20 August 2019

What is really Energy-as-a-Service (EaaS)?

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The strategic blueprint of Everything-as-a-Service has come to the energy world, or what is more commonly known as Energy-as-a-Service (EaaS).

The nature of how we generate and distribute electricity has fundamentally changed in the past few years. In some parts of the world, renewables now make up a sizable portion of all electricity generated. In 2018, renewables accounted for around 40% of gross electricity generation in Germany, and in the UK nearly 30% of all electricity generated is by renewable resources according to the Department for Business, Energy and Industrial Strategy.

But that’s not the whole story. Two giant forces are transforming the energy industry: digital disruption and the multilateral effort to decarbonise the global economy. Changes in customers’ preferences and expectations is affecting the entire energy industry with majority of stakeholders experiencing a sort of disruption. For instance, energy customers are unfulfilled by complexity and fluctuation in electricity prices. They prefer to keep things simple and smart. As energy stakeholders are reinventing themselves, preferred trends embrace decarbonised, digitised, smart, portable and distributed energy networks. Hence, microgrids are gaining popularity as being part of the solution.

While all market segments can benefit from the microgrid economy, commercial and industrial (C&I) customers are better positioned to embrace its benefits. They are usually billed on a half-hourly basis and feel the effects of electricity prices fluctuating throughout the day, at peak demand times, and by fossil fuel costs which vary throughout the year.

What if C&I customers could get a fixed-price electricity contract, with better reliability and ideally from a ‘green’ source? Wouldn’t that be attractive?

An ideal option for C&I customer is the one that guarantee these factors without CAPEX burden or an impact on their daily operation. These growing requirements of C&I customers are making Energy-as-a-Service (EaaS) an attractive business model.

EaaS is an emerging business model which guarantees C&I customer’s future energy costs by offering long-term fixed-priced subscription-based electricity services including energy management services. EaaS is a smart solution benefiting both side of its value chain. It frees up the customers to understand their electricity budget for years to come, and it provides a way for the service provider to be creative in energy supply and management with an incentive for energy improvement and resilience enhancement compared to that of the grid. 

The EaaS set up comprises an investor or service owner owning a microgrid or who partners with a solution provider to build the microgrid. The solution provider works closely with utility stakeholders to develop a solution based on available resources. Ultimately the customer signs a long-term service contract with the microgrid owner to supply their electricity demands.

Although an emerging financial model, EaaS is growing rapidly, with forecasted growth between $20-$30 billion globally by 2027 according to Navigant Research.

Both investors and energy solution providers are well-positioned to benefit from this smart business model. Providing a financed solution is the key for success as although EaaS is a technical solution, it is a finance product.

To conclude, EaaS has a huge potential and most of the trends are favourable. The winning argument for microgrids generally and for EaaS specifically is how much enhanced resilience they could offer compared to the grid.

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