“As-a-service” is appearing everywhere. Software-as-a-service. Ride-as-a-service. Office Plants-as-a-service. But what can the as-a-Service model do to deliver energy savings to the hospitality industry that is different than the standard CapEx model of today. This paper provides a comparison of the CapEx versus the as-a-Service model and the potential economic impact of a sharing economy.
Let’s face it, every hotel owner wants to grow revenue and reduce expenses. Energy is now the top operating expense after employees. However, most energy reductions require capital and when the owners are faced with choices in capital expenditures or Cap Ex, the budget tends to choose in favor of improvements that will increase revenue and not energy savings.
The As-A-Service model applied to Energy
So every year in preparation for the annual capital budget meeting, the various facility and energy saving upgrades are prepared for the budget presentation. Carpeting, LED televisions, linens and beds, wall coverings and of course at the end of the list are the energy efficiency improvements like new ptacs, room controls, laundry upgrades etc.
The question is although energy efficiency upgrades pay for themselves out of savings, is this year another one of those years where energy savings are just not in the capital budget again? Perhaps the real question is- are we looking at energy savings as a capital improvement compared to a reduction in energy expenses with no debt and no investment. Although Software as a Service (SaaS) started the trend, more and more services from Uber to iTunes to Air BnB are moving away from the capital ownership model to a model that allows you to use the system with No Investment or debt. Now, the option to get energy efficiency improvements with no debt and no investment is becoming a new option. We call this Energy Efficiency as a Service.
Energy Efficiency As A Service
In fact, if you think about it- the utilities are the original energy as a service- they require no investment from you. You don’t buy the power plant- you just buy the energy. However, the utilities pulled a fast one because they give you raw energy – electricity and natural gas. But you don’t want those forms of energy. You need them converted so they are amenities that your guests can use. You want lumens for light and BTUs for heating, cooling and hot water. But the utility requires you to buy, maintain and replace your own energy conversion devices onsite. So really, when you look at your cap ex budget relating to energy savings at your hotel- you are really only dealing with the energy conversion devices for your property.
We recognized what was needed was to fund and provide the investment capital to own and operate the energy saving conversion devices as an onsite utility as a service instead of a capital sale to the hotel. Onsite Utility Services was created to deliver energy benefits with no debt and no investment for the customer- just savings. Onsite Utility Services was the solution for delivering Energy Efficiency as a Service. The as a Service model removes the complications of ownership — high upfront capital costs, numerous vendors each pitching a different solution, and decision fatigue of too many choices — for an all-inclusive pay-as-you-go option with no debt and no investment.
Just imagine if your local electric and gas utility came to you and said they will provide onsite upgrades of your lighting, HVAC controls, walk-in coolers and more with no debt and no investment. In fact, they will provide the capital for the upgrade along with savings off your current costs for converting the energy including the ongoing maintenance.
You’d sign up wouldn’t you?
You are already connected to gas and electric for as long as your hotel exists so why would you not take the next level of service with savings but no debt or investment? But your utilities are not going to provide you with the onsite energy services. It just isn’t their business model and it requires too many small transactions compared to building a large power plant and transmission lines. But, Onsite Utility Services will provide the onsite energy improvements with no debt, no investment and no lien on your property to deliver savings today.
Overall, energy efficiency as-a-service creates a situation where businesses can preserve their resources for other business growth activities yet still receive savings on their energy costs. And from these savings, the opportunity for real economic growth is enabled.
So, is “not in this years budget” keeping you from energy efficiency upgrades?
Let’s look at an example of two hotel groups that each have 25 similar properties with 150 rooms each in similar weather markets. Let’s look at the impact of moving forward through Energy Efficiency as a Service versus the hope and prayer of CapEx budget. Hotel Group A continues on the path of annual energy upgrades being submitted into the Capital Budget along with all of the other budget needs from beds, to carpet to furniture. Hotel Group B decides to contract for Energy Savings as a Service providing upgrades with no debt and no investment for all of the properties now. Group B realizes this provides increased cash flow with no cost and allows the budget to be focused just on revenue enhancing facility upgrades to grow their business. It costs $200,000 for each hotel energy upgrade including lighting, room controls, ozone laundry, HVAC controls and more.
We will summarize many of the approved Energy as a Service systems later, but for now, we are focused on the cost of not doing something while we wait for energy improvements to get approved as part of the budget versus moving forward with Energy Efficiency as a Service.
Hotel Group A finally had the capital budgeted and upgraded one building. Everyone loved it. They got 35% return on their capital with a corresponding 35% savings in energy and maintenance for their lighting, HVAC, etc. Success! So now, every year the facility manager goes in for a budget approval to do more, and every other year he gets a little bit of what he asked for, and now after five years, Group A Hotels had $400,000 in capital expenditures ($200,000 initial and $50,000 per year for 4 years) which is the equivalent upgrade of only 2 complete hotels. At the current working speed and deployment of capital of $400,000 every 5 years, they will take 62 and a half years to full retrofit all of their facilities. So, five years later they have saved $525,000 but spent $400,000 for a net savings of $125,000. Group B with the same size hotels, chose to retrofit all 25 properties through Energy Efficiency as a Service. This meant they had no capital and no debt for the energy upgrades. Group B received 20% of the savings generated with no capital required. With no added debt on the books, it didn’t negatively impact their balance sheet. The $5,000,000 retrofit generated $1.75 million in savings over 5 years, which meant Group B made $350,000 per year with no use of their own capital. So the strategy of using their own constrained capital and delaying energy improvements meant Group A netted $125,000 over 5 years and still had 23 hotels not upgraded. Of course, Group A is also spending millions of dollars in utility charges every year on energy costs since they did not do an upgrade.
