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.