An application: the residential marketAn application: the residential market

Characteristics of market sub-segmentsCharacteristics of market sub-segments

Interaction with key factorsInteraction with key factorsKey factors

Identification of promising sub-segmentsIdentification of promising sub-segments

Preliminary resultsPreliminary results1. Among individual dwellings, buildings to be refurbished or newly built in off gas-grid rural areas provide a good fit for bioenergy schemes at present. 2. Results are similar for medium-size groups of buildings with district heating, especially for newly built schemes where policies mandate a share of renewable energy (10%) to be provided by renewable energy sources for new developments above a certain threshold in surface (1,000 sq meters).3. Large community heating schemes with CHP show limited opportunities for bioenergy, except for new dense developments in areas where the gas grid is not present.

Generic List of Key FactorsGeneric List of Key Factors

MARKET SEGMENTATION

Segmentation of the heat market and determination of each subsegment’scharacteristics in terms of: User needs User types Geographical area

KEY FACTORS

Identification of the key factors which can affect (positively or negatively) the uptake of bioenergy technologies for heat: Technical factors Economical factors Organisational factors(environmental, social, behavioural, etc.)

X

…Factor Y

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In the context of each sub-segment X, determination of whether each key factor Y provides an opportunity or a barrier for the use of a bioenergy system

PROMISING SUBSEGMENTS

In comparing the results obtained for various market sub-segments it is

possible to identify the subsegmentsthat appear the most suitable for

bioenergy heat applications

Heat market size of service sector sub-segments (2001)

Other18%

Education16%

Hotel and Catering16%

Retail13%

Commercial Offices12%

Warehouses8%

Health6%

Government6%

Sport and Leisure4%

Communication and Transport

1%

Where Can Bioenergy Heat Applications Be The Most Suitable?Where Can Bioenergy Heat Applications Be The Most Suitable?A Market Segmentation Analysis Of The UK Heat MarketA Market Segmentation Analysis Of The UK Heat MarketS. Jablonski (sophie.jablonski@imperial.ac.uk), A. Pantaleo, C. Panoutsou, A. BauenS. Jablonski (sophie.jablonski@imperial.ac.uk), A. Pantaleo, C. Panoutsou, A. BauenImperial College London, Centre for Energy Policy and Technology, RSM Building, Prince Consort Road, London SW7 2AZImperial College London, Centre for Energy Policy and Technology, RSM Building, Prince Consort Road, London SW7 2AZ

TSEC BiosysTSEC Biosys

Introduction: context and objectivesIntroduction: context and objectivesAround 85 millions toe of heat is consumed each year in the UK. Heat from bioenergy only contributes to meeting a few per cent of this demand. Attempts by the government to stimulate the bioenergy sector in the UK have so far had limited success. As part of the TSEC Biosys project, this poster presents a possible framework for better targeting policy efforts related to bioheat, based on an assessment of the market segments that would be best suited for its application.

MethodologyMethodology

Heat market size of industrial sector sub-segments (1999)

Chemicals and chemical products

19.6%

Basic metals20.4%

Food products and beverages

13.6%

Leather0.2%

Other non-metallic mineral products

8.5%

Wood and w ood products

3.0%

Tobacco products0.1%

Other7.4%

Furniture3.3%

Textiles3.6%

Motor vehicles, trailers and semi-trailers

3.8%

Fabricated metal products

4.3%

Pulp, paper and paper products

6.6%

Rubber and plastic products

5.6%

Residential dwellings

41 million toe

Industrial activities29 million toe

Commercial and tertiary activities

16 million toe

UK annual heat final consumption: 85 million toe

Market segmentation overviewMarket segmentation overview

Technology typeSize of the heating systemIdentity of the heat producerHeat load factor / demand temporal variabilityDensity of the heat demand

