EaaS: What is it? How can you benefit?

Energy as a Service (EaaS) is a viable option for customers across all industries looking for reliable, renewable, and affordable power. Listen to our energy expert, Shawn Borden, take us through the defining features of this new business model and the potential benefits including economic opportunities. 

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Transcript

Power Bytes: Energy as a Service 101 – What is EaaS and How does it Benefit You? 

[Ivan]: Hello and welcome everyone to Power Bytes, I am your host, Ivan Buckner I want to thank Lou for his amazing work and legacy he has created in setting up the Power Bytes podcast. We hope to continue your great work and make you proud! 

Now, today, we are talking about Energy as a Service or EaaS. This is an interesting topic being talked about more and more in trade journals, white papers, sales literature, and on company websites. Despite its widespread coverage, Energy as a Service is not always well defined or used in the correct manner. As a result, many people are not sure, what it means or how to apply it to their own situations. 

Today! We have Shawn Borden with us as a guest to help us all develop a better understanding of what we mean by Energy as a Service and how it is relevant to you, our listeners. Shawn is a Utility Program Development Manager with Caterpillar, she has over 30 years’ experience in the energy industry. She has an electrical engineering degree from West Virgina University Go Mountaineers and is a certified energy manager. She held various positions in the industry, at an investor-owned utility, a demand response company, and now at Caterpillar, Shawn continues to work consumer facing with commercial and industrial customers to help them better understand and manage the changing energy landscape. Shawn, welcome to the podcast.

[SHAWN]: Thanks for having me, Ivan, Go Mountaineers, and congratulation on your gig hosting Powerbytes.

Ivan: Thanks, as they say the show must go on and we must continue Lou’s legacy. Let’s get to it. So, can you explain what “Energy as a Service” means? Start with a big picture view, then narrow it down how it directly applicable to our listeners.

[SHAWN]:  Well for starters, the concept of “Something as a Service” has been around for a while. Software as a Service is probably the best-known example but there are others. 

 Ivan:  Yes, I would agree, Software as a Service has been around for a while.  Can you explain what “as a service” means?

[SHAWN]: Well, “as a service.” describes a business model rather than a product or solution offering. In other words, it describes “how” something is being sold, rather than “what” is being sold. And “as a service” business models tended to have one or more of the following characteristics.

·         Subscription or pay as you go fee payments – instead of paying in full for goods and services at the time of use, costs are amortized over a contract period.

·         The elimination of capital expenditures – instead of purchasing any equipment needed outright, customers use of equipment is folded into the recurring fees as an operating expense. 

·         Bundled (vs. ala carte) offerings – Equipment and services that might have been sold separately, are combined into a holistic offering.

Ivan: I want to make sure we are on the same page, so “as a service” is the business model that explains “how” something is sold, there still is a “what “and in this service it is Software. 

[Shawn]: Exactly!

Ivan: Can you describe the business model for “Energy as a Service.” What types of equipment and services are included in this business model?

[SHAWN]: The big picture answer is, it depends on who is making the offer. There are a lot of stakeholders in the energy industry including energy service companies, financing companies, distributed energy providers, utilities, and others – and each one has their own definitions of Energy as a Service.

[Ivan]: So, it doesn’t sound like Energy as a Service is easily defined! Ok, let’s drill down from the big picture and discuss specifically how “Energy as a Service” applies to our listeners who are interested in Energy as a Service as it relates to Distributed Energy Resources or (DER) – another term that is getting a lot of coverage these days.

[SHAWN]: That’s true Ivan.  I recently came across white paper on EaaS and it provided a nearly complete definition of a DER related, Energy as a Service business model. If you do not mind, I will read it exactly as it is written in the report by Deloitte called Energy as a Service. The lights are on. Is anyone home?  

[Ivan]: Okay

[SHAWN] Energy-as-a-Service (EaaS) is a delivery model that combines hardware, software and services. Solutions should combine demand management and energy efficiency services, facilitate the adoption of renewables and other decentralized supply sources, and also optimize the balance between demand and supply. The chief benefit for the consumer is in the simplification of an increasingly multifaceted service offering.

[Ivan]: You said this description was nearly complete. First tell me what you like about the definition and then what you think it’s lacking.

[SHAWN]: I like this definition because it recognizes all the critical elements of a DER solution including hardware, technology, and services. It also meets the “as a service” criteria of providing them in a bundled solution. Importantly, the definition acknowledges the fact that DER optimizes both supply and demand.

[Ivan]: That’s interesting, why is the optimization of supply and demand so important?

[SHAWN]: Often, the terms ‘Distributed Energy Resources’ and ‘Distributed Generation’ are mistakenly thought to be the same thing. DG assets are certainly a component of the “supply” aspect of DER, but demand management technologies and protocols that curtail energy usage at critical times play an equally important role.

[Ivan]: And what do you think the definition is lacking?

[SHAWN]: The last sentence identifies the chief customer benefit as the “simplification of an increasingly multifaceted service offering.”  Simplifying DER is certainly a key benefit, but I think the larger benefits are economic in nature especially for energy customers. A DER solution delivered through an EaaS business model can drive a significant reduction in energy costs. It can also provide the means to obtain assets like gas generators and storage systems without capital investment. 

