Energy as a Service Market

Energy as a Service (EaaS): A New Paradigm in Energy Management

In recent years, the energy industry has undergone a significant transformation. As the world moves towards a more sustainable and greener future, traditional energy models are being replaced by innovative and more efficient solutions. One such solution is Energy as a Service (EaaS). EaaS is a new business model that allows customers to purchase energy services instead of purchasing and managing physical assets themselves. In this essay, we will discuss EaaS, its benefits, and how it is changing the energy industry.

EaaS is a business model that enables customers to purchase energy services on a subscription basis, rather than purchasing and managing physical assets such as generators, solar panels, or storage systems. This means that customers can access a range of energy services such as power generation, energy storage, and energy management without having to invest in expensive infrastructure themselves. The EaaS provider takes care of all the technical and operational aspects of the energy system, while the customer pays only for the energy services they use.

One of the key benefits of EaaS is that it allows customers to focus on their core business operations rather than worrying about managing energy assets. This can be particularly beneficial for small and medium-sized businesses that may not have the resources to invest in expensive energy infrastructure. EaaS providers can offer customized solutions that are tailored to the specific needs of the customer, which can help to optimize energy usage and reduce costs.

Another benefit of EaaS is that it can help to reduce carbon emissions and promote sustainability. By providing customers with access to renewable energy sources such as solar or wind power, EaaS providers can help to reduce the reliance on fossil fuels and promote a more sustainable energy future. Additionally, EaaS providers can use advanced energy management technologies to optimize energy usage, reduce waste, and improve energy efficiency.

EaaS is also changing the way that energy is purchased and consumed. Instead of purchasing energy from a traditional utility provider on a per-kilowatt-hour basis, customers can now purchase energy services on a subscription basis. This can provide greater flexibility and transparency in energy pricing, as customers only pay for the energy services they use, rather than being charged for energy that they may not have consumed.

Dynamics of Energy as a Service Market

Drivers in Energy as a Service Market

The Energy as a Service market is witnessing significant changes as the traditional methods of electricity generation are being replaced by Distributed Energy Resources (DER). These include solar panels, fuel cells, batteries, and combined heat and power systems. The declining costs of DER technologies, the need to reduce carbon emissions, and the increasing demand for customer-centric solutions are some of the factors driving the adoption of these resources.

The use of DER has positively impacted the Energy as a Service ecosystem, enabling utilities to reduce their customer's energy costs by shifting from traditional energy sources to renewable energy sources. For instance, SmartWatt, a US-based company, collaborated with Plumas Lake School District to install a roof-mounted solar PV system at three schools, resulting in 100% of the facilities' energy consumption being met and USD 180,000 in annual savings for the customer.

However, the replacement of traditional energy sources with renewable ones requires significant investment in smart grids and equipment, which may impede market growth. The lack of skilled labor is also a significant challenge. On the other hand, the adoption of microgrid technology, which uses solar and wind energy, has spurred market growth. The increasing adoption of DER in emerging nations due to their energy and cost efficiency is also a significant factor driving market growth.

The application of DER in rooftop solar, biomass generators, electric vehicles, and microturbines is expected to drive the market further. Moreover, the reduction in emission intensity and cost of power system augmentation, as well as the improvement in reliability, will support revenue growth in the Energy as a Service market.

Restraints in Energy as a Service Market

The integration and deployment of renewable energy sources comes with various technical and feasibility considerations, such as capacity constraints, limited trained workforce, competition for project management and equipment, and restricted supplies of basic raw material inputs. Successful deployment of solar PV, for instance, depends on factors such as the availability of sunlight and solar radiation, which can pose a threat to energy as a service providers.

Despite strong operational capabilities, major players in the energy as a service market have encountered problems in executing projects, achieving only 51.5% of the planned 41,110 MW capacity addition. To achieve energy cost savings through constant monitoring and automation, various technologies, such as connected devices and monitoring platforms, need to communicate seamlessly with each other. However, environment clearances and land acquisition have caused project execution delays. Integration of existing customer technologies with energy as a service provider platforms can also pose challenges.

Effective controls, transparency, and streamlined business processes are necessary to overcome these challenges. Moreover, heavily regulated energy industry can create barriers for energy as a service providers, who may need to navigate complex regulations related to energy generation, distribution, and sales. Additionally, the infrastructure required to provide energy solutions, such as renewable energy systems and microgrids, can be costly and require significant upfront capital. Securing financing to fund the development and implementation of energy solutions can be challenging for startups or smaller companies. Collecting and managing large amounts of data related to energy usage can also create cybersecurity risks, necessitating investment in secure data management systems and processes.

Opportunities in Energy as a Service Market

Opportunities are arising due to the increasing use of energy-efficient technologies. Energy efficiency involves utilizing energy in the most cost-effective manner, reducing waste and minimizing overall consumption of primary energy resources. Technological advancements in renewable energy sources have led to increased energy efficiency, benefiting building owners who opt for energy as a service model. This model allows energy service providers to bundle smaller project opportunities into a single contract, which can be implemented in multiple buildings, resulting in saving time and human resources.

