop wind
turbine set:
large buildings
Installation costs estimate: $60,000 for 8 “610V Aeroturbines”. Due to Aerotecture’s statement that
the “cost of Aeroturbines will dramatically decrease once manufacturing is in place”, a discount of
50% has been assumed, referring to the original list price of $15,000 for a 610V Aeroturbine.
Lifetime: unknown, 30 years estimated Yearly Yield: 16,000 kWh (for an average wind speed of 10
mph) Areaa: ~400 sqm, deduced from project picture Warranty: 10 years.
11 cent/kWh
Rooftop wind turbine:
small buildings
ECO 1200 produced
by Windterra [45]
Installation costs estimate: “1/3 of solar installation for same yield”, i.e. $4596 (see Solar PV
panel) Lifetime: 20 years (deduced from CO2 savings calculation) Yearly Yield: 1642 kWhs
(for an average wind speed of 10 mph). According to Wind Speed Toronto (2011),
the mean annual wind speed of Toronto has exceeded 16 km/h respectively 10 mph over the past
years. Area: ~100 sqm, deduced from installation pictures Warranty: 5 years.
11 cent/kWh
Solar PV panel
No specific product
type selected.
Installation costs: 12,000$, within the 11,000 - 15,000$ range assumed by Wiens (2007)
Lifetime: 30 years [46] Yearly Yield: 1429 kWhb
Areac: 6.5 sqm Warranty: after 25 years still 80% of initial power output [47]. 42 cent/kWh
a. For rooftop wind turbines, the required area needs to be free of obstacles which would impede wind velocity. Therefore, the actual installation area is much
smaller. b. According the article by Wiens [48], Solar PV Panels produce a yearly value of about 600$ through the RESOP subsidy (42 cent/kWh). c. The re-
quired area refers to the surface covered by the installed Solar PV Panels, installable on differently inclined surfaces (wall, flat or pitched roof). Area calculation
based on annual mean of daily solar radiation for Toronto (15 MJ per sqm according to [49]), 14% efficiency assumed [50] and the stated ye arly yield (1429
Table 12. Costs of DSG.
Product: electricity
production share [%] Single replacement
Costs p.a. [$] Electricity price
[Cent/kWh] Number of
installations Total installation
costs [1000$] Total area [square km]
Rooftop large: 50% 2000 12.5 (5) 40,063 2,403,780 16.03
Rooftop small: 25% 115 14.00 (5.6) 195,189 897,089 19.52
Solar PV: 25% 100 27.99 (7.00) 224,283 2,691,396 1.46
5,992,265 37.00
Business Model for Local Distribution Companies to Promote Renewable Energy
Table 13. Financing scenarios.
Revenue model variant Share of cost assigned to:Scenario 1 Scenario 2 Scenario 3
High initial electricity tariffs LDC 6.25%: $374,516,56312.5%: $749,033,125 15%: $898,839,750
Customer participates in installation Customer 25%: $1,498,066,25037.5%: $2,247,099,375 15%: $898,839,750
RESOP variant Customer 25%: $1,498,066,25012.5% $749,033,125 15%: $898,839,750
LDC participates in installation LDC 6.25%: $374,516,56212.5%: $749,033,125 15%: $898,839,750
Renewable producer credit on installation costs Producer 37.5%: $2,247,099,37525%: $1,498,066,250 40%: $2,396,906,000
posing that its annual net income were completely dis-
tributable. For scenario 3 it would take 13 years and 7
A way to decrease these considerable financial lead
times could be to lobby for additional public finance,
drawing on significant public concerns regarding mitiga-
tion of climate change, air pollution and nuclear power
cost & security risks [29]. For scenario 1, a tax of only
$25 per Toronto capita to be paid for 3 successive years
($75 in total), would halve Toronto Hydro’s share in in-
stallation costs and thus reduce its financial lead time to
2 years and 10 months. Given scenario 3, 78% of the
installation costs charged to LDC would need to be con-
tributed by Toronto’s citizens in order to bring the finan-
cial lead time down to 3 years, resulting in a tax of $94
per Toronto capita ($282 in total over 3 years). The huge
number of required renewable installations can probably
not be realized within one year, but rather within a cou-
ple of years in line with a per capita tax spread over 3
In scenarios 1 and 2, LDC customers would need to
provide 50%, i.e. $3 billion of the in itial installation costs.
