Navigant Research Blog

Enterprisewide Financing Innovation Needed to Drive Energy as a Service Delivery

William Tokash — July 5, 2017

In my most recent blog post, I examined how corporate commercial and industrial (C&I) energy and sustainability managers, after years of having no say in how they procure energy, are choosing to apply new technology and business model innovations to meet sustainability needs. Navigant Research anticipates these needs will contribute to the emergence of new energy as a service (EaaS) solution offerings and deployment models underpinned by financing innovation and a desire by customers to avoid spending capital on energy projects. I will highlight how these EaaS solutions and deployment models are brought to the market in an upcoming Navigant Research report titled Energy as a Service.

Currently, C&I customers attempting to implement energy efficiency and/or distributed generation projects are already using EaaS solutions, typically from pure-play solutions providers. For example, solar PV developers use project finance instruments such as solar power purchasing agreements, while energy efficiency implementers can deploy shared cost savings-based energy services performance contracts. Both EaaS financing instruments allow customer to implement projects without deploying their own capital. But until recently, there were fewer options for customers to deploy EaaS using financing innovation on an enterprisewide basis.

Enterprisewide Financing Innovation

One deployment model that is poised to drive the growth of EaaS solutions is called the outsourced managed energy services agreement (MESA). In a MESA, customers with large portfolios of small and medium-sized C&I buildings will look to outsource their entire management operations for a fixed annual payment over an extended period. The MESA concept shown below highlights how this type of EaaS deployment model might work.

Basic MESA Structure

(Source: Wilson Sonsini Goodrich & Rosati)

At the heart of a MESA is a turnkey EaaS provider with deep project development and technology expertise across multiple EaaS disciplines. These vendors will also have the capability to deploy financing innovation to overcome customer simple payback capital deployment hurdles. The MESA concept allows the EaaS provider to assume turnkey responsibility for enterprisewide energy management, including utility bill payment, in exchange for a series of annual creditworthy payments over 10, 15, or more years based on the customer’s historic energy management costs. This approach allows the MESA provider the flexibility to pursue energy retrofits or solar PV deployments under long-term financing arrangements should the customer lack the expertise, risk appetite, time, or capital to do so themselves.

As several of my recent blogs have highlighted, the need for interested EaaS stakeholders to create and apply financing innovation is critical to the deployment of new distributed energy resources. The MESA is a prime example of an innovative financing approach that can be applied on an enterprisewide basis to meet the customer needs to reduce energy spend and lower greenhouse gas emissions while overcoming the capital deployment and technical expertise barriers they face.

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