Building characterisation (New vs Refurb existing) New New New New New New New New New New New New Refurb Refurb Refurb Refurb Refurb Refurb Refurb Refurb Refurb Refurb Refurb RefurbArea characterisation (Rural / Urban) Rural Rural Rural Rural Rural Rural Urban Urban Urban Urban Urban Urban Rural Rural Rural Rural Rural Rural Urban Urban Urban Urban Urban UrbanDisplaced fuel (Natural Gas / Oil / Coal) NG NG Oil Oil Coal Coal NG NG Oil Oil Coal Coal NG NG Oil Oil Coal Coal NG NG Oil Oil Coal CoalProximity to the gas network (Yes / No) Yes No Yes No Yes No Yes No Yes No Yes No Yes No Yes No Yes No Yes No Yes No Yes No

Technical factorsSystem response time N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R.Heat characteristics N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R.Space availability Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No No No NoFuel supply constrainsts N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R.Economical factorsLow cost biomass availability / Price of fuel Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes YesCapital grants and other benefits Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes YesOther economic factors?Organisational factorsPotential (if interest) for carbon displacement N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R.Potential (if interest) for local job creation N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R.Risk of noise (fuel delivery) N.R. N.R. N.R. N.R. N.R. N.R. High High High High High High N.R. N.R. N.R. N.R. N.R. N.R. High High High High High HighOrganisational capability for fuel supply OK OK OK OK OK OK Low Low Low Low Low Low OK OK OK OK OK OK Low Low Low Low Low LowAlternative fuels' network externalities Neg. Pos. Neg. Pos. Neg. Pos. Neg. Pos. Neg. Pos. Neg. Pos. Neg. Pos. Neg. Pos. Neg. Pos. Neg. Pos. Neg. Pos. Neg. Pos.Reward / incentive policies Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No No No No No No No No No No

Low to medium

Heat only individual housing boilersSmall size (<50kW)

Individual house/dwelling50-60% / highly intermittent

New New New New New New New New Refurb Refurb RefurbRural Rural Rural Rural Urban Urban Urban Urban Rural Rural RuralNG NG Oil Coal NG NG Oil Coal NG Oil CoalYes No No No Yes No No No No No No

N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R.N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R.Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes YesN.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R.

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes YesYes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R.N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R.N.R. N.R. N.R. N.R. High High High High N.R. N.R. N.R.OK OK OK OK Low Low Low Low OK OK OKNeg. Pos. Pos. Pos. Neg. Pos. Pos. Pos. Pos. Pos. Pos.Yes Yes Yes Yes Yes Yes Yes Yes No No No

Low to medium

Heat only individual housing boilersSmall size (<50kW)

Individual house/dwelling50-60% / highly intermittent

Conclusion and next stepsConclusion and next stepsMarket segmentation of the residential, commercial and tertiary sector demand is a useful exercise and helps understand where bioenergy uptake has the best chances to occur. It is more complex to apply such framework to a more discrete market like the industrial heat market. Choosing representative case-studies allows to go deeper into the analysis, and seems meaningful complement to market segmentation.In addition, looking at the demand side only is not sufficient to provide final results. The technical, economical, environmental, social and political issues linked to the various bioenergy supply chains need to be considered. As such, market segmentation analysis is a dynamic exercise, and interactions between supply and demand sides are required.

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A. Customer (user) needs: Heat for Space and Water Heating with a highly intermittent demand. Customer needs are homogeneous across the residential sector. It means that this segmenting dimension is neutral.

B. Customer (user) types: A customer type is characterised by two parameters. (1) Individual heat user versus group of users. This choice of segmenting dimension has implications in terms of associated technologies that produce the heat. (2) In addition, we differentiate between new build and existing building (to be refurbished).

C. Geographical area: The location of the heat demand is characterised by three parameters (of interest in the analysis): (1) Rural versus urban area, (2) Proximity to the gas grid (yes/no), and (3) the “displaced fuel”, which in the case of new build corresponds to the fuel most likely to be used (natural gas / oil or coal).

