Modelling and analysis of a business model to offer energy-saving technologies as a service

Abstract

In this study, we present a stochastic model to analyse a business plan that is based on offering energy-saving technologies as a service. In this arrangement, the total differential cost of replacing an existing technology with a more efficient one is financed from the future energy savings that are shared between a service provider that installs the more efficient technology and its customer. The model we present captures improvements in energy efficiencies and costs of technologies with time, variation in energy consumption, uncertainty in energy prices and useful life of a technology, and revenue from carbon offsets. By using an analytical model, we analyse the feasibility of this business model using expected cost and also value-at-risk criteria. We show that when the service provider selects the contract parameters in a right way, the business plan brings financial benefits. The customer also benefits financially from reduction in energy usage and replacement costs, and also from additional revenue obtained through selling carbon offsets. Furthermore, since this business plan is based on increasing energy efficiency, the proposed approach decreases energy consumption, and therefore carbon dioxide emissions. As a result, using an analytical model, we show that offering energy-saving technologies as a service is a win–win–win situation for the service provider, its customer and for the environment.