Read the full episode transcript
00:00:01 Ivan Buckner
Hello and welcome everyone to Power Bytes. I am your host, Ivan Buckner. I want to thank Lou Signorelli for his amazing work and legacy he has created and setting up Power Bytes Podcast. We hope to continue your great works and make you proud. Now, today we are talking about Energy as a Service – EaaS.
00:00:20 Ivan Buckner
This is an interesting topic being talked about more and more in trade journals, white papers, sales literatures, and on company websites. Despite its widespread coverage, energy as a service is not always well defined or used in a correct manner. As a result, many people are not sure what it means or how it applies to their own situations.
00:00:43 Ivan Buckner
Today, we have Shawn Borden with us as a guest to help us all develop a better understanding of what it means by energy as a service and how it's relevant to you, our listeners. Shawn is a utility program development manager at Caterpillar. She has over 30 years’ experience in the energy industry. She has an electrical engineering degree from West Virginia University (go Mountaineers!) and is a certified energy manager. She's held various positions in the industry in an investor-owned utility 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.
00:01:29 Shawn Borden
Thanks for having me, Ivan. Go Mountaineers, and congratulations on your new gig hosting Power Bytes.
00:01:35 Ivan Buckner
Thanks! As they say, the show must go on and we must continue to Lou’s legacy. Let's get to it. Can you explain what “energy as a service” means? Start with a big picture view, then narrow it down, how it directly applies to our listeners.
00:01:51 Shawn Borden
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 too.
00:02:01 Ivan Buckner
Yes, I would agree. Software as a service has been around for a while. Can you explain what “as a service” means?
00:02:07 Shawn Borden
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 tend to have one or more of these following characteristics: The first would be a subscription or pay-as-you-go structure. So instead of paying in full for goods and services at the time of use, costs are amortized over a contract period. The second characteristic is 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. Another characteristic would be bundled offerings versus a la cart – so equipment and services that might have been sold separately are combined into one holistic offering.
00:02:58 Ivan Buckner
I want to make sure we're on the same page. So “as a service” is the business model that explains how something is sold. There still is “what”? And in this service, it's software. You described the business model for energy as a service; what type of equipment and services are included in this business model?
00:03:18 Shawn Borden
Exactly. The big picture answer is, it depends on who's 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 definition of “energy as a service.”
00:03:35 Ivan Buckner
It doesn't sound like energy as a service is easily defined. Okay. 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.
00:03:58 Shawn Borden
That's true, Ivan. I recently came across a white paper on EaaS, and it provided a nearly complete definition of a DER-related energy-as-a-service business model. If you don't 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?
00:04:18 Ivan Buckner
Okay.
00:04:20 Shawn Borden
“Energy as a service 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 supply and demand. The chief benefit for the consumer is in the simplification of an increasingly multifaceted service offering.”
00:04:46 Ivan Buckner
You said this description was nearly complete. First, tell me what you like about the definition and then what you think it's lacking.
00:04:54 Shawn Borden
I like this definition because it recognizes all the critical elements of a DER solution, including hardware technology and services. It also meets that “as a service” criteria of providing them in a bundled solution. Importantly, the definition acknowledges the fact that DER optimizes both supply and demand.
00:05:13 Ivan Buckner
That's interesting. Why is optimization of supply and demand so important?
00:05:17 Shawn Borden
Often the terms “distributed energy resources” and “distributed generation” (DG) 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 are equally as important.
00:05:36 Ivan Buckner
And what do you think the definition is lacking?
00:05:38 Shawn Borden
Well, the last sentence identifies the chief customer benefit as the simplification of an increasingly multifaceted service offering. Simplifying DER is definitely a key benefit, but I think the larger benefits are economic in nature, especially for energy cuts. 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.
00:06:11 Ivan Buckner
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 a customer lower their energy costs? Where did the cost reductions come from? And most of all, how can a customer get a generator without capital investment?
