The Possible Future of Energy-As-A-Service?
One often hears the term “Energy-as-a-Service” in the electric industry. That sounds simple enough. Various companies provide as-a-service offerings for improved lighting and other efficient energy technologies. The model is not new, and variants. In fact, some variants in use today have been around for over a half-century. The original concept is well over a century old. So, with energy as-a-service, what do you get? What does that term actually mean, and what might it mean in the future?
Enjoying power by the hour
How is the term used for electric customers?
An offshoot of that approach resulted in the “lighting-as-a-service” model now provided by many lighting equipment manufacturers and suppliers. Here, the customer pays an ongoing subscription for an efficient lighting upgrade – including installation, maintenance, and replacement – avoiding what might have otherwise been a steep upfront capital expenditure. The savings from the resulting efficiencies are generally sufficient to pay for a good portion or even all of the subscription fees. These programs are becoming quite popular, with a market estimated to be in excess of $6 billion over the coming five years.
I just want to pay for the hole
The concept already exists in a partial form, with some vendors guaranteeing the output of their products, whether the availability of compressors or train uptime, but in this country, it has as yet not included the costs of the energy inputs.
There’s no real reason, that it couldn’t, though. In fact, this idea is not new and originated in France over a century ago with the concept of “chauffage” (literally the French word for heat). With chauffage, vendors financed and installed furnaces while also ensuring a steady supply of coal to those furnaces during the lifetime of the contract. They sold neither the furnace nor the coal but rather billed for the heat.
Is a chauffeur coming to our shores someday soon?
1) Equipment purchasing is time-consuming and involves research and trade-offs between capital and operating costs. Many businesses have fixed annual budgets and purchase energy-consuming products with first cost in mind, rather than the entire life-cycle considerations. A third-party solutions provider would view that differently and buy more efficient equipment if incentivized to do so, especially under longer-term contracts where investments in efficient technologies have more time to pay off.
2) Utility tariffs are complex and often nearly impossible to decipher. Sophisticated management of electricity costs often involves complex strategies, such as reducing monthly demand charges (utility charges based on the highest consumption during a 15-minutes or hourly period during the monthly billing cycle) or more effectively operating within time-of-use based tariffs (where electricity prices in the evening can be more than twice those earlier in the day). Business managers often have difficulty addressing these complexities. They have other jobs to do, and they don’t have time to master the arcane nuances of utility rates. By contrast, a solutions provider offering an outcome-based approach would have the incentive to address these nuances and select the right equipment to optimize financial performance.
3) The challenge gets even harder when businesses operate in competitive retail power markets, where they have to buy their electricity supply from a third party. Here, managers must both deal with paying the utility delivery services and navigate the most volatile commodity markets in the world (where kilowatt-hour prices from one hour to the next can easily double, and potentially increase over 10-fold from one day to the next. This is a challenge for even the most seasoned facility energy manager, but where there is risk and volatility, there is also an enormous opportunity for those with the skills and incentive to do so, such as energy services companies.
The United States Air Force has recently issued Requests for Information for a fully-integrated comprehensive chauffeur type of approach, and one Air Force base in Massachusetts is advancing the concept. Today, while nobody yet offers such a solution in the U.S., we are now seeing the necessary elements in the marketplace that may eventually lead to that result. We now have more efficient end-use technologies, coupled with cost-effective batteries that help customers better manage when and how they draw power from the grid. We have also recently seen the development of self-learning software that can oversee the entire customer energy ecosystem and optimize economic outcomes.