Low carbon infrastructure investment: extending business models for sustainability

Foxon, T., Bale, C., Busch, J., Hall, S., Roelich, K. and Steinberger, J.

Investment in infrastructure is recognised as a key driver of economic prosperity, but it is also important for addressing social and environmental challenges, including climate change mitigation. The UK Government Strategy Investing in Britain’s Future argues that significant investment in “resilient, cost effective and sustainable energy supplies” is needed to meet these challenges. However, current methods of assessing the costs and benefits of infrastructure investment, and the subsequent design of business models needed to deliver this investment, often prioritise partial economic gains over social and environmental objectives. This paper assesses how alternative forms of creation and appropriation of value, alongside different business models, can incorporate social and environmental value streams and propositions as well as economic values in order to facilitate genuinely sustainable infrastructure investment. This draws on case studies of the development of smart grids for electricity distribution and local heat delivery networks, being undertaken as part of the EPSRC/ESRC iBUILD: Infrastructure business models, valuation and innovation for local delivery consortium.

This contributes to the consortium’s exploration of infrastructure business models as a generalisation of the business model concept (Teece, 2010; Osterwalder and Pigneur, 2010) to include social and environmental values and the wider range of public and private actors involved in infrastructure delivery. We are examining the challenges relating to the development of local low carbon energy networks, and analysing alternative business models for how such networks can be used to efficiently deliver energy services to residential and commercial customers. This will characterise a range of business models applicable to low carbon energy networks and use empirical case studies to compare the potential benefits of the most promising business models, in order to develop qualitative models with agent interactions and heuristics, to test business models and inform development of quantitative dynamic models.

The UK is committed under the Climate Change Act 2008 to reduce its carbon emissions by 80% by 2050, from 1990 levels, with intermediate carbon budgets now in place out to 2027, and an additional target for 15% of final energy to come from renewable sources by 2020. Whilst policy has largely focused on measures to incentivise large scale centralised power generation from offshore wind and new nuclear build, there is also a significant potential for carbon reductions through more local distributed generation and heat delivery networks (Foxon, 2013). However, these policy measures tend to reinforce the lock-in of current centralised electricity and gas networks, in relation to infrastructures, business strategies and established practices, which creates barriers to the implementation of local low carbon energy systems and more systemic energy efficiency improvements. The economic, social and environmental values that could accrue to local communities, including job creation, enhanced energy security and emissions reductions, are hard to capture under current institutional and regulatory frameworks, and new business models will be needed to facilitate investment in local energy systems and to enable local communities to capture their fair share of these benefits.

Low carbon infrastructure investment: extending business models for sustainability (pdf, 1.9 MB). The future of national infrastructure systems & economic prosperity conference, Cambridge, UK, March 27–28, 2014.