Energy as a Service for buildings has grown in recent years

Energy Environment Concept
Sheila Zabeu -

March 09, 2023

Small and medium-sized buildings (SMBs) can now count on a new type of service – Energy as a Service (EaaS). This is a model in which it is not necessary to invest in infrastructure or generating equipment to have energy supply. Personalised energy services are provided based on a subscription plan, instead of direct payment to the utility.

According to a report by Guidehouse Insights, the global EaaS market has shown growth through 2022, despite the economic slowdown around the world. And one notable area over the past two years has been small and medium-sized buildings, which generally lack dedicated managers to manage building operations, in particular energy supply facilities, and the financial resources to invest in and manage energy-efficient technologies.

The EaaS business model enables SMB owners and tenants to avail of more advanced energy-efficient technologies without incurring capital expenditure (CAPEX). In addition, SMBs can more easily reduce costs associated with energy consumption.

The EaaS market for SMBs is evolving rapidly precisely to meet evolving demands. The quest for more power generation and storage resources locally, digitalization, decentralization and decarbonization commitments, and increased frequency of extreme weather events are some of the factors that are contributing to the growth of EaaS.

“Several elements have encouraged the adoption of the EaaS model among SMBs, among them energy savings and sustainability appeals. Customers are also interested in the Energy as a Service model because of resilience issues, easier maintenance and upgrading facilities with only operational expenditure (OPEX) and immediate ROI,” the report highlights.

According to the Guidehouse Insights study, the value of the EaaS market for SMBs is expected to grow from $468.5 million in 2022 to $2.4 billion by 2031, with a compound annual growth rate of 19.8% during that period.

EaaS in detail

The goal of Energy as a Service is to add value to energy efficiency initiatives, almost never provided by utilities for financial reasons or lack of stronger government policies. This business model presents a solution to the challenges associated with carbon footprint, lack of digitalisation in the energy sector and centralised distribution.

As Delloite details, the EaaS model combines hardware, software and services to ensure demand management and energy efficiency and facilitate the adoption of renewable and decentralised sources. It is a highly synchronised platform in which millions of smart physical assets interconnect, with a digital layer that coordinates and distributes energy and information in real time, enabling numerous interactive products and services to be traded. The result is a large suite of data-driven energy products and services that incorporate new technologies and efficiency improvements.

Energy-as-a-Service in Deloitte's view
Source: Deloitte

According to Delloite, the main benefit of EaaS lies in the simplification of the increasingly multifaceted service offering. All aspects of ownership, operation, maintenance, software and analytics are invisible to users. In addition, they can be tailored to the specific needs of each customer.

While still new to many industries, with growing awareness around energy efficiency, EaaS models have the potential to grow in the future, as is already happening even among smaller users such as small and medium-sized buildings.

The expectation is that EaaS will progress over the years from a basic model that meets customers’ essential demands to offering more comprehensive and even more personalised services, with a network that facilitates the inclusion of renewable sources. Siemens has already taken a step in this direction, announcing in 2020 a joint venture in the United States to operate solar panels, battery plants and micro-grids and provide energy as a service.

GoodFirms conducted a survey in January 2023 to identify factors that are driving the growth of EaaS an the benefits organisations can reap by implementing this model. 410 companies were consulted on their energy consumption initiatives, processes and sustainability goals.

Almost 40% of respondents expect to adopt an EaaS model in the future. Financial, operational, administrative or other constraints prevent them from implementing it now.

On the other hand, 31.6% of respondents are starting the process of EaaS adoption, with a focus on sustainability and the adoption of more renewable energy sources and also because of government subsidies for green energy generation and decarbonization initiatives.

The 22.8% portion of respondents seem not to be interested in EaaS models currently as they do not consider themselves to be large energy consumers.

The Energy as Service model may still be in its infancy, so many organizations are not comfortable adopting it. Lack of knowledge about the potential benefits is a major obstacle in the way of EaaS expansion. Still, there are determining factors that can pave that road. According to GoodFirms, the main driver of EaaS is the challenges organizations face with their current power supply models, such as rising tariffs, higher demand, energy loss and environmental issues, among others.