As we highlighted in our recent e-Book, energy lags behind the digital transformation curve compared to industries such as banking and so unsurprisingly, the Energy as a Service (EaaS) model has been slower to take root. Against a backdrop of Covid-19 upheaval and climate change however, EaaS is now emerging as a broad umbrella term for service-led business models with the innovative potential to transform the energy industry. But before we explore what EaaS currently means for the sector, let’s take a brief look at where it started.
Take the traditional energy supply model: product-based, centralised with a largely passive consumer. Energy has generally been sold as KwH units, a commodity rather than a service and certainly with the needs of the end user firmly placed at the bottom of the hierarchy. There is little doubt that one of the earliest iterations of EaaS arose from a need within the commercial industry to simplify their energy requirements, with a focus on being more streamlined and cost-efficient with sustainability options. These organisations wanted to be able to better manage overhead energy costs against a backdrop of varying time-of-day demand, emerging sustainability goals and fluctuating costs. For example, in 2017, Citigroup described EaaS as “budget certainty for delivered electricity” at a time when they had a goal of 100% RES across their enormous and dynamic portfolio. In the same year, Ericsson and Panasonic announced an EaaS offering for telecoms that would monitor and maintain energy infrastructure for mobile operators using big data analytics and energy management software, estimated at the time to reduce the cost of energy equipment ownership by up to 20%.
So, at this early stage, the concept of EaaS was firmly rooted in cost-containment, a significant evolution of traditional fixed-price supply contracts, but by no means a sophisticated comprehensive demand-driven solution with any real traction outside of the commercial market.
Over the last two years however, as technology has developed and the value of data has come to the fore, we’ve seen EaaS evolve through the emergence of new demand-driven subscription models which monetise flexibility. For commercial organisations, they provide value by integrating demand-based energy supply at a predictable fixed cost with the outsourcing of operations such as maintenance contracts and minimal upfront capital expenditure. Businesses can be incentivised to adapt their energy use according to peak demand, enabling suppliers to optimise usage and pass on their own cost-savings to their customers. It is an attractive user-centric model for both customer and supplier which creates cost-saving synergies on both sides.
‘As a service’ business models today are commonplace. They represent a shift towards subscription-based technology models, transforming traditional product-based industries into service-led offerings where the consumer sits at the very heart of the commercial strategy.
Of course, subscription services aren’t new in themselves – Xerox was blazing a path as early as 1959 by leasing photocopying equipment to customers who needed the service but couldn’t afford to buy the machines outright themselves. They are attractive for a number of reasons – a ‘pay for what you use’ service from a provider which retains responsibility for maintaining the infrastructure enables customers to lower costs by moving from hefty CAPEX (on-site data centres and the like) to more streamlined OPEX only. Moreover, it offers a more agile way of working – access to the most up-to-date technology which previously would have been prohibitively expensive and rapid scalability opportunities.
With the acceleration of cloud computing and global internet access, it’s no surprise that ‘as-a-service’ models have exploded into the mainstream. Starting initially with Software-as-a-Service (SaaS) – Salesforce claims it was the first in 1999 – new models are springing up regularly across almost every industry from broad Banking-as-a-service to the more niche Data-as-a-Service and even 3D printing-as-a-Service. And as they spring up, they are rapidly evolving beyond the simple subscription model to more complex, innovative platforms offering a wide range of services.
The foundations though remain constant: customer-centric, technology-driven and data-led. Take Mobility-as-a-Service (MaaS) for example – MaaS aims to encourage movement away from private transportation use by delivering an all-in mobility solution on a technological platform, integrating disparate elements such as payment, personalised disruption messaging and electric vehicle (EV) integration. The MaaS solution is based entirely on the individual needs of the traveller, which neatly sums up ‘as-a-service’ models: they are demand-side driven.
In 2019, Deloitte described EaaS as the “end-to-end management of a customer’s energy assets and services”, visualising it as the nexus between technology (IoT, Blockchain etc) and energy, including e-mobility and the maturity of RES.
The EaaS that we see today certainly goes far beyond the C&I-focussed early models which offered cost-efficiency and portfolio management. In fact, as it matures and moves into other sectors such as utilities and e-mobility, we can see it starting to deliver a suite of tailored smart energy services to the end-user in order to add value and create a more flexible, responsive customer-centric energy system. Much like other ‘as-a-service’ models, EaaS is underpinned by data and advanced analytics – perhaps not just a joint venture with technology, as Deloitte described, but entirely enabled by it.
