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Fast Company

How the energy as a service model is disrupting industrial energy procurement

The subscription business model, software as a service (SaaS), has become the norm for organizations of all sizes to manage everything from accounting and finance to communication and collaboration. Energy as a service (EaaS), however, is a new framework that is transforming traditional utility models and offering businesses a way to purchase energy without an upfront equipment investment. 'For a lot of mom-and-pop businesses, or even medium-sized businesses, the old utility model has been the only option,' says Jay Bhatty, CEO and founder of a company that builds automation software for clients in the oil and gas industry. 'If you move to a city, you go to the utility, apply for an electricity or natural gas connection, pay the utility, and buy necessary equipment. But with the new model, you don't need to buy the equipment yourself.' THE UPSIDES AND DOWNSIDES OF ENERGY AS A SERVICE Bhatty gives an example to illustrate the differences between the two models. With the traditional approach, if a dairy farmer in Texas needs a heat pump, they have to buy the pump and hook it up to a natural gas or electricity connection to generate heat for the business' daily operations. With the new EaaS model, the farmer works with a vendor that provides and installs the heat pump, sets up the connection, and charges the farmer only for the monthly energy service. 'A dairy farmer's core business is milk; it's not heat pumps or energy,' says Bhatty. 'They don't know enough about that business to know if they're choosing the best solution. They may not have the most environmentally efficient equipment. They may not be paying the lowest price for electricity or natural gas. And they are responsible for maintaining the pump. But if they work with a vendor that is a heat pump expert, they're just paying for the heat as energy as a service. They can ask the vendor for an environmentally friendly heat pump that runs on solar or wind or a cheaper option that runs on natural gas. They can determine their carbon footprint, and the vendor will take care of it.' Larger companies in the oil and gas industry are already using EaaS. Oil drilling rigs, for example, are composed of multiple components that are heavy, complex, and expensive. Each piece of equipment requires consistent maintenance from highly skilled professionals. Energy producers outsource this part of their business, partnering with drilling companies to install and maintain rigs and leasing them through long-term contracts. offers products that allow oil and gas industry clients to lease storage on transport space on pipelines instead of buying it. The company's software identifies these opportunities for them in the market, connecting buyers that need space and sellers that have excess capacity. 'You see this model in other industries as well,' says Bhatty. 'In real estate, when you rent an apartment, you don't have to buy the appliances. You don't know what the carbon footprint is of the appliances or the cost of electricity. You're renting an apartment as a service, in the same way that businesses use energy as a service. When you call an Uber, you don't have to worry about the maintenance of the car. And in the future, ride-sharing companies might offer more specific options: If you want to lower your carbon footprint, you can call an electric vehicle. Or if you want a cheaper price, you can call a gasoline-powered vehicle.' The main challenge of EaaS is risk mitigation, explains Bhatty. Businesses need a guarantee that working with a vendor is more cost-effective than taking a DIY approach. 'Let's say I commit to a one-year contract for energy as a service,' says Bhatty. 'But what happens if my costs are not as low as what I could do myself? Then I'm stuck with this contract. I want a vendor to say: Give me your monthly heat pump bill. If you go with our service, we guarantee you 10% below your monthly bill or else you don't pay us. There are some risk mitigation factors that you have to build into your contract to protect your business.' EVALUATING THE BUSINESS VALUE OF EEAS Bhatty encourages business leaders interested in exploring EaaS to take the following steps. • Do your due diligence: 'Do your homework to select the right vendor. It's the traditional own versus rent model that depends on what's good for your business. Figure out the factors that matter most to you: optimal system performance, efficiency, environmental benefits, cost savings, reduced risk.' • Identify measurable cost savings: 'Know your monthly costs. When you are evaluating vendors, build it into the contract that whatever is being offered is guaranteed and measurable. The cost savings should be demonstrable. Otherwise, you end up paying more for a service you could have done yourself. Keep in mind that contracts are usually at least a minimum of a year because this is heavy equipment that has to be installed on site.' • Find your reason why: 'This model is picking up steam, and it will continue to do so the more efficient it becomes. Find the driving factor for your business to adopt EaaS. In some states, like California, it might be environmental concerns. In others, like Texas, it might be cost savings. Understand what you're trying to achieve, and how energy as a service can help you get there.'