News - July 25, 2023

New Business Models to Facilitate the Energy Transition

Written by BASE & E4S

In Switzerland, the pursuit of its 2030 agenda will be influenced by a legislative framework that favours clean technology solutions. To drive this transformative agenda forward, it is crucial to establish strong business cases within the cleantech sector, demonstrating the economic viability and benefits of adopting innovative approaches. This article highlights the potential of innovative business models, particularly servitisation, as a compelling example of such a case. By promoting and encouraging the adoption of servitisation and similar models, Switzerland can accelerate its energy transition, unlocking new avenues for sustainable growth and paving the way towards a cleaner, more resilient future.

Buildings currently contribute up to 40% of the country's energy demand and about 25% of its greenhouse gas emissions, primarily relying on oil and gas for heating (SFOE, 2023). To accelerate the shift to cleaner solutions, energy efficiency plays a vital role, often regarded as one of the most cost-effective ways to achieve this necessary transition to reach international global warming objectives.

As per Swiss Energy Scope, achieving full Minergie standard renovation for Switzerland's building stock could result in halving its current energy use. This represents a significant 36 TWh per year reduction, accounting for 18% of the country's total final energy consumption. However, Swiss Federal Laboratories for Materials Science and Technology (Empa) reports that energy efficiency renovations are presently performed on merely 1% of the building stock. Indeed, despite abundant clean energy solutions, their uptake remains insufficient due to high upfront costs and limited awareness of technologies’ and their long-term benefits.

Business model innovation increasing access to clean tech:

To improve the access to clean tech solutions, innovative business models and policy changes are essential. One such model is the Energy Performance Contract (EPC), enabling users to upgrade to efficient systems without upfront investments and repay providers through achieved savings. This removes financial obstacles while ensuring long-term predictable revenues for the solution providers. However EPCs  can be difficult to deploy; a successful contract highly depends on the provider accurately forecasting the amount of savings a client will benefit from throughout the contract duration. Should the customer change behaviour, this may lead to variations in estimated savings and commercial frictions between the provider and the user.

Another promising approach is servitisation, which involves selling the services or outputs provided by products rather than the products themselves. This model offers unmatched transparency on consumption and pricing, adopting a pay-per-use or X-as-a-Service contract. For energy systems like heating (Heating-as-a-Service) or cooling (Cooling-as-a-Service), customers are charged only for the consumed warming or cooling quantity. This eliminates high upfront costs for modern technologies, while ensuring an agreed monthly fee in exchange for the provided service. Businesses can shift from high capital expenditure to operational expenditure, focusing on their core activities. For providers, this solution brings recurring revenues, scalability, predictability, and customer-centric innovation. External financiers also have an opportunity to invest in green assets, tracking emissions impact, energy usage, and life-cycle footprint. By adopting such business models, solution providers can increase adoption of clean tech solutions in buildings and beyond.

Rethinking business models as a form of innovation

In the realm of cleantech, shifting business models prompts a profound reassessment of value chains, spanning financing, product design, and life-cycle considerations. Embracing servitisation not only drives service providers to accurately gauge the environmental, social, and economic impacts of their solutions, but also fosters systemic energy efficiency and circular design in buildings. This transformative approach, aligning returns with asset performance, compels technology providers to prioritise monitoring, maintenance, and the creation of robust, modular systems. Servitisation overcomes user’s perceived complexity of clean energy solutions, while providing them with hassle-free, clean and efficient energy.

Realigning incentives with the Swiss energy transition

To stimulate both the demand and supply of clean energy technologies in Switzerland, the Servetia Initiative, led by BASE Foundation and the Enterprise for Society Center (E4S) with the support of the Fondation Valéry, builds capacity on the model of servitisation through standardised tools (contracts, pricing models, investment structures and documentation) to bolster the Swiss building sector in its energy transition while also contributing to the green financing landscape. This effort builds on previous successes deploying the as-a-service model to commercial and industrial buildings.

A notable example of the latter is offered by the 2022 collaboration between BASE, the cooling supplier Energy Partners Refrigeration (EPR) and external financiers which led to a project retrofitting the entire refrigeration system of a factory owned by Clover, one of South Africa’s largest dairy company, to deliver 10 MW of cooling. By adopting sustainable coolants, photovoltaics, and a heat recovery system under the Cooling-as-a-Service initiative, a significant transformation was achieved, leading to carbon reductions exceeding 6500t of CO2 annually, with an investment value of EUR 8.8m. Notably, within its initial months of operation, Energy Partners observed a nearly 40% improvement in energy efficiency, surpassing initial estimations. Similarly, in Singapore,  BASE’s Cooling-as-Service model allowed cooling provider KAER to deliver 11600kW to a large data centre, with a 24/7 monitoring system that, without upfront investment, allowed the end-user to save 90% of the manpower previously needed to operate the plant.

In Switzerland, with many encouraging changes in its recent Climate Law, the market is ripe for widespread deployment of clean energy technologies, on the back of continued supportive regulatory frameworks. The increased development of smart grids and local energy communities, net metering policies, tax credits as well as grant programs and energy efficiency funds that target the use of clean energy and look beyond traditional subsidised investments, which are important in their own right, would all benefit the implementation of servitisation and a wider adoption of clean and efficient energy technologies.

In this light, initiatives such as “Prêt à voter”  of the Solar Impulse Foundation are key to bringing forward the right policies and frameworks that could help galvanise collective action toward an accelerated energy transition.

Written by BASE & E4S on July 25, 2023

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