For instance, in California, Redaptive partnered with AT&T to upgrade more than 600 sites across 31 states with LED lighting and controls, leading to annual energy savings of almost USD 20 million. The energy as a service structure allows providers the flexibility to introduce new efficiency measures over time and increase overall savings across the customer portfolio.

Similarly, in Texas, Siemens was awarded a USD 37.2 million contract by the General Services Administration (GSA) to improve energy efficiency at three buildings in the Great Lakes region. The Energy Savings Performance Contract (ESPC) includes 13 different projects, such as installing four central heating and cooling plants, energy-efficient exterior lighting, and high-efficiency hot water boilers, to save money while meeting peak demand at the facilities. These examples demonstrate how energy-efficient technologies and the energy as a service model can help reduce costs and improve efficiency.

Challenges in Energy as a Service Market

One of the major challenges facing the Energy as a Service model is the uncertainty surrounding the agreement structure. Commercial building owners may be hesitant to sign long-term financing contracts or service procurement agreements with energy as a service providers because of the ownership and maintenance of energy equipment. This uncertainty can lead customers to treat the contract as either a service agreement or a lease, causing risk-averse customers to hesitate due to the fear of investing in an upgrade with the wrong cost, life span, or outcome.

Education on energy as a service contracts can help overcome this uncertainty and simplify communication among various departments involved in the decision process, including finance, procurement, facilities, and operations departments. Additionally, empowering policy and regulatory environments for energy efficiency can provide support for increasing levels of energy efficiency and reduce uncertainty among energy users. Legislation must be enacted within the framework of a national energy policy to remove barriers to cost-effective energy efficiency and assist customers with their investment decisions.

Energy-efficiency programs, such as those outlined in the National Action Plan for Energy Efficiency 2006, can help customers save money and assist utilities in avoiding new investments in the energy system. Well-designed programs that incorporate best practices and customer participation can lead to more investment in energy-efficiency measures and help customers make effective purchasing decisions for equipment or buildings.

Ecosystem of Energy as a Service Market

The energy supply services segment is gaining momentum due to its ability to provide immunity from traditional grid constraints and improve energy resiliency. Energy supply services involve external companies like utilities or service providers who take care of a building's energy requirements. With the rise of renewable energy technologies and energy storage systems, consumers now have greater control over their energy costs, which challenges the traditional model. Energy supply services offer significant advantages, such as creating an energy portfolio that combines different energy sources to meet the customer's energy and sustainability goals and providing services at an annual cost.

The commercial segment, which includes healthcare, educational institutions, airports, data centers, leisure centers, warehouses, hotels, and others, is expected to drive the market due to high commercial energy prices and the increasing demand for energy consumption. The US uses different types and sources of energy, such as primary and secondary, renewable and non-renewable, and fossil fuels. Electricity prices for the commercial sector are higher than those for the industrial sector, leading customers to seek solutions that enable them to implement energy-efficient projects with no capital expenditure and validate energy savings.

Moreover, global energy consumption in buildings has decoupled from the growth in floor space and economic outputs, showing that consumers and businesses can use energy services more efficiently and at a greater value. For instance, Edison was awarded an energy performance contract with the Putnam Valley Central School District to enhance the energy efficiency of the District's buildings and infrastructure and slow down the pace of increasing energy costs.

Last year, the energy supply services segment had the highest revenue share due to increasing awareness about energy conservation and government initiatives promoting the usage of renewable energy. As energy consumption rises, consumers are shifting towards reliable and cost-effective energy sources that do not rely on the grid, which is expected to drive the segment's growth. Furthermore, creating an energy portfolio that combines various energy sources to meet consumers' needs is another factor that supports the segment's growth.

Over the forecast period, the commercial segment is expected to experience significant growth due to the increasing energy consumption and rising energy prices in this sector. This segment includes a wide range of establishments such as restaurants, educational institutes, data centers, healthcare facilities, and warehouses that consume large amounts of energy. The demand for energy optimization and adoption of sustainable energy sources is expected to drive market growth in this segment. Moreover, since energy needs vary depending on commercial buildings, energy as a service (EaaS) implements efficiency programs with better technical skills and minimal resources, which further boost market growth.

Regional Insights

According to forecasts, North America is poised to be at the forefront of the global energy as a service market. This can be attributed to the ongoing operational overhaul of utilities in the region, which is characterized by decentralization, digitization, and decarbonization. Major utility operators in North America are exploring the energy as a service business model, which is expected to revolutionize power utility operations. The adoption of this model is being driven by the potential to leverage technology, analytics, and customized services for end-users. This trend is being propelled by advancements in building management technologies and the growing need for commercial and industrial consumers to reduce energy costs and minimize carbon emissions. Furthermore, energy as a service offers a promising opportunity for utility and energy service companies to finance, develop, and design energy projects and solutions that deliver energy savings.