Hotel Group B upgraded all 25 buildings with no investment and profited $1.75 million at the end of five years. It’s that simple. The Energy Efficiency as a Service solution is a five to ten year financial agreement, and the customer, the contractor and the people that are investing the money are all happy.
Group B started to see an immediate impact on the reduction of their carbon footprint. If Group A and B both needed to borrow money to grow their business, Group B would find it easier to borrow the money. And Group B increased their annual net income by $350,000. Customers can meet environmental goals while keeping their capital focused on their operations.
The real question is would you rather be Hotel Group A with $125,000 net gain or Hotel Group B with $1.75 million? This as a Service model spreads the total cost of product ownership over time into predictable payments with worry-free upkeep with guarantees of savings and maintenance. The sharing economy is transforming how we purchase goods or contract for the benefits without the investment cost up front.
The following systems and technologies can be implemented with no debt and no investment. You get savings from day one when taking Energy Efficiency as a Service or onsite generation through a Power Purchase Agreement or PPA. You can become the Hotel Group B.
1. LED lighting- LED lighting is the most advanced option for energy and maintenance savings. Energy savings can be significant depending on what is being replaced and maintenance for bulb replacement could be extended to 10 to 20 years. LEDs can impact exterior, common area and room lighting at your facility.
2. Hotel Occupancy room controls- The guest cranks up the HVAC controls and puts a few things away in the drawers and leaves the room with everything running. Room controls allow for guest comfort but also reduce heating and cooling compared to rooms without these controls. You might also earn additional income through Demand Response.
3. Ozone laundry system- Ozone is as effective as chlorine as a cleaner and whitener but without the environmental worries. Your system can be upgraded to ozone which saves energy (you use cool water), chemicals, drier time, labor and extend the life of your linens. In addition, we capture the waste heat from the dryers and recycle it to speed up the drying time.
4. Walk in cooler and freezer controls- Your coolers are typically running 24 hours per day. But they do not need to be running at top capacity. Smart controls reduce your compressor run times savings energy and maintenance.
5. Toilet and water conservation replacements- Water/sewer bills are skyrocketing nationwide. Older toilets use up to 4.5 gallons of water per flush versus .80 gallon per flush with no double flushes (provided you buy the correct system). Extra savings from a new shower head with strong steady pressure and savings are yours for the next decade or more. Significant savings on you water sewer bills are achievable.
6. Water Smart Valves- These valves control a steady pressure with a reduction in volume registered by the central water meter. Savings with no replacement of fixtures or customer experience.
7. Rooftop HVAC controls- Rooftop heating and cooling systems last up to 25 years but the older systems lack the energy savings options available on brand new systems. The intelligent controls increase the overall efficiency by harvesting extra energy from the heat exchangers even after burners and compressors have been turned off.
8. Waste drain heat recovery- Every time your guests shower or empty a bath tub, they are sending hot water filled with embedded energy down the drain while the hot water heater is bringing in cold water to be heated up to temperature. Waste drain heat recovery captures the waste heat going down the drain and preheats the cold water coming in to the hot water heater to reduce the amount of energy needed to heat the hot water to temperature.
9. Cooling Towers- These are huge users of water, energy and chemicals. In addition to added labor for maintenance. Proper metering and systems for water prep can reduce the costs of operation.
10. Demand Management Controls- Demand charges can represent up to 30-40% of your total electric bill. Demand management works at tracking your peak electric usage and implement control strategies to maintain and lower demand charges. Potential income with Demand Response depending on your location.
11. Thermal (Ice) Energy Storage- For facilities with central cooling and time of use electric rates, ice or thermal storage to provide huge savings by making and storing ice at the lower night rates and using the stored cooling energy to reduce your electric usage during the day.
12. Cogen- onsite electric generation with heat recovery can create savings up to 20% with no investment, compared to buying electricity from the utility and making your own hot water through an onsite boiler. Best markets are CA, NJ, NYC, MA, CT and MD.
13. Solar- Solar on your roof, ground or car ports can provide electricity savings for 20 to 30 years. Most applicable for CA, New England and mid-Atlantic area. Savings can range from 10-20% with no investment.
14. Free Emergency Generator- Keep the lights on, even when the local utility lights go out. If you are located in the PJM, NYC or ISO New England market, you could qualify for a natural gas generator with no investment. In addition, our investor manages the generator capacity in the electric market to generate additional income.
15. Battery Storage- This is similar to demand control using the batteries to reduce demand as necessary. Potential additional income could be made through Demand Response.
Keep your capital focused on your core business. Take advantage of the new sharing economy and increase your profits through Energy Efficiency as a Service today!
Onsite Utility Services Capital, LLC. is an energy project investor and funder including Energy Efficiency as a Service along with onsite generation and water conservation across the United States. OUS Capital collaborates with energy project development partners nationwide.
OUS Capital would like to thank our Energy Project Originators and our Certified Energy Trade Allies for their contributions to this article.
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Energy efficiency as-a-service allows businesses to preserve their resources for other business growth activities while saving on their energy costs – and that’s a huge opportunity for real economic growth.