Sustainable Energy as a Service: The Case for Standardization
Before the National Banking Act of 1863 was passed in the United States, there were 8,000 different private entities issuing currency. Inefficient and unwieldy, this fragmented system was replaced by the establishment of a single national currency. Much like the early days of banking, the energy as-a-service (EaaS) sector is fragmented and unwieldy for both customers and investors. Currently, there is lighting as-a-service, cooling as-a-service, infrastructure as-a-service, steam traps as-a-service … and the list goes on. Adding to this confusion is a lack of contract standardization, which proved essential to scaling the solar purchase power agreement (PPA) market.
The EaaS market, which Guidehouse Insights estimates will reach $278 billion by 2028 in the North American market, needs to evolve into a unified sector to fully capitalize on its market potential.
Let’s start with the name. By re-naming the entire sector “sustainable energy as a service” (SEaaS), the core values of the sector can be established. Defining what is and isn’t truly a sustainable energy services agreement will simplify and standardize offerings, benefit customers, and accelerate the scale and scope of project implementation. In turn, a unified SEaaS market will attract the added private investment required to simultaneously upgrade and green our country’s buildings and infrastructure. The existing, often piecemeal approach is inefficient for customers and investors and will not be able to scale the market enough to move the needle on climate change.
There is a convergence of trends that have brought us to this moment, and they should form the basis of a more encompassing and standardized as-a-service offering. Five key elements constitute the project development foundation and contractual core of SEaaS:
Set payments based on measured performance. An as-a-service precept is that customer payments vary with project performance and need to be set based on a per unit of project output or utilization. For energy efficiency, this means charging customers for each unit of measured savings, be it a kilowatt-hour of electricity saved or a therm of natural gas saved.
Focus on carbon. Project design and development should aim to maximize reductions in carbon emissions. This means maintaining a strict focus on the financing and implementation of energy efficiency, demand reduction, and renewable energy projects.
Integrate and bundle. To maximize savings and achieve scale, SEaaS projects should include a diverse mix of different technologies and efficiency upgrades. This includes bundling together energy efficiency upgrades or a mix of efficiency improvements alongside renewable energy, energy storage, or EV charging. Further, to speed the implementation of projects across an entire facility portfolio, projects should seek to combine individual sites into a single project financing.
Align economic interests with customers. As a third-party owner of energy efficiency and renewable energy assets, the economic returns of SEaaS providers should be based on realized savings generated by the project rather than fees, added margins on equipment, or selling project-related data.
Offer an open platform. To optimize customer benefits, a technology and contractor agnostic approach is essential. This maximizes both savings and the technical and operational fit of a project, as well as ensures that the most cost-effective solution is utilized. Solutions that require the use of a specific measurement software, type of technology, or make of equipment are muddying the as-a-service waters with vendor rather than customer-driven solutions.
There is both an appetite and need to sustainably upgrade our buildings and infrastructure. SEaaS can be a powerful weapon against climate change. But if we’re not unified in our approach, we’re diluting its impact. It’s time we establish a new standard.