Within the residential sector, for example, we can see clear parallels with MaaS when it comes to the data-driven opportunities and connected platform approach that EaaS is now offering pioneering utilities. A stream of usage data from smart meters enables utilities to not only improve their own operational processes but also deliver innovative personalised demand-based services, such as bespoke new tariffs or digital billing, to their customers on one single platform. By moving away from charging users solely for how much energy they are using, utilities are instead focussing on HOW the customers are using that energy and providing tailored service solutions – Comfort-as-a-Service to coin the well-used phrase, a clear winner when it comes to customer satisfaction and loyalty. Put simply, at home, people don’t want kilowatts. They want a cold fridge, heating at the right time, a charged phone and kilometres in their electric car.
In 2019, UK energy companies Baxi Heating and the now-sold Bristol Energy trialled Heat-as-a-Service, selling a so-called Heat Plan where consumers purchased hours of warmth rather than kWh. Funded by the UK’s Department of Business, Energy and Industrial Strategy (BEIS), the trial offered households a fixed price based on data about the thermal efficiency of their home and basic demand – the number of hours of warmth needed by the customer each week, in the rooms they wanted at the times they wanted.
While only a small-scale trial for research purposes, it does well to illustrate the core benefits of EaaS and the potential for future residential application by forward-thinking utilities. On one hand, it offers a tailored and extraordinarily simple service, based entirely on customer need without any requirement for the customer to actively participate – constantly changing the thermostat, switching to a cheaper energy supplier and the like. For the utility providing the service, it offers the opportunity to optimise their system, delivering the levels of comfort their customers need but by using as little energy and carbon as possible.
Looking ahead to the coming decade, EaaS surely provides the solution to an industry-wide question which has been sparked by the global focus on climate change and the ever-growing customer expectations of personalised digital service: How can the energy industry provide green power across connected cities to an active consumer at the lowest cost and with the greatest ease?
Lying at the heart of any EaaS service are the operational needs of the customer, be they residential or commercial. Thanks to data and digitalisation, those pioneering companies offering EaaS applications will be able to meet those needs by better understanding the demand of their customers and using that knowledge to optimise the system.
EaaS is moving on from the basic model where the energy industry meets customer needs by delivering an all-in service but which still requires the installation of more technology, a bigger grid connection or indeed the incentivisation of the customer themselves to change their own behaviour. Instead, the future of EaaS is a fundamental shift to a granular understanding of how the customer interacts with the overall system and a world where algorithms are used to integrate and manipulate demand patterns to avoid the peak in the first place without any impact on the customer at all. Let’s now look at an example of how this could manifest in the future.
Eaas has enormous potential when it comes to smart electric vehicle (EV) charging, and its integration into home energy management systems (HEMS). Integrating EV data with time-of-use tariffs and smart meter data creates a smart charging opportunity from which the EV company, the grid operator and the vehicle owner all benefit.
By controlling the time and rate at which the EV is charged based on local demand and electricity market prices (while still adhering to the minimum charge levels set by the owner), the smart charging company can open up new revenue streams such as the provision of balancing services to the grid operator as well as wholesale arbitrage opportunities based on the bulk buy of electricity. The network operator is able to balance the local grid with greater flexibility, while the vehicle owner receives low-cost charging with barely any input.
EaaS clearly provides successful technology-enabled solutions for balancing demand and consumption and enabling higher penetration of renewables, across both the residential and commercial sectors. It is an area that is ripe for investment. Last year, Siemens announced a move into the distributed energy market with the creation of a US-focused joint venture which will build, own and operate solar panels, battery plants and microgrids to offer Energy-as-a-Service solutions for the commercial, industrial and not-for-profit sectors.
These local EaaS energy systems, provided at zero capital cost, deliver greater efficiency with far smarter control, particularly in areas where existing antiquated grids struggle. In fact, EaaS has a huge role to play now and in the future in taking pressure off centralized assets. Aligning grid balance at a local level through technology-enabled demand response solutions offers up far greater flexibility to flatten the load curve and integrate volatile sustainable sources.
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