Energy-as-a-Service (EaaS) is a rapidly growing business model in which energy service providers offer an assortment of energy-related services to customers. In contrast to the traditional energy model of simply charging customers based upon the number of kWh of electricity used, EaaS business models can include services ranging from energy-related advice to energy equipment installations to energy management. Depending on the service, customers can be charged a one-time upfront cost or on a recurring fee basis (including subscription-based fees, performance-based fees, and fees based on a sharing of energy savings). Energy-related services charged on a recurring fee basis allow customers to utilize the latest and most efficient energy technologies without expending the large, upfront capital costs that would needed for an installation of solar panels, energy storage solutions, or other expensive technologies.
These new, innovative EaaS business models may contribute to the displacement of older, more traditional energy models in much the same way that Netflix disrupted the video entertainment industry. Traditional energy markets operate using a model of centralized generation, in which rate-paying, passive energy consumers purchase all of their energy needs on a per-kWh basis from large, institutional energy providers. However, just as Netflix used individualized digital platforms and subscription-based services to replace brick-and-mortar video rental shops like Blockbuster, so too might EaaS providers use similar platforms and subscription-based technologies to support a bi-directional distributed generation energy market and stake a formidable challenge against incumbent players in the traditional energy market.
How do EaaS systems work in practice? According to Deloitte, one way to conceptualize widespread deployment of the EaaS model is to “imagine a highly synchronised and sustainable energy platform, where millions of smart physical assets interconnect.” A digital layer could use both system-wide and individualized data to collect and distribute energy and information in real-time, allowing a broad spectrum of interactive products and services to be traded. For a simple recurring fee, EaaS companies can provide customers with various energy services, allowing customers to reduce or avoid making direct electricity payments or paying out-of-pocket upfront costs for expensive equipment and software upgrades — all the while enjoying the most advanced and efficient technologies on the market. Crucially, digital technologies will enable EaaS providers to actively monitor minute-to-minute demand shifts as well as degrading equipment performance, creating levels of energy efficiency that most mid-sized businesses lack the time and capacity to achieve.
New players are emerging and staking their presence in the EaaS space. On May 25, 2021, GreenStruxure — a joint venture between Schneider Electric, a global electric equipment company, and Huck Capital, a sustainable energy private equity investor — gained its first publicly disclosed investor, closing a $500 million deal with Blackstone subsidiary ClearGen. This investment is expected to provide enough capital for GreenStruxure to build approximately 250 to 300 megawatts’ worth of projects. GreenStruxure CEO Jose Lorenzo estimates that EaaS is potentially a multi-billion dollar market: “It is solar, storage, PPAs [power purchase agreements], and energy services, all combined.” Other emerging players in the EaaS space include Calibrant Energy — a joint venture between Siemens and private equity firm Macquarie Capital — as well as Endurant Energy, a developer that was recently bought by LS Power and will be receiving an investment from LS Power in micro-grid and distributed energy projects built by Endurant Energy.
In response to the rise of EaaS, incumbent players in the traditional energy market may need to transform their business models in order to outlast the same disruptive trends that have taken over the retail, transport, and entertainment industries in recent years. Incumbent players should look to digitize their capabilities and expand their energy solution offerings as they begin to identify opportunities within the EaaS space that align with current and future segments of their businesses.