Why Energy-as-a-Service Adoption Is Growing in CRE
- Sep 18, 2020
Increasingly popular service-based business models have impacted numerous industries in recent years. The models let buyers sidestep the need to purchase a product outright or manage its utilization but still gain use of the product. In commercial real estate, Energy-as-a-Service is one example. When opting for EaaS, customers pay for an energy service without undertaking any upfront capital investment
Steve Roberson, president of Wakefield, Mass.-based Atlas Retail Energy, which customizes electric solutions for commercial real estate, told Commercial Property Executive that the EaaS model allows commercial real estate companies to take control of and more dynamically manage their energy budgets.
“Depending on the project, EaaS can be financed through a monthly subscription, on-bill financing, Power Purchase Agreement or performance-based energy savings split,” Roberson noted.
EaaS is quickly procured, locally generated and efficiently consumed, added Mark Feasel, vice president of the electric utility segment and smart grid business of Boston-based Schneider Electric, an international provider of efficient, sustainable energy solutions.
Opting for EaaS not only lets commercial property owners control three variables formerly determined by the utility: sustainability, resilience and cost predictability. It also lets them tailor these to their own specific business models, Feasel said.
The EaaS provider can benchmark the property, using the data to suggest and implement solutions that provide continuous benefits, said Daniel Rice, CEP, EEP and manager with Yardi Energy in Roswell, Ga.
“The process is iterated on to ensure—as targets change and become more aggressive—the organization is following the trend,” he said, adding EaaS can build upon itself by collecting greater amounts of data and insights on assets over time in ways one-time energy projects may not.
Utility expenses are one of the properties’ largest controllable costs, added Brian Fridkin, Yardi Energy CEP and team lead. In deregulated markets, this cost is manageable by using a third-party supplier. By continuously monitoring energy market trends, regulatory news and geopolitical events, energy providers can determine the best times to buy into the market.
Commercial real estate owners have always sought to embrace digitization of energy, Feasel said. But the hurdles were huge. They included technical obstacles (what types of generators and batteries to use); regulatory questions (how rules differ from state to state); financial concerns (capital, ROI and operating expenses); and service issues in case the EaaS stops working.
In the past, the building owner would have had to make these decisions but, by adopting the EaaS model, these concerns are transferred to others, Feasel noted. “… EaaS is designed, owned and billed off balance sheet. It’s simply a price per kilowatt-hour, at a specific carbon footprint, and protected by specific backup actions,” he added.
Through EaaS, owners can achieve all their energy and sustainability goals without spending their own capital or taking risks they are not prepared to take, Feasel said.
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Financing has traditionally been the largest barrier to moving forward with energy projects, Roberson noted—but EaaS has reduced and, in some cases, even eliminated up-front capital expenditures. The result: CRE executives can optimize facility performance and reduce dependence on local electric utilities.
“In many cases, the facility realizes a cash-positive position on the project immediately,” Roberson said.
The downsides of EaaS are comparatively few: Longer-term commitments, financing costs and size restrictions. For many, they are more than offset by upsides such as no up-front cost, reduced maintenance cost, ongoing performance monitoring, increased energy efficiency and guaranteed performance, Roberson added.
Another upside is the ability of EaaS to expand access to renewable energy solutions. The EaaS provider may have the ability to integrate electricity from carbon-free sources like wind and solar and from multiple providers, according to Jeff Meyers, senior counsel in the energy industry for New York City-based law firm Stroock & Stroock & Lavan.
Feasel recommends multiple ways for commercial building owners to learn whether EaaS is an appropriate strategy for their properties. A plethora of case studies focused on EaaS integration into different buildings and ownership structures have been published by independent consultants like Navigant, Green Tech Media and Atlas Retail Energy, he said. Many of these studies go in-depth and can provide additional insight.
An array of services—varying from provider to provider—is available on the market, according to Meyers. “You need to fit the company to what you are looking for and they all have proprietary AI and IoT (that) you must carefully examine,” Meyers said, adding that the EaaS model will grow swiftly in the next 10 to 20 years as technology advances continue.