North America's electrical transmission infrastructure is currently inadequately prepared to deal with modern threats and natural hazards. The flexibility and reliability offered by energy as a service would enable the region to expand electricity use without being impacted by such threats and hazards. Additionally, North America is experiencing the rapid adoption of distributed energy systems, including solar, small-scale Combined Heat and Power (CHP) systems, and energy storage systems, which will help utilities maintain business continuity.

Regional analysis shows that Energy as a Service (EaaS) adoption and growth rate vary across different continents. In Europe, the industrial and commercial sectors are increasingly adopting EaaS, and the market is expected to grow at a CAGR of over 37% during the forecast period. This growth is attributed to the rising demand for energy efficiency and sustainability, as well as supportive government policies and incentives.

In South America, EaaS adoption is still in the early stages, but there is a growing interest in the technology. The region has significant potential for renewable energy generation, particularly in countries like Brazil, Chile, and Argentina. This growth is being driven by favorable government policies and the need to reduce greenhouse gas emissions.

The adoption of EaaS in Africa is also in the early stages, but there are some indications of growth. Africa has substantial potential for renewable energy generation, especially in countries like South Africa, Egypt, and Morocco. The growth of renewable energy in the region is driven by favorable government policies, decreasing costs of renewable energy technologies, and increasing energy demand.

The Asia-Pacific (APAC) region is expected to be a major market for EaaS in the future. The market is projected to grow at a CAGR of over 17% during the forecast period. The growth is fueled by the increasing demand for renewable energy sources, the need for energy efficiency in commercial and industrial sectors, and supportive government policies and incentives.

Dominating Companies in Energy as a Service Market

• ENGIE
• ENEL X
• SCHNEIDER ELECTRIC
• AMERESCO
• SIEMENS
• GENERAL ELECTRIC
• HONEYWELL
• JOHNSON CONTROLS
• EDF RENEWABLE ENERGY
• EDISON
• ALPIQ
• VEOLIA
• ORSTED
• CENTRICA
• WGL ENERGY
• BERNHARD ENERGY SOLUTIONS
• ENTEGRITY
• SMARTWATT
• ENERTIKA
• NORSECO
• WENDEL ENERGY SERVICE
• Contemporary Energy Solutions
• Duke Energy
• Solarus
• Southern Company

Recent Developments in Energy as a Service Market

• In 2020, ENGIE North America acquired Renewable Properties, a California-based developer of solar and storage projects. The acquisition was part of ENGIE's strategy to expand its EaaS business in the U.S. market.
• In 2021, Centrica Business Solutions and American Electric Power (AEP) signed a partnership agreement to offer EaaS solutions to commercial and industrial customers in Ohio, Kentucky, and Indiana. The partnership combines AEP's electricity supply with Centrica's energy management services to help customers reduce their energy costs and carbon footprint.
• Also in 2021, U.S.-based EaaS provider Lime Energy Technologies was acquired by Willdan Group, a California-based engineering and consulting firm. The acquisition was part of Willdan's strategy to expand its energy services capabilities.
• In 2020, Enel X, the energy services division of Italian utility Enel, announced a partnership with commercial real estate company Brookfield Properties to offer EaaS solutions to Brookfield's customers in North America. The partnership includes the installation of solar panels, energy storage systems, and electric vehicle charging stations.
• In 2019, E.ON, the German energy company, acquired California-based EaaS provider Mobisol. The acquisition was part of E.ON's strategy to expand its off-grid energy business in Africa.
• In 2021, renewable energy developer Apex Clean Energy announced a strategic partnership with commercial real estate company Gables Residential to provide EaaS solutions for multifamily properties. The partnership includes the installation of solar panels, energy storage systems, and energy efficiency upgrades.
• In 2020, Schneider Electric, a global leader in energy management and automation, acquired Renewable Choice Energy, a Colorado-based EaaS provider. The acquisition was part of Schneider's strategy to expand its renewable energy solutions and services.
• Also in 2020, EDF Renewables North America acquired EnterSolar, a New York-based EaaS provider. The acquisition allowed EDF to expand its solar and energy storage offerings for commercial and industrial customers.
• In 2019, Centrica Business Solutions acquired smart energy technology company Panoramic Power, which offers real-time energy management solutions for commercial and industrial customers. The acquisition strengthened Centrica's EaaS capabilities and enabled the company to offer more customized energy solutions.
• In 2018, French utility ENGIE acquired Fenix International, a provider of solar home systems in Africa. The acquisition allowed ENGIE to expand its off-grid energy offerings and provide EaaS solutions to underserved communities.

In conclusion, EaaS is a new and innovative business model that is transforming the energy industry. By providing customers with access to customized energy services, EaaS providers can help to optimize energy usage, reduce costs, and promote sustainability. As the world moves towards a more sustainable and greener future, EaaS is likely to play an increasingly important role in the energy industry.