The ABCs of EaaS
Energy-as-a-Service is a financial solution that enables organizations to upgrade energy infrastructure without any capital investment.
Essentially, “as-a-service” represents a shift from businesses owning and maintaining their technology, to businesses only paying for the services the technology provides (think software, copiers, etc.). It's all about simplicity – removing unnecessary complexity and cumbersome processes, to make way for a more efficient way of running a business. It's also about prioritizing where to focus resources and investments to achieve maximum benefit and ROI.
Applying the as-a-service model to energy represents a paradigm shift in how companies manage their facilities.
Energy supports nearly every aspect of a company’s business: profits, production, employee health, and safety. For many commercial operations, energy is one of the largest operating expenses. Despite this, some companies still view energy primarily as simply the cost of doing business. Other, more forward-thinking companies, are taking a closer look at their energy costs and are realizing that unlike many other budget line items, energy is a controllable expense. They understand, accordingly, that effective energy management will not only reduce utility costs, but it can also improve overall business performance, profitability, and brand reputation.
The most obvious benefits of boosting energy efficiency include increased profits and reduced utility costs (large companies can reduce their total energy spend by 30% to 50%). There are also a number of less tangible benefits, such as enhanced employee comfort, increased productivity, reduced absenteeism, and improved sustainability.
Since energy efficiency/decreased energy consumption is clearly good for business, why aren’t all companies embracing it?
It's complicated. Some organizations lack the staff and expertise to develop and manage enterprise-wide energy efficiency upgrades while many others are unable or unwilling to invest in energy efficiency and reduction.
Enter energy “energy-as-a-service.” Energy-as-a-service (EaaS) is a pay-for-performance, off-balance sheet financing solution that allows companies to implement energy and water efficiency upgrades with no upfront capital expenditure. Energy assessments, project design, implementation, ongoing measurement, and verification are all handled by an energy service provider (ESCO). Project development, construction, and maintenance costs are all covered by a third-party asset owner/lender. Once a project is operational, the company simply makes regular service payments from their guaranteed energy savings.
No Capital Required: The energy service provider (ESCO) secures third-party funding to cover all project costs. Companies have no upfront expenses or internal capital outlay – which means they can use those funds for other projects.
Guaranteed Results: EaaS agreements specify and guarantee performance-based outcomes (quantified energy savings, positive cash flow, water reduction, etc.)
Simplified Procurement: EaaS eliminates the hassles and delays associated with internal CAPEX approval processes
Off-Balance-Sheet: The use of service payments means companies can shift energy efficiency projects from an expensed asset that must be purchased and maintained – and which will depreciate in value, to an operating expense similar to a monthly utility bill.
Outsources Risks: Energy management is rarely a core competency for non-energy companies. Selecting the best technology options, sifting through incentives, and retrofitting the infrastructure requires dedicated expertise. EaaS provides access to the experts who can design the project scope, install all upgrades, maintain, and verify the performance of all efficiency measures.
Increased Cash Flow: Positive cash flow results from immediate energy, water, and maintenance cost savings.
Energy portfolio services represent one of the most inclusive and effective EaaS solutions – providing larger companies with comprehensive, portfolio-wide strategic guidance on energy management, financing, and technology. Companies with a portfolio of buildings find this model most advantageous because they can bundle multiple sites with smaller projects into a single contract.
How it works
- The first thing companies should do is to select the right energy service company
- The company will conduct an initial energy assessment to understand how energy is being consumed and identify the best opportunities for increasing efficiency.
- They will evaluate the company's energy and financial goals and will recommend a third-party asset owner/lender that best aligns with those goals.
- They will perform an investment-grade energy audit (IGA) and recommend a project scope. Final project design will be presented upon approval of the scope.
- They will implement the upgrades, maintain project equipment and monitor the performance to validate energy savings.
- Companies simply pay back the project costs through a monthly fee for the service received. The payment is based on guaranteed and realized energy savings. Customers who commit to multi-site, multi-measure retrofits achieve, on average, savings of 20–25%.
- The third-party asset owner retains ownership of all project-related assets for the duration of the project term and pays the energy services company for associated operations and maintenance (O&M) services to ensure long-term reliability and optimal performance.
- Companies have the option to purchase the equipment for its fair market value at the end of the project term.
The genius of Energy-as-a-Service is that it provides businesses with a risk-free way to upgrade energy systems, increase profits, reduce operating expenses and dramatically improve working environments – without any initial capital investment. It marries technology and finance solutions, shifting selection, implementation, management and maintenance hassles to expert providers, allowing companies to focus on their core business activities.