Unlocking Sustainable Energy Solutions: The Rise of Energy-as-a-Service (EaaS)
Energy as a service is a business model which allows customers to pay for an energy service. It usually takes the form of a subscription for electrical devices owned by a service company, allowing customers to enjoy the benefits without having to make any upfront capital investment
Most existing energy technologies use fossil fuels and emit carbon dioxide, a severe cause of climate change. To meet the emissions targets necessary, low, and zero-carbon technologies must replace existing methods of energy production. However, many challenges exist in the widespread adoption of low-carbon energy technologies. adoption of these technologies comes with high upfront technology costs, capital constraints for consumers, uncertainty about a technology’s performance and information barriers
The solution to this problem, producer have adopted is the subscription-based service: allowing customers the benefits of a product without purchasing it or directly managing its use. The model provides steady revenue streams for producers while benefiting customers through financing and increased product value. For a recurring fee, customers get energy services, such as lighting, avoiding direct electricity equipment, expensive upgrades to electrical equipment or software, or device management
Benefits of Energy as Service
Although energy efficient improvements could save money for consumers, they fail to do so due to a combination of market and behavioural failures, resulting in underinvestment in energy efficiency. This underinvestment came to be known as the energy efficiency gap. Incentives to adopt and invest in energy efficiency technologies are misaligned among utilities, consumers, and society at large. Electric utilities are motivated to increase electricity sales to increase revenues, giving rise to the creation of the energy service companies (ESCO) Model which provides incentives to service companies to profit from energy savings. ESCOs provided energy efficiency upgrades under a performance-based contract, including repayment for the upgrades through the energy savings.
As per the IEA report, less energy-intensive manufacturing sectors have high energy savings potential, which could reduce their energy intensity by more than 40% by 2040. Energy as a service market is poised to grow with a CAGR of 10.29% from 2022 to 2030.
ESCO Contracts
Energy performance contract models– It provides customers with a guaranteed level of energy savings and a reliable source of revenue for the ESCO. The most common type of model refers to
- Shared Savings – In this model, ESCO could provide financing, project development and implantation costs with the energy savings shared by the client and ESCO during the contract period
- Guaranteed savings model – In this form of model, ESCO guarantees a certain savings on a client’s energy bills. The ESCO bears the technical risk, and the client pays the contractually determined fees
Energy savings insurance and credit risk guarantee– Energy Savings Insurance (ESI) offered by a small number of financial institutions, insurance companies and private companies, to reduce the risk of an energy efficiency project. Insurers offer two types of insurance packages-
- Technical Package – It protects ESCO in case promised savings are not achieved
- Credit Package – Insurance provider takes the responsibility for the project, thereby ensuring the repayments owed to the ESCO
Super ESCOs- They are government entities created to serve the public sector, they develop private ESCOs, and facilitate project financing
The impact of digitalisation on ESCOs- With the increased use of building, automation and analytics will lead to energy savings estimates through more streamlined measurement and verification protocols
Use Cases of Energy as a Service
Smart Home Solutions– For Smart home and office environments, it provides energy advice, management, and installation with the help of data integration that regulates energy usage and provides insights
Solar and Wind Energy solutions– As the future of renewable energy, there are projects offering solutions providing cost effective energy subscriptions within the framework of smart homes
Supporting transitions for efficient energy system
Distributed generation and microgeneration– Distributed energy resources, where energy is generated closer to the point of consumption
Connected technologies– Smart grid transformation could use technologies of 5G, Advanced metering equipment, AI, Cybersecurity, Blockchain, and much more
Conclusion
Eaas has become the most natural solution at a time where a large number of organisations are moving towards subscription-based services. It not only addresses the challenges faced by organisations while trying to adopt energy efficient systems but also provides impetus to ESCOs for the adoption of energy efficient methods by incentivising them for doing so. The model is built to replace the existing vertically integrated market, by adopting the existing and upcoming digitisation technologies and physical infrastructure for the future.
Author- Abhishek Saini