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Procedia Manufacturing 8 (2017) 270 – 277

14th Global Conference on Sustainable Manufacturing, GCSM 3-5 October 2016, Stellenbosch,
South Africa

Demand side management within industry: A case study for


sustainable business models
D. Khripkoa*, S. N. Moriokab, S. Evansc, J. Hesselbacha, M. M. de Carvalhob1
a
Sustainable Products and Processes (upp), University of Kassel, Germany
b
Production Engineering, Polytechnic School, University of São Paulo, Brazil
c
Centre for Industrial Sustainability (CIS), University of Cambridge, United Kingdom

Abstract

The transition of the German energy market is primarily based on RES. The main problem of RES like photovoltaic and wind
power is volatile availability. This issue can be mitigated through enhanced flexibility of the demand. DSM can be an additional
mechanism in smart grids. Energy intensive industry offers a high DSM potential that could be useful to the energy sector. New
business models are required that combine economic viability with environmental and social benefits for various stakeholders
operating in the energy sector and manufacturing industry. This research analyses opportunities for business model innovation
through DSM in industry. The study presents two case studies in which the Value Mapping Tool was applied to identify failed
value exchanges with respective stakeholders and DSM. The research proposes a new business model aligned with sustainable
development principles that can help the industry to mitigate volatile energy availability in an economically sensible manner.
© 2016The
© 2017 TheAuthors.
Authors. Published
Published by by Elsevier
Elsevier B.V.B.V.
This is an open access article under the CC BY-NC-ND license
Peer-review under responsibility of the organizing committee of the 14th Global Conference on Sustainable Manufacturing.
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the organizing committee of the 14th Global Conference on Sustainable Manufacturing
Keywords: Sustainable business models; Demand side management; Sustainable Manufacturing; Value mapping tool

1. Introduction

The energy consumption has a significant environmental impact and is a major reason for the increasing emissions
of greenhouse gases (GHG). According to the IPCC, fossil fuel combustion and industrial processes contributed to
about 78 % of the global CO2 emission increase between 2000 – 2010 [1]. In Germany the energy sector and the

*
Corresponding author. Tel.: +49 561 804 3460; fax: +49 561 804 3995.
E-mail address: dianakhripko@web.de

2351-9789 © 2017 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the organizing committee of the 14th Global Conference on Sustainable Manufacturing
doi:10.1016/j.promfg.2017.02.034
D. Khripko et al. / Procedia Manufacturing 8 (2017) 270 – 277 271

manufacturing industry caused 62 % of the total GHG emissions in 2014 [2]. As a result from the Kyoto Protocol
agreements and the more recent nuclear incidents in Japan, Germany’s energy market is transitioning towards a
sustainable and climate-neutral system [3]. This transition aims to achieve a stepwise reduction in GHG emissions of
95 % by 2050 [4]. The goals include the reinforcement of renewable energy systems (RES) on gross electricity
consumption from 50 % in 2030 to 80 % until 2050 as well as increasing energy efficiency [4]. The latter is measured
by amount of reduction in primary energy and electricity demand additionally to the raise of energy productivity and
combined heat and power (CHP) generation.
Changing the energy market is challenging, not only in terms of the regulations and operational processes, but also
in regards to the structure of assets. The geographic characteristics of Germany create a “North-South” divide caused
by the distance between the main location of the off-shore WP plants and the industrial centres [5]. Moreover, smaller
PV and WP generation units are often deployed on the country side.
The urgency to replace and to reduce dependency on fossil fuels demands the prioritisation of integration of RES
into the public energy grid [6]. However, the volatile availability becomes a driving factor for the increasing
fluctuation of residual load in the grid affecting transmission and distribution grids. According to the legal regulations,
the transmission grid operators in Germany are responsible for the ancillary services and especially for the frequency
control [7]. The procurement of necessary capacities is realised by operating a balancing energy market [7]. The
distribution grid operators monitor the voltage [7]. In case of an unbalance between demand and generation, the
equalisation occurs with other local grids or aggregates at the upstream grid levels.
The conventional solution approach to these issues is grid expansion. However, in a smart grid decentralisation
cannot only be focused on the generation side of the system. For a holistic approach of sustainable energy market a
“smart customer” is also necessary. Demand Side Management (DSM) can be an additional important mechanism to
pointedly use flexibility of the energy demand. Consequently, the transition of the energy market is linked to the
technological developments as well as to reassignment of roles to the actors in the market. Furthermore, it establishes
opportunities for new sustainable business models (BMs).
This research aims to show the opportunities of innovation concerning more sustainable BMs in the energy market.
It uses two companies as case studies, a mid-sized polymer processing manufacturer and a distribution grid operator,
both located in the state Hesse in Germany. The application of the Value Mapping Tool (VMT) [8] gives support to
the evaluation of failed value exchanges between the analysed company and its stakeholders. This leads to
identification of innovation opportunities towards more sustainable BMs. By applying this tool to both companies
with focus on energy supply and demand dynamics, opportunity for a new BM is derived and discussed.

