As-A-Service financing offers new opportunities for utility energy efficiency programs
Funding is often a significant challenge for utility customers who are looking to implement large-scale energy efficiency projects at their facilities. Businesses and organizations can struggle to justify capital projects when there is a sizable upfront investment – even if the long-term savings and benefits generate a sound return on investment. That’s where an energy efficiency as-a-service (EEaaS) financing model can help. EEaaS is a pay-for-performance, off-balance sheet financing solution that allows utility customers to implement energy efficiency projects with no upfront capital outlays – helping to reduce project barriers and facilitate more energy-saving improvements.
With this model, the EEaaS provider covers the expenses related to project development, construction and installation, and ongoing maintenance costs for the utility customer. Once the project is complete and the equipment is operational, the customer makes payments to the EEaaS provider based on actual energy savings and any other defined equipment performance metrics. At the end of the contract period or period of performance, the utility customer will own the installed equipment and continue to benefit from the cost savings over the useful life of the improvements. These savings will help facilities to enhance their competitive position in the marketplace, increase profitability, and reinvest in new technologies.
Key advantages of EEaaS models for utility customers
EEaaS provides several major advantages for utility customers across a wide variety of sectors. The primary benefits include:
- Leveraging energy savings to pay for capital projects. Energy efficiency project costs are amortized over time using the generated savings – providing businesses and organizations with a flexible way to pay for improvements while managing their cash flow.
- Eliminating upfront costly investments. Since the EEaaS provider covers the initial expenses associated with project development and implementation, utility customers avoid sizable capital outlays that can often be a deterrent to energy-saving improvements.
- Providing flexibility and scalability to suit a variety of projects. EEaaS can be used to execute a wide range of energy efficiency upgrades – from straightforward lighting improvements to complex HVAC projects such as steam optimization and networked HVAC controls.
- Reducing performance risk. The EEaaS provider evaluates the impacts of each project through advanced engineering reviews and forecasting to establish performance guarantees – greatly minimizing the customer’s risk associated with equipment performance and operational results.
Better yet, the model works across all customer sectors – including commercial, industrial, education, government, multifamily, and agricultural. The move to an EEaaS structure represents a customer shift away from equipment ownership in favor of more flexible equipment procurement options and new paths to long-term cost savings. In fact, EEaaS is part of a larger transition towards the broader energy-as-a-service (EaaS) model, which goes beyond energy-efficient improvements to also include energy procurement, renewable projects, electrification initiatives, and microgrid technologies.
How utilities can leverage EEaaS
Project funding has often been a major hurdle for utility customers seeking to develop and complete energy efficiency improvements – even before the coronavirus pandemic. In a post-pandemic world, the offering of alternative financing models like EEaaS will be of critical importance to energy efficiency portfolios as they strive to reach aggressive energy savings targets and carbon reduction goals. Currently, the EEaaS model is used selectively for specific customers and project opportunities, but has not been fully integrated within utility energy efficiency portfolios as a core offering.
In addition, utility incentives are currently the primary reason that customers move forward with a capital project at their facility – a core element when evaluating the impacts of an energy efficiency program. An EEaaS model can begin to shift that motivation away from utility-provided incentives towards more comprehensive offerings that deliver long-term cash flow benefits. Over time, utility incentives become less critical to project implementation and can be invested in other areas of the energy efficiency portfolio, such as within underserved communities or towards alternate energy-focused initiatives.
For more than 30 years, Leidos has worked with utilities to deliver robust energy efficiency services and solutions in order to address the industry’s most difficult challenges. In particular, our team has worked with large enterprises and organizations across North America to deliver major energy improvements via as-a-service financing options. Leveraging our company’s extensive energy efficiency implementation experience, Leidos’ as-a-service solutions have delivered nearly $50 million in cost-saving impacts. To learn more about Leidos’ EEaaS offering and how it can support your utility portfolio goals, contact our team.