This would result in a calculative average of $4300 for
each of the 700,000 customers of Toronto Hydro. During
the initial phase of the LDC business model implementa-
tion, most likely only a small fraction of Toronto Hy-
dro’s customer base would be willing or able to partici-
pate in renewable projects. However, in order to reduce
the financial burden for LDC renewable project custom-
ers, LDC customers not participating in renewable pro-
jects could be charged higher, offset standard tariffs, with
the offset contributing to LDC renewable installations
budget. Likewise, the LDC could offer special tariffs to
customers who would like to contribute to promote DSG
but cannot (yet) participate in renewable projects.
5. Conclusions
The case study has shown that the proposed LDC busi-
ness model can be realized and that the finance required
for implementing renewable projects can be collected.
Renewable project customers can utilize a flexible reve-
nue model, the LDC and even renewable producers can
provide investment loan s, and the en tire local co mmunity
can contribute in form of a dedicated tax or a special,
offset tariff for LDC customers (not participating in re-
newable projects).
We have also identified risks related to the proposed
LDC business model. A higher level of DSG, beyond the
assumed 5% share in electricity consumption, requires a
sufficiently dimensioned ESC system and may increase
the costs considerably. The arbitrary selection of only
three renewable products has demonstrated the potential
of DSG; however limited availability of product data has
resulted in a vague costs estimate. There is hope that this
situation will improve during the on-going further ex-
pansion and establishment of the market for renewable
products. This case study is based on a high number of
required renewable installations, posing coordination and
communication challenges related to a multitude of re-
newable projects, and a diversity of renewable producers
and customer communities.
Disposable budgets for DSG will depend essentially
on the chosen location. The appropriate configuration of
revenue model variants facilitates various financing op-
tions. The authors have proposed a flexible LDC busi-
ness model which can be applied to various settings and
market situations world-wide. For example, if customers
are willing to pay high rates for green power, the LDC
could increase its profit margin by lowering the respec-
tive tariff discounts. On the other hand, in developing
countries communities will probably face difficulties to
provide the required finance. International aid organi-
zations could close this gap, reasoning that considerable
GHG emission reductions would follow from the imple-
mentation of the LDC business model.
An LDC business model prototype can be realized fol-
lowing the analysis of the DSG potential of the related
area. As a second step, the LDC would determine the
corresponding, initial D SG electricity production volume
and would continuously monitor costs and benefits of the
implementation start. Once the prototype has been com-
pletely implemented, the Website communication effec-
tiveness can be measured.
Due to scope constraints we had to limit the case study
of the proposed LDC business model to Solar PV and
wind power installed on buildings. The authors would
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Business Model for Local Distribution Companies to Promote Renewable Energy 53
like to exemplify with only two (of many thinkable) al-
ternative ways to empower the LDC business model. In
example one, LDCs could promote small-scale CHP
plants, associated with a convenient cost structure and
suitable for residential, public or commercial buildings.
In example two, a North American LDC like Toronto
Hydro could target shopping malls, typically found in
suburban areas and associated with large areas of build-
ing structures and parking lots. Solar Panels installed on
parking lots and roof areas could provide electricity to
the shopping mall itself and to end-customers with (hy-
brid-) electric vehicles. Besides, solar PV panels’ shadow
would reduce the heating up of customer cars considera-
The authors recommend future, applied research by
realizing LDC business model prototypes. Thus its
strengths and weaknesses can be evaluated and methods
can be developed to mitigate o r avoid the risks and chal-
lenges identified in our research.
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Open Access LCE
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