2. Literature background and theoretical context

In the following, the two main concepts used in this research are presented, bringing the main aspects regarding
DSM and sustainable BMs in the energy sector. The DSM approach has its roots in the research of Gellings, who
classified theoretically the measures for a strategic influence of the power load profile of electric utilities [9]. Currently,
the raising energy costs are the main factor driving the industry to change the consumption behaviour. In Germany the
annual peak load is a base parameter for billing grid usage expenses. In operating peak-load monitoring systems DSM
is often used to smooth the load profile and is a part of internal energy efficiency strategies.
Due to the fluctuating energy generation driven by WP and PV plants, DSM can be also used as a measure for the
grid operator to equalize the load profile of the grid. In case of over-generation with purpose of a secure supply the
extreme situation could require a disconnection of the RES from the grid. To avoid this, the consumption can be
increased as a negative DSM capacity. The opposite is the positive capacity, which implicates that the demand can be
reduced or the electric power generation could be increased. In a scenario in which energy systems shift towards
sustainability, the usage of RES generated electricity should be raised. Hence, the demand side should be managed.
For this reason the focus of the present research is on the measures at the consumer´s side.

2.1. DSM potential within industry

Electric steel, metal and chemical processing as well as wood, paper and cement industries are sectors characterised
by energy intensive processes with a potential for DSM of multiple hundred megawatts. In addition, the cross-sectional
technologies for air conditioning, cooling and compressed air supply indicate a significant potential across all
272 D. Khripko et al. / Procedia Manufacturing 8 (2017) 270 – 277

industries [10]–[12]. However, the identified potential varies considerably due to the definition of the boundaries of
the balanced systems. Because of high capacities, this process flexibility is already partly used by the balancing energy
market to control the frequency of the transmission grids. The raise in the percentage of RES in the generation mix
affects distribution grids and requires demand side flexibility. Because of their energy demand, the mentioned
industries and processes are typically connected to high voltage grids. Their capacities are not available for voltage
control.
There is a large amount of small- and medium-sized manufacturing companies (SME) in the distribution grids.
Their potential spreads across different processes and machines. Thus, DSM potential aggregates from different
production areas of a factory, as shown in the Figure 1. One alternative is to use battery technologies to store the
electricity directly and to shift the power purchases on that way. However, battery technologies are neglected in terms
of their current economic non-profitability.
The second possibility for the DSM initiative is the roll out of CHP, which contributes significantly to the flexibility
of a polymer processing site. The capability of change between electricity and natural gas as an energy source can be
used by grid operators to relief the grids. Simultaneously, the usage of “green” power in times of over-supply reduces
the emissions by primary energy demand.

flex-supply power-to-battery power-to-system power-to-storage power-to-product


P With DSM
Operating Redundant Without DSM
system system

Z
Zeit

Figure 1: Measures classification for direct and indirect energy conservation in a factory [26]

Power is only an intermediate energy for many applications and is converted internally for the production of useful
energy in the form of thermal energy or compressed air. Thermal energy and compressed air can be stored considerably
cheaper than electric energy. The tolerances of the power demand without affecting the production processes are
particularly high in thermal processes due to their inertia. The building services provide the DSM potential in two
ways. The buffers as cold water tanks can be used as indirect electricity storages. Another approach is the installation
of alternative electric conversion technologies as parallel systems. Thus, electricity substitutes fossil fuels such as
natural gas, but these machines could also operate as generally required redundancy.
Power-to-product contains special processes in the batch-mode that do not run continuously and their operation
does not (or only slightly) affect the value change. They are relatively robust in their control. Their flexibility depends
on material storages. E.g. these processes are washing and re-granulation of reject or drying of plastics.