[Ivan]: Okay, I have a few questions that I’m sure our listeners are asking themselves. Can you provide a little more detail on the economic opportunities? Like how much can customers lower their energy costs, where do the cost reductions come from and most of all how can customers get a generator without capital investment?

[SHAWN]: I think this is one of the main questions that will interest our listeners, so I will do my best…. But honestly it will take another entire podcast discussion on DER and the economics of the energy grid to answer all of this completely.

[Ivan]: Well, I have no problem with doing another podcast! 

 [SHAWN]: Okay, for now, I can tell you that a comprehensive DER solution can drive a net reduction in energy costs of 20% to 30%. 

[Ivan]: Talk to me a little more about what you mean by a “net” reduction?

[SHAWN]: DER economic opportunities include both cost savings and payments. For example, energy customers can reduce or avoid certain charges by reducing energy use during critical demand periods on the energy grid. But customers can also earn payments from programs like demand response. 

[Ivan]: And just to be clear, how does the Energy as a Service business model come into play here?

[SHAWN]: Well, identifying and capitalizing on these economic opportunities involves a lot of moving parts including assets, technology, taking timely actions, lots of reporting, and probably most important market expertise. So, assembling and coordinating all these components on a piecemeal basis would be really difficult for most energy customers. Combining them into a single Energy as a Service business model enables customers to optimize opportunities and maximize results.

Ivan: So, to put it simply, Energy as a Service is a solution bundle that includes all the pieces that you need to make an effective long term energy solution? Correct. 

[SHAWN]: Yes!

 Ivan:  And you just pay for that ONE bundle in most cases. Did I get it right?

[SHAWN]: Correct. I think that’s a good way to sum it up! You got it Ivan. 

[Ivan]: I’m trying to keep up! 

[Shawn]: I know right, it’s quite a complex concept to get your head around!

[Ivan]: Ok, let’s keep going…. So, you can save on energy costs, I get that, but what about the onsite generation piece of the puzzle? Can customers earn payments by selling power back to the grid?

[SHAWN]: The answer can be yes, but most of the DER economic opportunities are driven by reduced energy usage without exporting to the grid. Electricity sourced from onsite assets enables energy customers to curtail their grid power at higher levels and for longer periods of time, and therefore they can earn greater economic returns, without disrupting normal operations.

[Ivan]: Got it. One thing our listeners may be thinking is: not everyone can afford to invest in onsite assets like a generator set, batteries, or solar. How does the EaaS business model enable customers to get assets without paying for it upfront?

[SHAWN]: The short answer is through the involvement of third-party investors or third-party owners like, like maybe, utilities.

[Ivan]: So, What’s in it for them?

[SHAWN]: On-site assets like gas generators and solar arrays have a 20+ year useful life. Accumulated economic returns from DER over that period enable investors to cover their investment and earn a targeted rate of return. During that time, they can sell power generated by the asset to customers at a discount or they can share in the economics generated by the asset.

[Ivan]: Let’s bring it to life! Give me an example of a Distribute Energy Resource offering provided through an Energy as a Service business model?

[SHAWN]: Ok, let take a chlorine plant that wants to install natural gas generators to provide backup power for safe operation of their plant.  They also were looking to control future energy costs.  Instead of using their own capital, a third party would build and owns the natural gas generators on the customer’s site.  The generators provide the customer with resiliency and the investor and customer share in the economics generated over a long-term contract.  So, instead of buying an asset the customer acquires the asset benefits and the services that make the benefits possible. All at no risk to the customer. That is Energy as a Service in a nutshell.

[Ivan]: Shawn, this is a very helpful example! 

[Shawn]: Well, your Chlorine Plant listeners will be calling you right away. 

[Ivan]: Yes, I’m sure we are going to get a lot of emails and calls on that…surprisingly, we are almost out of time. I have one final challenge for you. 

[SHAWN]: Okay, let’s hear it. 

[Ivan]: Leave us with a closing statement that ties together everything we covered today about Distributed Energy Resources and Energy as a Service?

[SHAWN]: Everything. Okay. That’s a tricky one.  I guess a wrap up statement would go something like this... Distributed Energy Resources represent a significant, untapped economic opportunity for multiple stakeholders in the energy industry. Capitalizing on this opportunity requires a complicated solution that includes equipment, technology, and timely action. Many stakeholders do not have the energy market expertise and/or resources needed to develop and deploy a comprehensive DER solution on their own. However, a DER solution provided through an Energy as a Service business model combines everything needed to maximize DER economics into a holistic, turnkey solution that also eliminates the need for capital investment.

Ivan: That was awesome. I think our listener appreciate you stopping by to discuss Energy as a Service.  Hopefully, you can come back some time, maybe to discuss the DER and energy grid economics in more detail.

[SHAWN]: I would love to Ivan, but wait, do I get to give you a challenge? 

Ivan: Not today. We don’t have enough time.

[SHAWN]: Next time it is, thanks so much for inviting me to speak. 

Ivan: No, thank you Shawn! 

Well, I hope today’s discussion on the complex topic of Energy as a Service has provided some clarity on this topic. Thank you so much for listening today, if you have any feedback reach out to via email at Powerbytes@cat.com, we’d love to hear your feedback on today’s podcast or ideas for future podcast.