Articles

Business models should be economically, environmentally, and socially sustainable. In District Energy, the social dimension is less explored. Why is that, and can social sustainability support the competitiveness of district energy? Results from a case study in Canada.

By Kristina Lygnerud, Kerstin Sernhed, Johanna Ayrault, and Hanne Kortegaard

Published in Hot Cool, edition no. 8/2025 | ISSN 0904 9681 |

No definition of a socially sustainable business model

Upon reviewing the literature on business models, it becomes clear that there is no single definition (Zott & Amit, 2008). There is, however, consensus that business models revolve around delivering value to one or several customer segments.

To provide the value, assets are needed. In the case of district energy, they are fixed (heat generation and distribution) and variable (staff). Activities are undertaken to manage the assets. Last but not least, key partnerships are needed to deliver customer value. In the case of district energy, key partners are the fuel/heat supplier and the customer value is heating and hot water (Ostewalder & Pigneur, 2010; Lygnerud et al., 2023).

If there is no single, crisp definition of what a business model is, there is even less information about what a sustainable business model is. And even less than that on what a socially sustainable business model represents (Missimer et al, 2015).

In the literature on business models, social sustainability has been identified as the foundation of an organization or one part of a process, or (in contrast) an isolated matter, a carrot or a stick, or other (Lygnerud et al, forthcoming). There is no definition of what social sustainability is in the context of DH.

District energy: economic sustainability as a result of economy of scale

The conventional district energy business case is built on the logic of economy of scale. Heat is generated in a central unit from where it is distributed to customers using water as an energy carrier in a network of pipes. The marginal cost of production is a key measure indicating how much it would cost to generate one more unit of heat.

The context and growth of district energy companies was triggered (1880s) by the need to support the electrification of society (using combined heat and power generating units).

A byproduct of electricity generation was heat, which could be utilized to provide heating and hot water to buildings in urban areas. Over time, district energy systems were erected with purposes other than electrification: namely, to provide indoor comfort in both residential and professional buildings.

District energy: environmental sustainability as a result of ongoing development

District energy companies have an inherent capability to ensure environmental sustainability. If the fuel mix is composed of sustainable heating alternatives, the companies can become carbon neutral. Or even have negative emissions through the development of the Carbon Capture and Storage and Carbon Capture and Usage technologies.

Such solutions, in combination with renewable fuel supplies, can make district energy systems carbon sinks (Fossilfritt Sverige, 2019). The sector has successfully met environmental goals as a result of continuous development stemming from the first oil crisis (1970s-80s) and, later, from the threat of the climate crisis we are currently facing.

District energy: What is social sustainability?

A review of the literature on social sustainability reveals ample information on Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) initiatives across different organizations.

In the literature, there is an emphasis on labor legislation, human rights, anti-corruption, and taking responsibility for the impact that activities have on society and the environment. The impact on different stakeholders can be large or small, and it can appear close to or very far away from the organization’s core activities.

In our study, we examined district energy companies in mature district energy markets (Sweden and Denmark) and in new district energy markets (Canada and Belgium). The idea was to understand what social sustainability can be in the district energy context and if it can strengthen the competitiveness of the district energy business model.

In new markets, we assumed that there are fewer lock-in effects in traditional value chain configurations, allowing for an opportunity to explore and understand the dimension of social value creation (Lygnerud et al., Forthcoming).

In the studied district energy markets, respecting labor rights, human rights, and anti-corruption are standard. Hence, such aspects of social sustainability value creation were taken for granted and omitted from the analysis. Instead, attention was turned to the impact that organizations can have on different stakeholders.

Reviewing the value chains of district energy companies in the four markets, we identified areas where social value creation should be possible. Examples of such values were identified across the value chains.

In“inbound logistics,” collaboration with local heat suppliers (such as local sawmills, waste heat from local commercial activities, or urban infrastructure) can foster social values, such as local job opportunities, the use of locally available energy, and an affordable heat supply.

Other potential social values were identified in the core activities of the companies. The values were linked to low price (by ensuring that assets are operating efficiently), digital solutions (empowering customers to both provide waste heat into the system and to optimize their use of heating and hot water), offering different kinds of heat solutions to different customers (micro grids can be offered to customers too distant to the main grid), and other. Internal efficiency, leading to low price, is the most common action, whereas digital maturity and micro-grid offers are less common.

In the sales and marketing activities, most of the potential social values were identified. One was to engage with the larger community. Such engagement could, for example, take the form of educational efforts directed at young people. Thereby increasing awareness on energy matters and raising interest in engaging.

Digitalization efforts in the core activity can also lead to an ability to actively create win-win incentives with customers. An example of this is fostering desirable behaviors of heat and hot water customers, which can be integrated into price models or post-sale activities.

Furthermore, there is a growing demand among customers to support local solutions that generate a sense of solidarity and support within the community. Local energy can also be more resilient to external shocks, which is relevant to most customer segments. Last but not least, the carefreeness (no need for maintenance) of district energy is a well-known and explored social value.

Social values in district energy can improve the competitiveness

If district energy companies would harvest the social values across the value chain it could lead to lower costs (local heat supply at competitive price), customer engagement (interest to shift behavior and contribute by providing waste heat but also, for professional and large customers to co-invest in shared assets) and increased awareness of the positive impacts that the district energy companies can have on the every day lives of residents in a city.

Furthermore, social values anchor the district energy company to the community and its residents, making it more difficult to be outcompeted by energy providers that lack the same level of local engagement and ties.

How to get started

So what should you do if you want to start working with social sustainability values more explicitly? Start by looking at your value chain to identify where social sustainability is most pronounced.

Next, explore the stakeholders in your surrounding ecosystem and identify potential partners for win-win collaborations. Then, ensure that social sustainability is a management priority.

To come into play and have a real effect, social sustainability must be integrated into decision-making processes. Last but not least, revisit your business model and business logic to determine whether changes are needed to capitalize on social sustainability values.

A revolution overturning current business logic and ways of performing district energy activities is not needed. Instead, smaller-scale actions should be undertaken to shift how the district energy business case is composed. That way, first measures across the value chain will spread and, over time, become the norm.

A note of caution- case study results should not be overgeneralized

Results were generated by reviewing literature on socially sustainable business models, analysing generic district energy value chains reflecting conditions in Sweden, Denmark, Belgium, and Canada, and by in-depth examination of social values identified by stakeholders linked to a new district energy installation in Canada.

The reader should be aware that the results are limited and that further analyses are needed for generalizations to be possible.

Information on the case study

The City of Burnaby is located in Metro Vancouver, British Columbia, Canada. It is planning to develop a district energy utility that will receive thermal energy from Metro Vancouver’s district energy system and supply it to high-density residential, commercial, industrial, healthcare, and institutional buildings in Burnaby neighbourhoods.

Thermal energy will be captured from Metro Vancouver’s waste-to-energy facility in South Burnaby. In the future, depending on heat demands, additional low-carbon sources could be integrated into the system.