Customer engagement and competitive pricing in district heating
Driven by EU-mandated smart meters, district heating companies can now tap into valuable customer behaviour data for network optimisation and cost reduction. By using digital solutions to gain a full understanding of their network, they can increase transparency towards the customer and utilise smart segmentation strategies such as pricing and service-level differentiation, ultimately boosting customer engagement and system resilience.
Following the fast roll-out of smart meters driven by EU legislation, district heating companies now have more data about customer behaviour and demand that could be used to optimise their networks. Providers have a vested interest in helping customers reduce costs and lower the return temperature. To achieve that, they use various forms of incentives that rely on smart meter data.
For example, when the energy market volatility increased in 2022, the Finnish district heating provider Helen had the right tool to support its customers and have them participate in the energy market flexibility.
Using a mobile application, customers could track the changing electricity pricing and their energy consumption. Helen has seen its electricity usage drop by 28% in one year, and usage reduction during peak hours due to greater consumer awareness and real-time data availability.
How can district heating companies use this type of data to adjust their pricing strategies, reduce expensive peak resource use, and eliminate bottlenecks or resolve the low performance of users? This is where digital solutions help.
Best practice: Smart differentiation of your customer offering
District heating providers that have a clear understanding of what’s going on in their networks can take the next level and incentivise customers by modifying tariffs over time (also known as flex tariffs). A segmented offering can increase customer engagement and boost the resilience of the heating system.
In particular, this segmentation may take on three forms:
Technical – this includes the kind of heat source (connection to the central grid, a local booster, or a subnetwork) and the time of day.
Service-level differentiation – in this scenario, the provider offers multiple contracts based on the weather conditions, time of year, and temperatures.
Pricing differentiation – in this segmentation type, pricing is adjusted to match the customer’s payment terms preferences.
Bringing such a segmentation strategy to life is next to impossible without access to live customer data. Once companies have it, they can take the next step and implement integrated digital modelling and automation solutions.
Case study: Vatajankoski – introducing seasonal pricing
The Finnish utility company Vatajankoski applied changes to its pricing model in 2022 by introducing seasonal pricing for district heating energy.
The company analysed heat production costs and set up a new tariff where pricing for district heating services in the summer is lower than in winter. Previously, it offered a fixed energy price for the entire year. This strategy helped build Vatajankoski’s competitive advantage as a potential heat provider for customers who require more heat during the summer months.
Pekka Passi, Managing Director at Vatajankoski: “This has attracted consumers who need more heat in the summertime when we have waste heat available, and it helps us compete against alternative heating systems, like ground heat pumps.”
Greater transparency benefits customers
By implementing a digital solution that allows to extract customer behaviour insights, district heating companies deliver several benefits to customers as well. The increased level of transparency about their consumption can help them adjust their behaviours to become more sustainable.
However, sharing consumption data with customers poses new challenges for providers as they transform their networks with new renewable energy sources and greater decentralisation.
Janne Kerttula, Director Energy Networks and Services at Finnish Energy: “Customers have started to ask for diversity and flexibility in pricing for district heating. This will require more information and digital tools. Companies realise the challenges that come with transition and portfolio change. It will be impossible for human operators to manage all this in an optimal way.”
A digital system that enables both heating companies and their customers to be aware of when they use heat is a cornerstone of the future business model for district heating companies. Such solutions drive customer engagement, increase transparency in the relationship with the provider, and help district heating businesses enhance the way they do business to make it more sustainable.
As the first step towards a transparent and resilient customer relation management, such solutions help to understand and improve the network by prioritising actions aimed at optimising user performance. In their most advanced form, digital solutions unlock demand side management capabilities, which include opportunities for introducing flexible tariffs.
Would you like to learn more about how industry leaders are preparing for other known certainties, such as growing system complexity, rising fuel prices or sector coupling?
Read our Market Research Report for practical tips backed up by real-life case studies based on interviews with 17 Nordic district heating leaders.