2.2. Sustainable BMs in the energy sector

A BM is defined as “a conceptual tool containing a set of objects, concepts and their relationships with the objective
to express the business logic of a specific firm" [14]-p.3. BMs can be built considering the following elements:
product, customer interface, infrastructure management and financial aspects [14]. Alternatively, a value-based
approach on BMs indicates three main elements: value proposition, value creation & delivery system and value capture
[15]. Traditionally, BMs are related to value delivered to customers [16]. In turn, sustainable BMs consider value
exchange not only with customers but also with other relevant actors. This is because corporate sustainability is about
meeting needs of both direct and indirect stakeholders including employees, pressure groups, communities, etc. [17].
Sustainable BMs can be seen as the representation of an organization's sustainable value exchange with its
stakeholders supporting the description, analysis, management and communication of its sustainable value
proposition, sustainable value creation and delivery system plus the value captured by the organization itself and other
stakeholders [18]. Given the higher pressure for integrating sustainability aspects into the energy system, actors in the
energy sector need to be able to improve infrastructure, but also to innovate the BMs [19]. It is worth noting that
public policy is one of the most important incentives to develop and implement innovations towards more sustainable
BMs [19] [20].
Opportunities for new BMs in the energy sector towards more sustainable solutions should focus on utility- or
D. Khripko et al. / Procedia Manufacturing 8 (2017) 270 – 277 273

customer-side [21]. The value proposition regarding the utility-side is related to bulk generation of electricity fed into
the grid which often represents a lower threat to utilities in current BMs [19] [21]. The customer-side value proposition
encompasses customized solutions and energy related services [21]. These small-scale decentralized renewable
projects tend to be less explored by utilities, demanding the development of new competencies and the implementation
of new BMs [19]. Focusing on an extreme case of decentralization, Knuckles [22] conducted research on mini-grid
electricity as a solution for base of the pyramid markets, identifying various possible BM configurations. To analyse
DSM-BMs, Behrangrad [23] indicates the following aspects: DSM transaction characteristics (regarding motivations
and hurdles for stakeholders in adopting DSM); RE resource correlation (related to cross-impact between DSM-BM
and RE resource penetration); and DSM load control characteristics. The author uses these indicators to present
different DSM business configurations. Behrangrad [23] argues that there is no single BM better than the other, but
rather the different designs can co-exist and organisational performance depends on each context.

3. Research method

The method chosen for the present research is case study, given the exploratory nature of the research objective.
Using theoretical (rather than random/sampling) selection criteria, as indicated by the literature [24], two companies
are chosen: one mid-sized polymer processing manufacturer (C1) and one distribution grid operator (C2), both located
in the state Hesse in Germany. They represent two different points of view for the same BM innovation opportunity.
Based on data from these cases, opportunities of a new BM based on DSM were identified and analysed. For this, data
collection counted mainly with participant observation, which was complemented and triangulated with internal and
public documents. By everyday interactions data collection using participant observation has the advantage that the
researcher is inserted in the organization's context, understanding particularities of each case study, identifying
eventual incongruous or unexplained facts and making connections with other observed facts [25]. One of the paper's
authors was played the role of participant observer, whose interaction with each company focused on raising data on
possible benefits of DSM in each organisation.
The collected data was analysed according to the VMT [8], shown in Figure 2. The use of this visual tool initiates
the definition of a unit of analysis and the identification of company's main stakeholders. These may vary according
to the considered company. In the following, the company's sustainable value exchange with each stakeholder is
identified, according to the sequence: (1) value captured (associated with current value proposition); (2) value
missed/destroyed (negative outcomes or value inadequately
captured from the current BM); and (3) value opportunities (new
opportunities for additional value creation and capture through
new activities and relationships) [8]. By performing this
structured analysis, the literature indicates that the VMT enables
the identification of innovation opportunities for more
sustainable BMs [8].
The present research uses the logic of the VMT to frame
empirical evidence for each case study, allowing the
identification of innovation opportunities regarding DSM-based
BM. One possibility of a BM innovation for sustainability based
on DSM is in sequence discussed in terms of value proposition,
creation and delivery system as well as value capture, as proposed
by Richardson [15].

