Energy as a Service — Energy Efficiency

One way in which buildings try to save on energy bills is through greater energy efficiency. Apart from gains in savings, energy efficiency has other benefits as well. Newer appliances provide better capabilities, be it for homes or businesses, and thus allows for an increase in productivity. And in a world where environmental concerns are of prime importance, a lower carbon footprint is sought after. However, while there are numerous benefits to maximizing energy efficiency, there are two hurdles that impede its growth.

Firstly, it is not easy to find the spots where efficiency improvements can be made, for reasons such as the lack of expertise in identifying the gap to fill it. Not all businesses have the expertise to know where they need to make adjustments or corrections to improve their energy efficiency and this is most certainly the case with individual homes.

Secondly, for homes and businesses to replace older, less-efficient appliances with newer ones, they require finances that might be beyond their means. Across the world, policies such as mandates by governments for products to have energy efficiency ratings have meant that the energy efficiency of devices saw, and continue to see, improvements over time — effectively meaning that more output can be produced with the same amount of energy. While it saves money in the long run, the high capital expenditure means that buildings continue to operate with older appliances because they do not have the finances to replace them.

Primary energy consumption per real dollar GDP in the USA (1950–2012)

(Source: US Energy Information Administration)

Energy audits for buildings have been one of the solutions to provide the expertise needed to identify areas for efficiency improvements. Through an audit, homes and businesses get detailed information about modifications to be made, benefits that can be accrued, and the costs involved, to compute the potential gains through the initiative. Such a service has been provided by utilities themselves or by companies that specialize in it. And for both homes and businesses, it is an easy way to get an update before deciding how to proceed.

But when energy audits show that energy efficiency can only be improved through upgrades, it is not always a solution that is possible to implement. While the audits might show that investing in newer appliances provides savings greater than what it takes to keep the older ones running, such data is not helpful when financing these outlays is difficult. Across the world, heating and cooling are two of the most energy-intensive functions in buildings and any retrofitting of these require a good deal of money to be spent. There are also other applications that use lesser energy on their own, but which add up and make a difference in the quantum of energy consumed.

Energy consumption in homes by end uses in the USA (1993 and 2009)

(Source: US Energy Information Administration)

Thus, significant capital expenditure for energy efficiency makes homes and businesses think twice, even when the benefits are clear. And this results in many buildings being less energy efficient than they could be, leading to discomfort for the people inside, increased operating costs over the lifetime of these structures, and a larger environmental footprint.

The solution to this has been in the form of EaaS solutions that remove the capital expenditure component and instead structure it in the form of a service. This structuring thus allows for repayment to be done over a period instead of having to make an upfront investment. With the repayment for the retrofits being less than the energy costs of the older appliances, it thus results in immediate savings while giving the additional benefit of having better technology. The provision of this service by companies with expertise in the area also makes it easier to upgrade without having to worry about the safety and the efficacy of the installations, thereby taking care of the risk associated with the move.

ESCO market by region, business model, and client

(Source: International Energy Agency, World Energy Investment 2019)

While retrofitting is one way to increase energy efficiency, the proliferation of data through advanced devices means that there are insights gained through their everyday use. Doing away with the need for periodic energy audits, data analysis would show the commercial and business operations that can be optimized to seek the highest energy efficiency possible. As with retrofits, repayment for these services is in the form of instalments that are less than the expenditure incurred on earlier operations. There are multiple ways in how this is structured, and they are broadly in the form of a fixed payment or a variable one.

The fixed payment method lets utilities or the service companies fix an amount that is lesser than what the existing power bills are, and any savings greater than that are the profits gained for the service provider.

The variable method is in the form of a division of the savings gained from these initiatives, with the service providers taking a part of the savings and the home or business taking the other part. These initiatives allow for energy efficiency improvements beyond those offered by upgrading appliances and are cost-effective as they involve no investments to be made.

Repayment contract types

While energy efficiency is sought after by both homes and businesses for many reasons, it had not been easily achievable because of the lack of knowledge and expertise, the risks associated with it, and the capital investments required. With EaaS solutions, each of these concerns is addressed, thereby allowing for easier upgrades and energy savings. Such upgrades have numerous other benefits other than just cost savings, and these will be written on in the coming posts.

EaaS — Energy efficiency



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