Emerging Energy Services Opportunities

By Brett Feldman
From the December 2019 Issue

Corporate commercial and industrial (C&I) energy and sustainability managers are looking for cost-effective, customized, and comprehensive energy solutions. These solutions must guarantee energy savings and transfer project execution risk without capex (capital expenditures) to meet their sustainability and operational efficiency needs. Meanwhile, energy suppliers and vendors are introducing a broader set of turnkey, portfolio-wide, sector-specific technical solutions, transaction financing instruments, and business model options to meet these new customer energy management needs. These new options transcend the historical single-site, fee-for-service energy efficiency project approach.

The confluence of these new customer needs and vendor offerings makes up the broader set of portfolio wide, financed energy efficiency and distributed energy resources (DER) solutions now defining a new energy-as-a-service (EaaS) solutions framework (see Figure 1). Navigant Research defines EaaS as follows:

EaaS is the management of a customer’s energy portfolio needs—such as portfolio strategy, program management, energy supply, energy use, load management, and asset management—by applying new technology solutions and financing and business model innovation that avoid customer capex while reducing energy use, spend, and risk.

Financing Options Emerge In Fluid, Connected Market

The C&I EaaS market is evolving as a flexible, connected solution offering where dedicated EaaS vendors with financing options compete directly with a separate ecosystem of fee-for-service energy management vendors. For example, a C&I energy user may opt to have a third-party EaaS solutions provider design and install energy efficiency upgrades as a capex.

However, the same energy user could deploy intelligent building analytics and controls under an “as a service” contract to improve payback and monitor savings progress in a more cost-effective manner. Vendors that go to market with a well-defined set of EaaS solutions still compete for fee-for-service energy efficiency and DER solutions deployed by capex that do not require a long-term financed EaaS agreement. As Figure 2 summarizes, financing options are emerging across EaaS solutions offerings to provide options.

Many C&I customers are seeking clean, efficient, flexible, and low cost energy solutions that enable them to meet sustainability goals and reduce operating costs. To meet these needs, C&I customers are moving to distributed and renewable energy resources. Customers are more interested in controlling energy usage, and are under pressure to manage energy spend fluctuations and guarantee the reduction of total energy use with minimal capex (i.e., financing flexibility).

These same customers are also looking for straightforward ways to meet climate and energy reduction targets through renewable procurement and energy efficiency. To further reduce operating costs, these customers are participating in demand management programs (when accessible). The emergence of these new, beyond energy efficiency EaaS offerings can help provide a comprehensive, outsourced approach to the range of climate and energy initiatives, which are scalable and can address needs for simplified solutions (see Figure 3).

C&I Customers Are Cautious

However, many C&I customers are cautious and resistant to change. These customers struggle to commit to innovative financed solutions to meet energy savings and sustainability goals. Many C&I customers are hesitant to sign long-term financing agreements, even with a savings guarantee. At the same time, even for shorter term financing, like an energy service agreement or an equipment subscription, customers can struggle to decide whether to finance a project or spend capital. This is especially true if simple payback range is three to four years.

Most customers have complex organizational structures involved in energy, sustainability, and facilities. Aligning the client to make decisions is a challenge, and it can be overcome by educating knowledgeable customers on how new EaaS financing instruments work. This is the key to improving customer adoption.

C&I customers who move past standalone projects toward a portfolio approach to energy will need a partner that can address project feasibility, development, design, engineering, technology integration, permitting, and financing. These factors must be addressed across energy efficiency and new DER solutions for multiple properties and regions. In response, larger market EaaS players are starting to bring broader technical expertise under a single offering.

Turnkey, Sector-Specific Vendors As A Solution

C&I energy users and DER financiers and solution providers face significant challenges in deployment of new integrated customer energy management solutions. These challenges can be framed as a customer paradox.

To overcome these challenges, C&I energy users will increasingly seek turnkey, balance sheet-backed vendors that can guarantee energy and cost savings through innovative EaaS financing offerings (less common). This need shifts the EaaS solutions deployment challenge away from capex and toward service contracts categorized as opex (operating expenses), which is more favorable accounting-wise. This move will address C&I customers’ needs, transferring risk to vendors that are equipped to address the new energy management option now available under EaaS solutions models.

Navigant Research has identified the following contributing factors to the development of turnkey EaaS solutions market for C&I customers:

• Utility customers are increasingly interested in evaluating new options for how they procure and use energy. These new choices have resulted in a class of C&I customers who want to do the following:
  • Procure low carbon energy
  • Deploy DER, such as solar PV, demand response, energy efficiency, and energy storage, on their premises
  • Deploy proven technologies and software solutions that provide clearer insight into energy usage and reduction options
• Take advantage of new business models that allow them to avoid capex and transfer project delivery risk to turnkey EaaS vendors that provide comprehensive financing and guaranteed energy savings
• Business model innovations like outsourced master energy service agreements, energy asset monetization, and public-private partnerships are emerging. Such innovations allow EaaS vendors to deploy business model and financing innovation that will meet customer needs to manage energy use, avoid capex spend, and transfer risk. These solutions will allow customers to mitigate the risks and avoid capex that prevent them from deploying long-term energy and carbon reduction strategies.
• The delivery of EaaS will increasingly target C&I sector-specific building and operational issues, software platform capabilities, and customer energy management and portfolio factors.
• Digital technologies have created value beyond energy management, such as occupant comfort and asset monitoring. Integrated software analytics are needed to predict and deliver improved EaaS financing and guaranteed total costs of operations savings.

Feldman is a research director with Navigant Research, contributing to the DER Solutions service. With 20 years of experience in the utility sector, Feldman focuses on demand-side management programs and their implications for the global power industry. Prior to joining Navigant Research, Feldman was a principal for demand response at Constellation Energy, an energy efficiency program manager for Eversource, and an energy consultant for ICF and Nexant. A Certified Energy Manager, he has experience across multiple markets, including ISO-NE, NYISO, PJM, and Ontario. Feldman currently serves as a member of the U.S. Department of Commerce’s Renewable Energy and Energy Efficiency Advisory Committee.

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