The Emerging Business Model of Energy-as-a-Service (EaaS)

Posted by Eveline Killian on May 24, 2017 10:00:00 AM

I recently read an article about an emerging business model, Energy-as-a-Service (EaaS), which is a deviation from traditional power purchase agreements (PPAs) and Energy Management services.  In its basic form, “energy as a service” is the idea that an outside service company guarantees a building’s future energy costs.  If the building uses more energy than predicted, the service company is responsible for the difference.  But if the building uses less energy than contracted, the service company profits.  From the building owner’s perspective, it’s a way to manage overhead electricity costs that fluctuate by time-of-day rates and demand peaks, and fossil fuel costs that fluctuate throughout the year. For the service company, it is a way to be creative in energy supply and management, and an incentive for efficiency improvement.

As I read about this service however, it became clear that an EaaS provides a greater service than just cost-containment.  There are so many cost-effective energy sources that are ever evolving, making it impossible for a busy business owner or Facilities Manager to stay current on the optimal portfolio.  Add to that the corporate sustainability goals that shareholders and customers are demanding and you can see the need for an energy resource consultant.

Energy Markets Are Confusing

The current energy markets are more complex than they have been in the past.  Traditionally, there was one monopoly that provided electricity to a building and, other than time-of-day cost differences, there wasn’t much a building owner could do to change their overhead energy costs.  Now there are renewables, storage, deregulated utilities, and energy efficiency renovations as energy sources, as well as changing regulations and financing options to contend with.

energycircle.pngImage via Edison Energy - http://www.edisonenergy.com/#difference

Maryrose Sylvester, President and CEO of Current, states in her blog, “Think of energy-as-a-service as the great simplifier – it shifts the burden (management, implementation, updates, ongoing technology evaluation and selection) to the vendor.” 

Creative Energy Sources

An EaaS develops an energy portfolio that combines the different energy sources and the customer’s sustainability goals and guarantees the annual cost. A comprehensive approach will include a combination of saving energy, producing energy, and storing energy, in addition to the conventional buying and using of energy with such entities as:

  • Solar and/or wind power procurement, onsite or remote
  • Onsite generation such as combined heat and power (CHP) or fuel cells
  • Microgrids and storage
  • Retro-commissioning and energy retrofits
  • Time-of-day demand peak shaving
  • Demand response
  • Fuel-switching
  • Fossil fuel and electricity procurement

ph_service01.pngImage via Headspring - http://headspring.co.jp/en/product/energy/

Perfect Timing

In the past there weren’t as many options as there are now, making this a perfect time to look at an energy supply portfolio comprehensively.  Building owners and managers are hearing about renewables, resiliency, climate change, electric grid constraints, energy independence, and energy efficiency retrofits.  Plus, the paradigm shift to sustainability goals has become a priority out of necessity, with brownouts, blackouts, and weather extremes showing the vulnerability in our energy supply.

Not an Endorsement Outright

Old business models are being challenged in all markets.  If done right, I think an EaaS has the potential of helping a business wade through the energy-source quagmire that exists in the current age.  A Facilities Manager or business owner does not have the time or experience to ensure an energy portfolio that meets their sustainability goals and secures responsible pricing in this ever-changing energy supply landscape. The thing I will caution is that the entity responsible for this energy procurement must have the experience to provide guidance and have the ability to implement a multifaceted product.  There are many companies that have experience in one sector of this field – say an electric utility or solar provider.  But it requires an independent consultant without a vested interest in any one energy source and one that can bring in the right experience to provide a comprehensive, unbiased energy portfolio.

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Topics: Energy Efficiency

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