Figure 2: Value Mapping Tool [8]

4. Results and discussion

This section begins with an overview description of each case study, providing context to data analysis based on
VTM to identify value opportunities. These results bring evidence regarding potentials for a new BM based on DSM
described and discussed in sequence.
274 D. Khripko et al. / Procedia Manufacturing 8 (2017) 270 – 277

4.1. Description of each case study: (C1) Flexible blow-film manufacturer and (C2) Grid operator [26]

The evaluated manufacturer (C1) produces different plastic films by blow film extrusion. The production is
characterized by low complexity of the value chain. Nevertheless, the product can be customized by varying the
properties of the design and material of the film. The production process demands different types of energy. Depending
on weather conditions, polymer granulates need to be dried before processing. Additionally to the friction, the
plasticisation of granulate requires thermal energy. After melting, the polymer exits the die by being blown vertically.
The engines of the extrusion machines demand cooling as well as the film itself, before the plastic tube can be rolled.
In the post-processing stage of the product, processes involve customised printing, cutting and packing for the delivery.
The manufacturer creates his value by mass production. Thus, his research and development focuses on processes
and materials. The fields of energy efficiency and polymer recycling are mainly driven by market prices and
governmental policies. This family owned company, which is typical for German mid-sized sector, is highly interested
in innovation. Therefore, in terms of energy efficiency, a holistic decentralised energy concept based on a gas-fired
CHP unit has been developed. The economic viability depends on the grade of waste heat usage, because the generated
electricity could be consumed throughout the entire year. During the cold period, the low-level heat is mainly used to
heat the office buildings. The innovative approach lies in the usage of thermal energy of exhaust gases by the
absorption chiller and the core process that is polymer melting. A thermal oil system replaces the conventional electric
cuffs on the extruder [13]. These stages of the implementation are planed modularly.
The CHP-based co-generation does not per se relieve the local grid. An intelligent control and operation as well as
collaboration with the grid operator are necessary. In a conventional system design the gas fired boilers are used as a
redundancy for supply reliability. In the context of smart grid electric technologies could be an alternative. The grid
oriented DSM aims to provide the possibility of swapping between natural gas and electricity systems. The
compression chillers generate additional potential by sufficient cooling water storage capacity. If available, sprinkler
tanks can be integrated in the cooling systems. The dryer and re-granulation are both a batch-process that could be
shifted under consideration of material interim storing capacities.
The second case study (C2) represents the chosen grid, which is geographically located in the temperate climate
zone in the middle of Germany. This area is characterized by a mix of small- and medium sized urban and wide
agricultural areas. The grid operator is responsible for the electricity transport at the medium- and low-voltage grid
and has to provide access to the customers who are private householders, farmers, service oriented and industrial
companies as well as RES operators. The task of the grid operation contents the maintenance of infrastructure, forecasts
of grid loads and accounting the usage costs of the grid. In the past the potential value of the grid operation focused
on e.g. forecasts' improvement and innovative asset technologies.
Now the environmental value is driven by public policies. With the energy market transition, the grid operator has
identified the need for a change of focus in the BM. For that reason innovation affinity is high. Nevertheless, the know-
how about the processes on the other side of the electricity meter of the manufacturing factory is not sufficient.

4.2. Analysis of sustainable value exchange opportunities

The previous section shows the technological and operational opportunities for DSM. The challenge is the lack of
the understanding of the other partners' business and the natural orientation on improving own core competencies.
Next, this research evaluates the possibilities of the value exchange. With support of the VMT, value exchange in
terms of value captured, value missed/destroyed and value opportunity for each of the companies' stakeholders was
identified [8]. It is worth noting that the focus of the tool was around issues related to energy consumption (C1) and
grid operation (C2). Value captured by C1's and C2's stakeholders enabled, respectively, by current value proposition
includes profit, wage and education for employees as well as delivery of quality products and services. Regarding C2,
a relevant captured value in the community is the access to electricity grid in households and industries that is
performed with guarantee of stabile and safe infrastructure.
Regarding missed/destroyed value, it was identified that C1's current production process presents potentials to
address energy waste issues, which result in environmental and financial costs. Besides, the combination of energy
demand oscillation of C1 and other local industries contributes to less stable and safe grid. As identified in the case
studies, collaboration and knowledge exchange with external partners to develop and implement more energy efficient
D. Khripko et al. / Procedia Manufacturing 8 (2017) 270 – 277 275

