The need for the energy transition is clear and doing so by positioning the EU as a leader in climate policy and securing competitiveness to SMEs through energy efficiency is the most successful way of delivering it.
Beyond technology innovation, business model innovation can be a strong enabler to accelerate the market transition to energy efficient solutions. The servitisation business model has the potential to align the interests of businesses, people and the planet, with all benefiting from social, economic and environmental gains.
Furthermore, it permits embedding additional value to address the circular economy. The maturity of the solutions and current implementation varies across sectors and geographies, as experienced in the past three years by the consortium delivering the Efficient Equipment as a Service initiative (EaaS).
A transition to a circular economy is one EU’s Green Deal main pillar. Slowly but surely, companies are increasingly looking at embedding circularity in their way of operating, and EaaS provides a way to realise this objective in a competitive manner. With EaaS, suppliers keep track of and maintain responsibility over their equipment during their full lifecycle.
– Mira Tayah, Circular Economy Expert, AGORIA
We are thrilled to see the interest in Efficiency-as-a-Service taking up in Europe through the duration of our project. We are convinced that this is a business model that can enable access to many different efficient solutions and play an important role in reaching EU climate goals.
– Livia Miethke Morais, Senior Sustainable Energy Finance Specialist at BASE
The EaaS project
The EaaS project, led by BASE, has received funding from the European Union’s Horizon 2020 research and innovation programme and ran from June 2020 until November 2023. The project objectives were to develop and deploy the servitisation (or pay-per-use) model and a financial structure to enable the transition and accelerate the market adoption of energy efficient solutions by Small and Medium-sized Enterprises (SMEs) in the EU and in particular in Belgium with Agoria, the Netherlands with EIT Innoenergy and Spain with ANESE.
With EaaS, end customers pay for the service they receive, rather than purchasing the physical product, therefore avoiding the upfront costs of expensive modern efficient systems. The technology provider installs and maintains the equipment, recovering the costs through periodic payments made by the customer. This fee includes implementation, maintenance, repairs, and running costs – such as electricity and water.
Throughout the duration of the EaaS project, the consortium has developed tools for the deployment of the servitisation model. The tools include standardised contracts for each of the countries Belgium, the Netherlands and Spain. The contract also lists the rights and requirements of both parties, including liabilities and confidentiality guidelines, as well as dispute resolution in case either party breaches the contract. During 2021, stakeholder consultations were conducted with potential clients, insurances, financial entities and providers to integrate requirements within the standardised contract. Legal consultants in each country provided inputs to comply with the national commercial and fiscal regulations, (e.g. link with IFRS International Financial Reporting and national Standards).
A pricing tool has also been developed for the simulation and demonstration of financial costs and cash flow for the servitisation model of high-efficient system in comparison to upfront purchase of a medium-efficiency system with customer loan financing, and the legacy use of a low-efficiency system. Solution providers shifting to offering EaaS may need some tools to set up a pricing strategy for the new service. The pricing model can support this process, as it provides an estimation for the price per unit of service delivered as well as the expected return of the project. The tool may also be useful for providers to show interested customers that the EaaS service may offer economic benefits against investments in lower medium-efficiency equipment. Investors including for instance banks or investment funds may use the tool to have a better understanding of the returns that can be expected from EaaS projects.
As part of the EaaS initiative, an evaluation of the risks potentially occurring in such projects was completed and summarised into guidelines of risk mitigation. These were studied for each stakeholder active on EaaS projects: the provider, the financial partner and the client. The list of risks includes inadequate pricing, volume, counterparty demand, performance, early contract termination, change in electricity and energy tariffs, credit risk and other risks for solution providers; and providers' existential risk, performance risk, system breakdown, slow response to repair, data protection risks for clients. Country-specific risks and possible mitigation actions were also listed in the guidelines.
Technology/service providers and potential clients also shared best practices in measuring, reporting and verifying (MRV) the MWh and GHG savings from the solutions implemented, and contributions to net zero strategies, to yield conclusions on the climate impact. Servitisation brings the economic incentive to reliably measure the consumption of solutions implemented: generated revenues collected for the companies supplying the service depend on it.
Key learnings and Case studies
Besides the webinars and workshops for the development of the tools, the EaaS consortium conducted matchmaking sessions and extensive exchanges with all the different stakeholders in the three markets and across Europe, from clients to manufacturers, installers and financiers. The case studies collected enable to illustrate how servitisation contributes to the EU taxonomy on sustainable activities and promotes circular economy via Light as a service (LaaS), Heating or Cooling as a service (HaaS or CaaS), Battery as a Service (BaaS) and explore the different parameters, fees structure and possible financing structures (sale and lease back, SPV etc). Key learnings and the outlook for the uptake of servitisation in Europe have been captured in the EaaS Briefing.
We invite you to check out the tools, case studies, articles and briefing on the websites www.eaas-initiative.org and continue the dialogue under the global Servitisation for Energy Transition (SET) Alliance: https://set-alliance.org.