Dive Brief:

• Energy service providers offering off-balance sheet efficiency products have seen rapid growth in the number of deals signed each year, panelists said Wednesday at the U.S. Department of Energy's Better Buildings summit.
• Financing companies associated with DOE's Better Buildings program have "collectively reported about a 2.5x increase in the amount of deals [done annually] since they joined the program," said Joe Indvik, head of clean energy finance and carbon solutions at RE Tech Advisors. 
• A 2017 market report by Navigant (now Guidehouse) estimated Energy Efficiency as a Service (EEaS) could become a $221 billion market by 2026, up from about $50 billion in 2017. Panelists said that growth is showing up in the market, but also warned it is fueled by financing and project complexities that companies want to avoid. 

Dive Insight:

The growth of EEaS agreements belies a problem with how energy efficiency projects are financed and the difficulties in implementation, panelists said Wednesday.

"Efficiency as a service is about delivering simplicity, delivering energy efficiency easily to the end user," said Aaron Block, founder and CEO of Allumia, an EEaS provider for small businesses. "It is a symptom of the overall problem, which is that energy efficiency projects aren't getting done."

Allumia is an EEaS provider for smaller entities, from local grocery stores to mid-sized real estate investment trusts, and executes projects valued from $35,000 to $10 million, Block said.

Efficiency projects are often difficult to finance because of the high up-front costs of replacing and upgrading equipment, and the long pay-back period over which building or business owners recoup the investment. And the projects are complicated, existing outside the core expertise of most businesses, Block said.

EEaS agreements are typically off-balance sheet and utilize a third-party equipment ownership model, Indvik said. They often use pay-for-performance contracts where the provider handles installation and ongoing maintenance, and companies only pay for savings. 

"The world is rapidly shifting to an 'as a service approach,' to service delivery in lots of areas of the economy, Indvik said, likening EEaS to retail music or transportation services. The efficiency as a service idea been around a decade, but "has less standardization and a much broader diversity of providers," he said. In the same realm are lighting services, sustainable energy services agreements, and managed energy service agreements.

About a third of Wednesday's panel listeners were contractors and service providers, according to a poll of participants. The consensus among the Better Buildings program allies, said Indvik, is that EEaS is "growing quite rapidly and has potential for future growth."

The recent focus on electrification and net-zero carbon targets is also boosting awareness of the need for and benefits of efficiency, said Julia Berg, who is responsible for corporate business development at Redaptive, an EEaS provider in the commercial and industrial sector.

"There has historically been a lack of awareness at the C-suite level," Berg said. "Obviously a lack of funding is a key challenge when executing these projects, and there's also payback or [return on investment] hurdles."

Redaptive's platform helps to "bundle site-level economics with technologies to manage towards a specific payback," she said, helping make more efficiency projects economic for companies.

Block said energy efficiency represents a "massive, missed opportunity" but that new advances in financing and services are addressing the need. Last year solar, wind and battery investment worldwide reached about $50 billion, he said, compared with commercial and industrial energy waste of $150 billion.

"The free money that is out there to be claimed is huge," Block said. "The reason companies aren't claiming it is because that's not the main focus of their business. And that's where energy efficiency as a service comes in."