Energy efficiency continues to be a top priority for C&I facilities. Cost of energy continues to rise, and sustainability is top-of-mind for investors, consumers, and governing bodies. However, with ongoing economic uncertainty, business leaders have been left feeling uneasy when evaluating large capital expenditures to adopt energy efficient technologies.
As a means to address these concerns, while also expediting the often cumbersome process of adding large CapEx items to the balance sheet, more and more businesses have been turning to the Energy as a Service (EaaS) business model. EaaS is a relatively new payment structure that allows businesses to enter a service agreement to pay for energy efficiency upgrades using the money they save on their monthly utility bill, helping to preserve upfront cash or avoid adding debt to the balance sheet that’s typically needed to acquire the technology.
In this writeup, we’ll take a look at how the EaaS model is structured through PEC, along with common EaaS project examples to help you better understand if it’s a suitable option for your business.
Defining Energy as a Service (EaaS)
Energy as a Service (EaaS) is a relatively new model for acquiring energy technologies. Traditionally, businesses are required to either allocate large amounts of cash (if on hand), or add debt to the balanace sheet deploy technologies that reduce energy consumption, emission output, and move them towards their ESG goals. These investments can put business leaders in an uncomfortable position of either adding debt or parting ways of large amounts of upfront cash in exchange for long-term energy savings. ESG program leaders can also run into obstacles of not being able to gather the approved funding needed for sustainability projects because of CapEx limitations — creating challenges when trying to quickly reach emission goals.
Energy as a Service helps businesses avoid that strain. EaaS can take a variety of forms, but is built on the concept of “pay as you save”. As energy investments help businesses to reduce energy waste (often substantially), and the amount of energy savings is typically very predictable, businesses can use that expected energy savings and apply payments to a service agreement for the efficiency upgrade.
So, rather than paying upfront to own the energy efficiency asset, install it, and maintain it over time, businesses can simply make monthly payments for the technology using the money saved on their monthly utility bill (while pocketing any additional savings beyond the agreed monthly EaaS payment!).
How does EaaS work?
Let’s look at lighting as an example using the EaaS model — also known as Lighting as a Service (LaaS).
Upgrading to an LED lighting system is one of the most common investments for C&I facilities to make to reduce their energy consumption. If a business wished to avoid the costs of purchasing, retrofitting, and maintaining their lighting system, or wanted to skirt CapEx limitations to deploy a larger number of retrofits to gather energy savings faster, LaaS could be a great alternative option.
Here’s how an LaaS model would flow for a customer working with PEC:
- Your company enters into an agreement with the LaaS provider (PEC). This agreement will outline terms like the monthly payment amount (which will depend on expected energy savings), and length of of agreement period
- LaaS provider installs and maintains the LED system
- After the installation, you begin saving on your monthly power bill
- Your company then uses a portion of the cash to pay your agreed monthly fee to the LaaS provider
- Any energy savings after your fee gets added to your available cash
- At the end of the term, you continue using system and capitalizing on energy savings, without the monthly LaaS payment!
Which types of energy services are available through EaaS?
There are many different services that can have an Energy as a Service (EaaS) business model. Here are some examples:
LED Lighting (LaaS): LED lighting providers (like PEC) may offer lighting/LED retrofit solutions under an LaaS model. Customers that leverage LaaS through PEC will be able to structure their agreements to ensure that their monthly payments never exceed their energy savings, allowing for off-balance sheet financing and guaranteed net positive cashflow for your business!
HVAC: Another developing technology to help buildings cut energy waste is energy efficient HVAC units. Smart motor HVAC systems offer massive potential to reduce excessive power consumption compared to traditional fixed-speed motors. Learn more about HVAC Smart Motors.
Solar Energy: Companies like SolarCity and Vivint Solar are well-known examples of leveraging an EaaS model for residential customers — helping to lower cost barriers for people to acquire solar panels for homes. Vivint solar, for example, offers customers both a solar lease option and a Power Purchase Agreement (PPA), according to RFF. The PPA model is designed to create a service agreement, creating an off-balance sheet financing solution. Read more on PPA on the US Department of Energy’s Better Buildings Center.
Energy Storage: EaaS providers can offer energy storage solutions that allow customers to store excess energy generated by renewable sources for later use. This can help customers reduce their energy costs and increase their energy independence.
Microgrids: EaaS providers can offer microgrid solutions that allow customers to generate and store their own energy, reducing their reliance on the traditional grid. This can help customers increase their energy independence and resilience.
How can you take advantage?
PEC is proud to offer our customers flexible, low-interest financing options, including EaaS and other traditional financing methods through our PEC Capital program! Customers looking for a low upfront capital option to deploy energy efficient technology can turn to PEC as their full-service provider to design the solution, deploy projects at scale, collect any available incentive rebates, and facilitate any financing needs.
Get in touch to connect with an expert and learn more about our financing options!