processes are not systematically performed, resulting in lower contribution of C1 and C2 to governmental policies
regarding RE targets. Both companies (C1 and C2) have current capacity for technological innovation, which
contributes directly to their competitive advantage. However, this capacity is restricted within the boundaries of each
company. By exchanging knowledge manufacturers will improve their understanding of the energy market. Equally,
grid operators will improve their understanding in manufacturing processes. This exchange enables the development
and implementation of innovative and sustainable solutions.
Deriving from value captured and value missed or destroyed, opportunities for DSM to create and deliver more
value can also be identified, as indicated by Table 1. This is because this approach has potential to enable greener
energy mix, more eco-efficient production, pioneering in DSM-BM, more collaboration with partners, more
innovative industry in social system, and more sustainable products and services. Following this lead, the next section
presents one possible BM configuration based on DSM that addresses these identified opportunities.

4.3. Proposed BM with DSM

Combining the results of sustainable value exchange and the benefits derived from DSM, a mutual BM opportunity
for C1 and C2 based on DSM can be proposed. It can be seen as a complementary BM that could be conducted parallel
to the current ones. Following, the proposed DSM-BM is described in Table 1. Regarding the value proposition from
C1's perspective, grid oriented DSM could provide a revenue stream, additionally to the manufacturer profits from a
stable and secure supply system. At the same time grid operators could reduce the necessary investments in the grid.
Evidence also shows positive effects regarding national economy. The subsidies paid for the RES are not dependent
on their effective usage [6]. The resulting inefficiencies will be avoided by DSM in terms of increased utilisation. The
flexibility of energy demand supports the possibility to integrate a higher number of RES in the grid, providing
advantages towards a more sustainable energy supply.
Creation and delivery of this value require an adaptation in equipment and processes as well as in the operational
strategies. The grid operator needs to understand the operational and production processes beyond the electricity
meters. The realisation of demand flexibility is based on transparency and multi-directional communication. Therefore,
planning energy supply in a smart grid demands more holistic approaches. It is an opportunity for BMs based on
leasing models and reallocation of ownership rights. All actors get the possibility of new collaborations. They can
generate innovation and profit through knowledge and data exchange.
Considering value captured by the companies' stakeholders, the VMT identified the potential value for almost all
actors. The shareholders and investors have monetary benefits from selling the flexibility. The higher usage of RES
reduces the primary energy demand and raises the energy efficiency. DSM could be used in internal training and
education programs for the employees willing to take new responsibilities.

Table 1. Opportunities for both actors by integration of DSM in their BM.


− Revenue stream from flexibility for industries − More sustainable energy system
Value
− Reduction of the investment volumes for grid operators − Expansion of share of renewable energy plants
proposition −
− Reduction of implementation costs for renewable energy Reduction of carbon emissions
generation − Reduction of energy cost for national economy
− Adaptation in equipment − Development of internal knowledge on energy
Value
− Adaptation in production process with focus on ICT and market, technologies and manufacturing processes
creation and communication to connect both sides (understanding each other’s operations)
delivery − Flexible working times (industry) − Development of new collaborations in terms of
− Energy storage infrastructure pooling of capacities
Value capture − Shareholders / Investors: Additional profit (from selling − Employees: New responsibilities
flexibility); Pioneer in implementing a more sustainable BM; − Actors in the value chain (customers / suppliers /
Cost reduction from energy efficiency service): More collaboration / knowledge exchange
− Environment / Society: Greener energy mix, reduction of with new partners; innovation; reduction of energy
emissions, reduction of energy cost cost; contribution to more stability and security in the
− Government: Contribution to goals of public policies grid