00:06:31 Shawn Borden
I think this is one of the main questions that will interest our listeners, so I will do my best, but honestly it would take another entire podcast discussion on DER and the economics of the energy grid to answer this completely.
00:06:43 Ivan Buckner
Well, I have no problem with doing another podcast.
00:06:46 Shawn Borden
Okay! Well, for now, I can tell you that a comprehensive DER solution can drive a net reduction in energy costs of 20 to 30%.
00:06:53 Ivan Buckner
Talk to me a little more about what you mean by “a net reduction.”
00:06:57 Shawn Borden
Sure. DER economic opportunities involve 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.
00:07:16 Ivan Buckner
And just to be clear, how does the energy-as-a-service business model come into play here?
00:07:20 Shawn Borden
Well, identifying and capitalizing on these economic opportunities involves a lot of moving parts, including the assets, technology, taking timely actions, lots of reporting, and probably, most important, market expertise. 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.
00:07:52 Ivan Buckner
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?
00:08:02 Shawn Borden
Yes.
00:08:04 Ivan Buckner
You just pay for one bundle in most cases. Did I get that right?
00:08:08 Shawn Borden
Correct. I think that's a good way to sum it up. You've got it, Ivan.
00:08:13 Ivan Buckner
I'm trying to keep up.
00:08:14 Shawn Borden
I know it's quite a complex concept to get your head around.
00:08:18 Ivan Buckner
Okay, let's keep going. So you can save on energy costs. I get that. But what about the onsite generated piece of the puzzle? Can customers earn payments by selling power back to the grid?
00:08:31 Shawn Borden
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 their normal operations.
00:08:55 Ivan Buckner
Got it. One thing our listeners may be thinking is: “Not everyone can afford to invest in onsite assets like generator sets, batteries, and solar.” How does the energy as a service business model enable customers to get assets without paying for them upfront?
00:09:10 Shawn Borden
The short answer is through the involvement of third-party investors or third-party owners, like maybe utilities.
00:09:16 Ivan Buckner
So what's in it for them?
00:09:18 Shawn Borden
Onsite assets like natural gas generators and solar arrays have a 20+ year useful life, so 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 that asset.
00:09:42 Ivan Buckner
So let's bring this to life. Give me an example of a distributed energy resource offering provided through an energy-as-a-service business model.
00:09:49 Shawn Borden
Okay, let's take a chlorine plant that wants to install natural gas generators to provide backup power for safe operation of their plant. They are also looking to control future energy costs. Instead of using their own capital, a third party would build and own the gas generators on the customer site; the generators provide the customer with resiliency, and the investor and the customer share and 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 them. That is energy-as-a-service in a nutshell.
00:10:29 Ivan Buckner
This is a very helpful example.
00:10:31 Shawn Borden
Well, your chlorine plant listeners will be calling in right away.
00:10:35 Ivan Buckner
Yes, I'm sure we're going to get a lot of emails and calls. Surprisingly, we're almost out of time. I have one final challenge for you.
00:10:42 Shawn Borden
Okay, let's hear it.
00:10:43 Ivan Buckner
Leave us with a closing statement that ties together everything we've covered today about distributed energy resources and energy as a service.
00:10:52 Shawn Borden
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 the 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. How's that?
00:11:42 Ivan Buckner
That was awesome. I think our listeners appreciate you stopping by to discuss energy as a service. Hopefully you can come back sometime, maybe to discuss DER and energy grid economics in more detail.
00:11:55 Shawn Borden
I would love to, Ivan. But wait. Do I get to give you a challenge?
00:11:57 Ivan Buckner
Not today. We don't have enough time.
00:12:01 Shawn Borden
Okay, next time then. Thanks so much for inviting me to speak!
00:12:05 Ivan Buckner
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 us via e-mail at powerbytes@cat.com. We'd love to hear your feedback on today's podcast or ideas for future podcasts.
