Cities Lead the Way in Energy Efficiency as a Service (EEaaS), Private Sector Accelerates Catch-up
Energy Efficiency as a Service (EEaaS), a long-term contract financing model, is being promoted primarily by the public sector, with the private sector gradually following suit under pressure from investors and consumers. Technological developments have simplified energy-saving monitoring, but the pandemic has slowed short-term projects, potentially accelerating alternative financing demand in the long run.
The proliferation of new technologies has driven the transformation of the mobility and software sectors toward integrated service models to improve operational efficiency. Now, the public sector is leading the way in advancing a technology-driven service that has been in the making for decades—Energy Efficiency as a Service (EEaaS).
Under the EEaaS model, businesses and governments can bear the upfront costs of energy efficiency upgrades first, then repay them over time through long-term financial contracts using the energy savings generated by the upgrades. Such upgrades typically involve areas such as lighting, HVAC, and energy management.
As an alternative financing mechanism, the prototype of EEaaS has existed for decades. But unlike typical innovation trends, this time the public sector is ahead, while private enterprises are still catching up.
Experts point out that due to the impact of the COVID-19 pandemic, corporate budgets have tightened, which may make businesses cautious about energy efficiency investments; but as economic recovery highlights the urgent need for climate action and safe air quality, EEaaS may offer opportunities for growth.
"Many regions around the world are shifting focus toward exploring how to integrate into the clean energy economy and realizing its cost-effectiveness," said Lisa Brown, Senior Director of Municipal Infrastructure and Smart Communities at Johnson Controls. "They recognize it is good for the planet... It has become part of their narrative."
Industry Evolution
Steve Herzog, CEO of energy developer Greener Solutions, said the public sector's lead in EEaaS stems in part from the gradual tightening of local budgets over the past few decades, which has forced city leaders to be more creative in financing capital improvements.
"Looking back at the government sector 20 years ago, it was basically 'Oh my God, there isn't enough money in the budget to continue funding different energy projects,'" Herzog said.
Public schools have also benefited from EEaaS. Hillsborough County Public Schools in Florida, the eighth-largest public school district in the U.S., signed a 25-year contract with Minimise Global to retrofit energy management, add LED lighting and more efficient HVAC systems, and plans to integrate rooftop solar.
Dan Badran, CEO of Minimise, said the project is the largest of its kind globally, saving the district $4 million per month and ultimately achieving a total of $850 million in energy cost reductions. In 2018 alone, the company brought $1.7 million in rebates to the district through energy savings and plans to expand the model to other school districts.
"These sustainability-focused initiatives are being driven by consumers, who are demanding that suppliers be more sustainable and pay more attention to their business's impact on the environment."
Casey Herman
U.S. Energy Consulting Leader for Power and Utilities at PwC
The private sector is now also seeking to leverage the energy-saving advantages of EEaaS. Casey Herman, U.S. Power and Utilities Leader at PwC, said this push stems in part from investor and consumer pressure on companies to align with business trends of reducing emissions and decarbonizing operations.
"These sustainability-focused initiatives are being driven by consumers, who are demanding that suppliers be more sustainable and pay more attention to their business impact," Herman said, noting that the change is "happening very slowly."
Herman noted that while many companies have emphasized emission reduction efforts for years, they have mainly done so through investing in renewable energy portfolios or other more public means. Now, as investors seek more tangible actions, the importance of energy efficiency is increasingly prominent.
Robert Johnson, Senior Vice President at Hannon Armstrong, a climate change solutions investment company, said the public sector often has an advantage over the private sector because government customers' contract terms (such as EEaaS) are much longer than those of corporations. Typically, federal government projects can last up to 25 years, while the more profit-focused private sector may only have 5 or 10 years.
Take Hannon Armstrong's energy efficiency improvement project at the U.S. Marine Corps Recruit Depot on Parris Island, South Carolina, for example. The project is financed with $85 million over a 22-year term and includes adding energy storage, solar power, and 29,000 LED lights on the base. Johnson said that with shorter private sector terms, project scale may be limited.
"Generally speaking, with that kind of term, you can do lighting and some light HVAC systems, but large capital-intensive projects become tricky under term constraints," Johnson said.
Simplified Monitoring
The development of the energy efficiency market has accelerated due to the proliferation of technologies that verify the cost of energy savings. Experts say great progress has been made compared to the days when it was difficult to monitor work and changes in savings.
"Think of large retail stores. In the past, rooftop systems had control points... for store managers or employees," Johnson said. "Thermostats were locked in plastic key boxes, and no one could touch them without a key. Most of that has disappeared now, replaced by remote monitoring."
This is common in energy-saving LED lights, which have been increasingly installed in streetlights. Experts say Internet of Things (IoT) technology enables remote monitoring of energy use, making LEDs a cost-effective way to save energy.
The situation is similar in the air conditioning sector, where AC is a major financial and energy consumer, and replacement is costly. To address this, Cisco DeVries, CEO of OhmConnect and former U.S. Assistant Secretary of Energy, designed the Property Assessed Clean Energy (PACE) program.
PACE allows building owners to finance energy efficiency upgrades by adding to their property tax bills over 5 to 25 years, avoiding large upfront expenditures. DeVries said such models are crucial for owners seeking HVAC upgrades and solar panel installations.
"You can quickly tell a customer that if they retire a 20-year-old AC system, install a new high-efficiency system, and repair the ductwork, they will save a lot of money and energy," DeVries said. "But the upfront cost could be $20,000 to $25,000, which is hard for most people to pay all at once."
DeVries's company OhmConnect is a free service that pays California residents—especially customers of Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E)—to reduce electricity use when the grid is under stress.
Remote monitoring capabilities enabled OhmConnect to remotely turn off customers' electricity use during recent California power outages to reduce wildfire risk. DeVries said these efforts saved 220 megawatt-hours of electricity in one day and returned energy to the grid to relieve pressure.
Experts say that with these IoT solutions, building owners and cities must invest appropriately in data management software to analyze energy savings data and insights. Herman said these products are also improving.
"Whether it's adjusting settings, turning equipment on and off, or accumulating data across facilities, data warehousing and data management have made it cheaper and more effective," Herman said. "Twenty years ago, you just had more efficient equipment, and that was it."
Post-Pandemic Acceleration?
Experts say the long-term impact of the COVID-19 pandemic on public and private sector energy efficiency efforts remains unclear. But in the short term, the pandemic has caused a significant slowdown in energy efficiency projects, as building owners seek to tighten spending, Herzog said.
"When the pandemic hit, you might think financial pressure would boost EEaaS. But at least from what I've seen, most buildings are still reluctant to let people return," Herzog said.
Brown said EEaaS may be even more important in the pandemic recovery. Although cities may have been risk-averse in the past when financing retrofits to reduce building emissions, Brown believes the pandemic may bring a new sense of urgency.
"From the perspective of U.S. municipal and local governments, in the past people were just interested but not committed," Brown said. "Now with the pandemic, due to budget shortfalls, this has increased the demand for various alternative financing mechanisms."
Procuring technologies that make buildings more hygienic and safer after the pandemic may also prompt cities to find alternative financing for such expenditures. Better ventilation, efficient heating and cooling, and tools for tracking social distancing must all be energy-efficient to reduce operating costs.
"Overall, connectivity and remote control are likely to receive more attention than six months ago," said Brad Pilgrim, CEO of energy management company Parity. "The pandemic has highlighted the importance of good air quality in buildings, remote access and control, limiting personnel entry, and remote work."