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.