As one tries to define the new emerging business model of Energy-as-a-Service (EaaS), it is helpful to compare it with the traditional regulated energy business model, “Energy-as-a-Commodity.”
Historically the largest energy users bought their energy from the same place as the smallest residential users: the local utility. This model as illustrated in Diagram 1 below has a number of advantages:
- Scale: Utility companies deploy massive networks to deliver electricity and other forms of energy to millions of users
- Efficiency: Utility companies also deploy technologies to efficiently deliver energy to their users. In the case of electricity, this is usually achieved through the deployment of large scale, centralized power generation assets.
- Nearly universal access: the utilities found ways to deliver their services to a geographically diversified customer base. In particular, the utilities developed a means to support the growth of industrial and commercial customers as well as the migration of customers from urban areas into the suburbs and southern and western states.
Diagram 1: Traditional Utility Business Model: Energy-as-a-Commodity
For decades the regulated Energy-as-a-Commodity model defined the relationship between users and power providers when electricity generated by power plants and delivered to customers over a utility’s grid satisfied the needs of its users. In 2016, the world of energy and its relationship to the largest users of energy is vastly more complex. Concern about climate change, sustainability goals, emerging technology, growing regulations and cost concerns are creating new opportunities to redefine the relationship between users of energy and the sources of and providers of energy. What is emerging is a business model defined as Energy-as-a-Service, giving users greater choice in how they create and manage their energy infrastructure around the optimal way that benefits their enterprise.
In most other industries the trend is towards “mass customization”. You do not have to look any further than your local coffee shop to know customization and choice has become the norm driving new business models. One disadvantage of the traditional regulated energy model is captured in Henry Ford’s classic comment about the color options for his cars: “A customer can have a car painted any color they want long as it is black.” The traditional regulated model treats all customers the same. There is limited customization of energy offerings for particular types of customers never mind specialized offerings for individual customers.
The emerging business paradigm in energy is fundamentally about choice starting with the largest energy users in the commercial, industrial or institutional sectors. Energy-as-a-Service puts control in the hands of the energy user. This new EaaS energy model anticipates choice in:
- How energy is generated and the environmental impact of that generation
- Who owns those energy generation assets (the user or the supplier or a 3rd party)
- The level of dependence on the grid and/or distributed energy resources
- The degree of redundancy and resiliency built into their energy capabilities
- The pricing and payment mechanisms
- Whether bills will be consolidated nationally or continue to be issued by firms all over the country (there are well over 1,000 energy utilities alone in North America).
While we may never see the level of choice provided in the local coffee shop, large energy users are demanding and beginning to realize greater choices in their relationship with energy.
We call this emerging future “Energy-as-a-Service”.
Diagram 2: The emerging business model of Energy-as-a-Service
EaaS is reflected in Diagram 2. In future blog posts we will continue to define and analyze this new business model.
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