Consider This Tool to Fight Climate Change: Energy as a Service

Climate change does not have a technology problem; it has a political problem. The challenge is not only in the traditional sense of politics, but also in the structural barriers that prevent the full transition to a clean energy economy. The electric utility sector is a prime example of how doing business as usual gets in the way of taking meaningful action to address climate change risks. One idea for addressing this challenge is the energy as a service (EaaS) model.

One huge problem utilities, and their customers, face today

Currently, electric utilities are designed to sell units of electricity. That reality drives business decisions based on the amount of electricity sold, regardless of other costs, such as social or environmental costs. Although some utilities factor in such costs into how they price their services, it is not the prevalent method that U.S. utilities have adopted.

In order to transition to a clean energy market, certain barriers must be overcome: in particular, high upfront technology costs. Further, capital constraints on the customer side, as well as uncertainty about the efficacy of a certain technology’s performance, can also hinder a utility’s efforts to invest in new technologies.

For electricity, energy efficiency has been a conundrum: States set energy demand reduction goals that utilities have to meet, but a reduction in demand also means a reduction in revenue under current business models. Thus, utilities are disincentivized to invest in energy efficiency technologies. In addition, upfront costs present an obstacle for both the utility and the consumer. This leads to underinvestment in energy efficiency, despite its clear financial and environmental benefits.

What is energy as a service, and how can it help take on climate change?

Because of the market opportunity created by this investment gap, a new model of service within the energy efficiency space has emerged.

Now, EaaS offers one potential solution for evolving the business model to renewable energy as well. And as companies set increasingly ambitious climate change goals, sorting out how to meet them in a cost-effective manner has become a priority.

One way to think of EaaS is the combination of technology and energy that operates as a subscription service. The customer pays for a bundle of energy technologies, rather than the amount of electricity it consumes. Further, the customer is not tied to a particular type of technology, as the the EaaS provider finances and manages the entire energy efficiency program.  Therein lies the evolution of the energy service company (ESCO), which can provide demand and supply energy efficiency solutions and takes on any risk that the customer would have otherwise assumed.

How EaaS helps with both budgets and sustainability

Ameresco, a renewable energy and energy efficiency company, has been advancing EaaS as a solution for its customers’ problems. “Many of our customers come up with admirable sustainability goals on top of a laundry list of deferred maintenance needs, with more capital needs than available capital,” Lou Maltezos, Executive Vice President of Ameresco, told TriplePundit in a recent interview. “We step into the breach to tie all those pieces together.” 

What that means in practice is developing an energy plan that contains costs while also meeting sustainability goals. It also delivers flexibility based on the customer’s needs. For example, Ameresco worked on a project - the U.S. Marine Corps Recruit Depot (MCRD) Parris Island - that places an extremely high value on resilience given the installation’s locations and missions.

For MCRD Parris Island, Ameresco deployed extensive energy efficiency upgrades, installed battery energy storage systems and launched microgrid technologies to enable better control over the energy system as a whole. “Parris Island was a huge project,” Maltezos told 3p. “It was extremely complex, with a mission-critical campus. We had to take a more robust approach.”

As for financing, Parris Island did not put up any money upfront as the entire project was conducted under an energy savings performance contract (ESPC), a standard model in energy efficiency projects done by ESCOs. Such an ESPC enables Ameresco to assume the risk for designing and commissioning a project, while receiving a service fee under the agreement’s terms. Ameresco will receive payments once the systems have started working. Maltezos noted that it anticipates $7 million in savings from reduced utility costs after one year of operation, giving Parris Island more bang for the buck - and with less risk.

The future of EaaS

ESPCs are a proven model for deploying energy efficiency, and increasingly, EaaS is seen by commercial and industrial customers as a solution for taking on climate change. EaaS could help customers integrate better demand-side management, deploy more renewable power technologies, and encourage electrification of facilities and buildings.

Some utilities are starting to notice the benefit of EaaS for their own operations, allowing them to redesign their traditional business models. As more utilities get involved, the range of services and service providers increases. Because of this, companies such as Ameresco view their projects as opportunities to develop long-term partnerships.

For example, a recently announced project with Northwestern University will enable the university to look at the entire campus and take on aggressive sustainability goals and address deferred maintenance needs over the course of several years. As part of the partnership, Ameresco will also offer sustainability fellowships, helping provide a roadmap for work with other higher ed institutions.

As more sectors, such as transportation and telecommunications, are digitized and modernized to fit the needs of the customer, it makes sense that the power generation sector will follow that path. Adequate policies still need to be put in place, but EaaS can provide a solution to help overcome barriers to addressing climate change risks while securing a clean energy future.

Image credit: Matthew Henry/Unsplash