Efficiency as a Service
Energy efficiency is the lowest cost energy savings, but companies often don’t move forward with renovations they know they want, because they can’t prioritize such projects due to technical and financial hurdles.
Such delays are costing businesses billions every year. What many don’t know is that lighting is a major cost for us all. In 2015, the cost of keeping the lights on in the US was $1,430 for every man woman and child. A solution that helps business owners eliminate the technical and financial hurdles is called Lighting as a Service (LaaS). It is a kind of leasing plan, an idea proposed back in 1999 in Natural Capitalism: Creating the Next Industrial Revolution by Hawken, Lovins and Lovins. Many of us are well acquainted with personal car leases, a concept which dates back to the 1960's, when a guy named Eustace Wolfington wanted to sell his friend a Chevrolet. In Natural Capitalism, the authors proposed leasing appliances, which can be upgraded or serviced for a set fee or swapped for new ones. The customer gets a discount for the returned model. The manufacturer can reuse or remanufacture parts, and recycle the rest. It is, in fact, a service model, where the manufacturer 'owns' the appliance, and is responsible for keeping the client happy. The client is released from worries about keeping her appliance working, or upgrading as newer products with key features are released into the marketplace. Such a model is called AaaS, appliance as a service.
Flash forward to 2016, and there is a company that is doing the same thing for energy efficiency, with a focus on lighting retrofits: SparkFund [sparkfund.com]. Unlike appliances, industrial lighting is a complex subject which leaves many companies wanting but unwilling.
As Pier LaFarge, co-founder and CEO at SparkFund, said, “The inhibiting factor is that businesses don't prioritize replacing lighting when they could invest in their core business -- like deciding to buy forklifts. And, frankly, I don't blame them."
For SparkFund, delivering solutions means removing the barriers to making a decision. By providing a transparent bridge between the client and the vendor, they remove both the technical and financial hurdles.
Benefits for Businesses
On one side, the business purchaser is not a technical expert, which makes evaluating options from many different vendors, with a variety of products and approaches, too time consuming and confusing. Mr. LaFarge talked about “standing the model on its head” by helping the client identify what they want -- healthier patients, alert kids, energized workers. While most of us think of lighting as that thing that turns on when we flip a switch, in a corporate or industrial setting lighting includes foot-candles, refraction, color and other characteristics, including features such as smart lights that turn on and off as people come and go, or manage security functions. As Mr. LaFarge commented, “It’s surprisingly hard to be an expert in something you already have.”
Benefits for Vendors
On the other side, vendors often focus on their product features and characteristics, not on solving the client’s problem.
As Virginia Hewitt, Senior Partnerships Manager said, "Our partners are experts at designing, installing and maintaining effective systems and advanced technology. As they shift to sell ‘as-a-service’, they need support framing this sales mode and highlighting the salient financial aspects. This is where SparkFund steps in.”
She went on to add that their platform has easy to use tools to produce estimates and pitch documents that can facilitate and support their sales cycle. In addition, SparkFund staff will go with vendors to important meetings to help them work effectively with potential clients.
EaaS: Efficiency as a Service
EaaS is a model that brings all parties together to solve a problem, not sell a product. As Mr. LaFarge said, “The LaaS model is important for short payback, smart devices such as lighting controls, building management systems and other Internet of Things (IoT) services.” The model is an innovation that can make energy efficiency move from want-to-have to must-have, revolutionizing an industry much like software-as-a-service changed how businesses purchase software. This is important because energy efficiency has tremendous benefits for the United States. As the Department of Energy says: “Energy efficiency is one of the easiest and most cost effective ways to combat climate change, clean the air we breathe, improve the competitiveness of our businesses and reduce energy costs for consumers.”
Efficiency projects are generally financed by the vendor and the customer splitting the difference between what the customer would pay for utilities without the retrofits and their pre-upgrade fees. The customer gets somewhat lower costs and the vendor is paid back for installation and maintenance. This is great, once the retrofits are in place and the savings are realized. However, the gap between the project start and those savings can cover weeks or months, and includes the upfront costs of design, installation and materials. Large firms can build a reservoir from past projects to help finance new ones, or have existing relationships with finance firms to obtain a 3rd party loan. For small and medium firms, such loans are not available or too time consuming and costly.
By providing a transparent bridge, SparkFund manages both the needs of the client for transparency and no upfront costs, and the vendor’s need for well managed, profitable projects with reliable clients. Once the project is installed, the customer and SparkFund each share in the savings for a period of time set by the contract. The vendor receives funds for ongoing maintenance. If no savings are realized, the company doesn’t pay anything: a feature unique to SparkFund. At the end of the contract term, the company has several ‘end of term’ options:
At the end of the contract the customer can purchase the installed efficient technology.
Upgrade the system.
An upgrade of the system can allow the Customer to take advantage of new products or services not available at the time of the original contract.
Extend the contract.
At the end of the contract, the customer can then extend the contract to continue receiving the service, and at the servicer’s discretion, can be offered at a lower monthly payment.
Mr. LaFarge closed by saying, “There's a lot of important stuff to do when you're running a business. That's why they don't wake up and think ‘I wonder if that light could be 70% more efficient?’. It doesn't make their day worse.”
By combining SparkFund’s expertise and resources, clients and vendors get what they need while keeping their focus on what’s important: their business.