An application: the residential market

1
Where Can Bioenergy Heat Applications Be The Most
Suitable?A Market Segmentation Analysis Of The
UK Heat Market
S. Jablonski (sophie.jablonski_at_imperial.ac.uk),
A. Pantaleo, C. Panoutsou, A. BauenImperial
College London, Centre for Energy Policy and
Technology, RSM Building, Prince Consort Road,
London SW7 2AZ

• An application the residential market
• Characteristics of market sub-segments
• Interaction with key factors
• Key factors
• Identification of promising sub-segments

Introduction context and objectives Around 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.
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.
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).

• Methodology

Segmentation by customer type
Customer type 1
Type 2
3
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.
Segmentation of one customer type by geographical
area
Geographical area example RuralNot close to gas
gridCoal is the displaced fuel
Sub-segments characteristics
.

• Market segmentation overview

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)
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.
Generic List of Key Factors
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.
Conclusion 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.