In general, the collaboration between different actors supports knowledge exchange and innovation creation. With
the raising fluctuation of energy generation, the stability and security of the supply are again placed in the focus of
the market design and are essential for all participants. The DSM approach aims to contribute to more stability and
276 D. Khripko et al. / Procedia Manufacturing 8 (2017) 270 – 277

security in the grid. Environment and society profit from cleaner energy supply. RES are subsidised independently
regardless if the generated electricity was consumed or not. DSM raises the usage rate of RES, helps to avoid cost
inefficiency and contributes to public policies.
One of the main challenges facing the implementation of the DSM approach in Germany is the legal framework.
The price structures for network usage charged by grid operators are strongly monitored by the Federal Network
Agency. The unbundling of the energy market intended the market opening towards competition, where a
discrimination free access of the consumers to the grid is one key parameter [7]. However, it is also the reason why
currently any DSM activities could not be compensated in the course of regular network charges. Additionally, the
existing on- and off-peak price systems are not sufficient for the critical grid states that occur locally.
The interruptive loads regulation aims the shutting down energy consumption in times of high demand [7]. This
strategy only involves end-consumers connected to the low voltage grid [7]. SMEs usually access the medium voltage
grid and are therefore not affected by load interruptions.
The implementation of DSM gives an opportunity to reduce the investments in the grid expansion. This reduction
can be used as an incentive for the industry to encourage a market-oriented behavior. The issue is that investments in
grid expansions become refunded by grid usage charges. The opportunity to finance DSM measures is the temporal
offset between the investment and the time point of its return, hindering the roll out of a BM.

5. Conclusions

This study approached the effects of DMS concerning higher sustainability in the BM, based on case studies
performed with a local blow film producer and a grid operator. The investigated DSM potential is linked to financial,
environmental and social benefits for each company and its stakeholders. Under consideration of climate change, the
results highlight the necessity of a holistic approach in the energy market. Whilst industrial energy efficiency strategies
may have early economic advantages, long-term strategies may be required. The interaction between different
measures and interests can be used to create an additional value by using synergies. Building from current state (value
capture and value missed/destroyed), leading to possible BM (value opportunity), the use of VTM brought evidence
to the convergence of value opportunities from industry and grid operators. From this alignment, new BMs based on
DSM that integrates industrial and grid operator partners could be deployed (Table 1). Previous studies in the energy
sector, found useful application to the following BM elements: value proposition, customer interface, infrastructure
and revenue model [28]. The present research brings evidence of an alternative approach, framing the business model
into value proposition, value creation and delivery system as well as value capture, as proposed in [15].
Research limitations include the number of case studies as well as interpretation and personal bias intrinsic to the
researcher responsible for participatory observation for data collection. However, these choices enabled a deeper
understanding of each case study that is given to the exploratory stage of the potential for a sustainable BM with DSM.
Future research can investigate issues related to implementation of DSM-based BMs. It requires a deeper analysis of
manufacturer and grid operator perceptions before a roll-out of this service and the adoption of country specific legal
and technological frameworks can be realised.
In Germany options for selling flexibility industrial capacities already exist in form of balancing the energy market.
The participation as secondary and tertiary reserve is generally suitable for industry. Also the capability of load control
can be used for strategic oriented trade on the energy exchange. Both alternatives however require knowledge and
understanding of the market and its data. For industry and particularly for small and mid-sized enterprises, whose core
business is commodity production, the effort is only sensible in collaboration with a service provider. The growth of
RES share affects the local grid operators in terms of the maintenance of voltage therefore measures need a regional
location of flexibility providers. From a political perspective the promotion of singular self-optimization measures has
to be involved in the holistic concept of a smart grid. The environmental and social advantages of a greener energy
mix and the reduction of emissions require the contribution to goals of public policies of all market participants.

6. Acknowledgments

We thank especially Prof. Steve Evans for his support of our research and for his engagement in the international
collaboration between the universities. We thank also the National Counsel of Technological and Scientific
Development (CNPq). We also thank Ms. Pia Stein and Peter Mr. Holzapfel for their support. The project „INSEL in
D. Khripko et al. / Procedia Manufacturing 8 (2017) 270 – 277 277

Hessen – Intelligente Steuerung elektrischer Industrie-Lasten in Hessen“ (TI 0015/2014 – 0/575/71112485) is funded
by the European Regional Development Fund (ERDF) 2007-
2013, RWB-EFRE-Program and by the funds of State Hesse.

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