Customer type 1: Individual heat user. This corresponds to small size heat-only boilers 10-20 KW (max 50 kW). In terms of technology, CHP could play a role at that scale, but only in the future.

Customer type 2: Group of dwellings linked by district heating. A few hundred kW, up to 1MW.

Customer type 3: Large district heating scheme. A few MW. At this scale, CHP is a commercial option.

Customer type 1 Type 2 3

Geographical area example:

RuralNot close to gas gridCoal is the displaced fuel

Filtering out inconsistent sub-segments: Hypotheses are developed, which allow to eliminate some market sub-segments which are either too small or inconsistent. For example: due to the high heat density needed to have a large district heating scheme viable district heating schemes in rural areas may not be considered.

Ranking of the sub-segments: It is possible to get a qualitative assessment of which market sub-segments are more suitable than others, based on a set of hypotheses that are being tested through interviews with relevant stakeholders and further analysis. The colours indicate the type of impact the factors have on the “potential” for bioenergy systems: positive (green), negative (orange), and show-stopper (red).

Suggestions for better market penetration: It is possible to make recommendations on what factors could be influenced by policy making or financial support schemes, and how this would promote the use of bioenergy in particular sub-segments.

Why market segmentation? Segmentation of markets enables manufacturers and distributors to design and supply products and services which appeal to particular types of buyers. It recognizes that people differ in their tastes, needs, attitudes, motivations, life-styles and so on.

Market segmentation steps: Market segmentation is a two-step process of (1) naming broad product-markets, and (2) segmenting these broad product-markets in order to select target markets.

Segmenting process: Segmenting can be seen as an aggregating process which clusters people with similar needs into a “market segment”. A market segment is a relatively homogeneous group of customers who will respond to a marketing mix in a similar way.

Segmenting dimensions: Markets can be subdivided by several criteria (or “segmenting dimensions”). These will be influenced by the nature of the product or service, the characteristic of demand, the methods of distribution and promotion, and the motivation of buyers.

Source: Perreault, W. D. and McCarthy, E. J. (2006) In Essentials of Marketing - A Global Managerial ApproachMcGraw-Hill Irwin, pp. 60-89.

Main industrial market segments: In the industrial sector energy consumption follows a very different pattern than in other sectors. A large share of its consumption goes to process heating. Process heating is used in many industries for a wide range of applications, all requiring different temperatures and conditions.

DTI Statistics, DUKES (data 2001)

Main service sector market segments: Heat consumption varies widely depending on the type of service or commercial business considered. Space heating makes up the largest share of all energy consumed by each of the service segments, and water heating energy consumption was the highest in the hotel and catering segment.

DTI Statistics, DUKES (data 2001)

What are the factors affecting the potential demand for bioenergy? The main factors (linked to the heat demand) that affect the uptake the bio-energy for heat and CHP in various market segments are listed (space availability, heating fuel price etc.).

Are these barriers or opportunities? The defined factors are then assessed to understand which ones could be showstoppers or could be surmounted easily, and for which factors could bioenergy heat and CHP represent an improvement compared to alternatives.

….

TECHNICAL FACTORS

Characteristics of heat required

Heating systems response time

Technical efficiency of the system

Space requirements / availability

Fuel supply constraints

ECONOMICAL FACTORS

Capital costs

Capital grants and other benefits

Operating costs (including price of fuel and maintenance costs)

Operating revenues (including ROCs, carbon trading etc.)

Cost of capital

Taxes and rebates (including CCL, Enhanced Capital Allowance etc.)

ORGANISATIONAL FACTORS

Greencredential (e.g. potential for carbon displacement)

Amenity issues (noise, odours,…)

Organisation capability to deal with fuel supply

Biomass and competing fossil fuel infrastructure availability

Reward / incentive policies or mechanisms (linked to the market segment)

Sub-segments characteristics

Segmentation by customer type

Segmentation of one customer type by geographical area