The development of Cooing as a Service (CaaS) businesses models for agriculture and the cold chain is now beginning to be seen in a much wider range of commercial and industrial purposes.
A leading sustainable energy NGO working in the field of CaaS has argued that the emergence of new business and finance models is helping to support cooling technology and utilities providers to look at adopting servitisation in their businesses.
CaaS is a term used to describe a concept where cooling functions are provided on a per-use basis as opposed to a client or end-user purchasing an air conditioning technology or other solution outright. The approach is widely used in the computing and software sectors and could see companies providing cooling technologies, servicing and the related energy demands under a single cost package.
Dimitris Karamitsos, a senior business developer specialists focused on energy efficiency for the not-for-profit Basel Agency for Sustainable Energy (BASE) said servitisation of the cooling sector was now being considered for a wide number of industry needs.
He noted that a major focus for implementing CaaS models has been to support more affordable and sustainable refrigeration in the agriculture sector and wider cold chain – particularly in developing economies. However, innovation is also underway around how office blocks and airports source the refrigeration and air conditioning functions that are vital to their businesses.
Earlier this year, a cooperation agreement was signed by BASE with the Airport Council International industry body to implement the ‘as a service’ model at scale to meet the cooling needs of businesses around the world.
Mr Karamitsos, “It’s about having the airports implementing energy efficient cooling technologies that are state of the art and removing the hassle of having to buy the technologies themselves.
“This means not having the upfront investment hurdle, which at that scale – we are talking several million dollars for such equipment.”
Other potential benefits of adopting a CaaS approach that gave been identified by Karamitsos include having industry experts also take responsibility to ensure systems are up to date with major environmental and efficiency regulations.
He said, “It would be down to the technology provider who is responsible to ensure a system runs to the latest regulations and everything related to maintenance. So today, whenever you look at an airport, or a building such as a hotel, a supermarket, a hospital, they typically will choose technologies that they know how to operate and how reliable they are.”
Mr Karamitsos added that if these building operators were to look at a completely new, innovative chiller system, they currently have to face concerns about the unknown costs and challenges of introducing a new type of system effectively, while limiting the possibilities of breakdowns that can impact on their business.
This concern about new systems often results in building operators sticking more often to tested technologies and systems that they are aware of, as has been the case with airport operators, he added.
Mr Karamitsos said, “The issue is that these technologies are very inefficient, have high operating costs and very often use technologies that are bad for the environment.”
Another potential benefit of the cooling sector moving to service models would also be to prioritise the need for consistent product innovation.
Service suppliers operating CaaS packages at a single fixed cost would directly profit from providing more energy efficient technologies that cost less to run, according to Mr Karamitsos.
He said, “When we talk about climate solution technologies, you can basically act very rapidly. So if you know that you have a new refrigerant coming at that is, let’s say, twice as efficient and extremely clean – one you know is going to be very easy to retrofit into your systems - then you can basically act the next day and go and implement it.
In the present cooling market, BASE said it calculated that around US$50 million worth of operating HVAC and refrigeration assets were provided via the CaaS model – a figure that excludes district cooling plant.
Rapid growth was expected in the market over the next three years, however. BASE predicted that this figure will increase to US$300 million worth of assets.
A focus would now be needed to help companies to understand the potential benefits of switching from being a technology to full-service provider, as well assisting them to adapt their business models sufficiently in order to realise these growth prospects for CaaS.
Mr Karamitsos said this was less a financial challenge and much more about business operations.
He said that such a switch was not presently easy to do. BASE has recently introduced new tools in collaboration with the Kigali Cooling Efficiency Program (K-CEP) that includes offering contract templates and economic modelling to support service-based cooling.
Mr Karamitsos said that the release of the tools, such as a CaaS contract, were intended to help industry bridge the gap in moving to a service-based business model.
He said, “This is something they can take and implement. Also, we can coach them on how to make that shift in operations internally going from selling of equipment to selling of a service. Because, of course, businesses are scared of shifting to a service model.”
This fear for changing business models was believed to stem from the complexities and unknown cost impacts of moving away from metrics such as sales figures of units to issues around the consistency of income for an ongoing, Mr Karamitsos added.
BASE is among the organisations now working to try and assuage business fears around the challenges in moving to CaaS models for their business, while also offering viable financial models using established banking mechanisms.
Mr Karamitsos identified the option of banks or investors providing sale and lease-back mechanisms – an approach where they could take on some of the upfront burden to support the provision of cold air to customers for a single fixed rate price that would be repaid to them.
He said, “At the back of the curtain, which the customer doesn’t need to see, there is a financing mechanism so that the tech provider doesn’t have the risk of being short of cash.”
This model could be supported via a special purpose vehicle (SPV) model that would ensure all parties could economically benefit from a service approach (see diagram below).
Mr Karamitsos said that the CaaS market would be open both to technology providers already experienced in providing chillers and refrigeration systems, as well as utilities specialists that would previously just provide energy.
He said that discussions BASE has held with European utilities companies had shown some multinational groups were already interested in entering the CaaS market. This would mimic the approach already seen in different European markets of energy providers offering an all-in-one heat as a service contracts to homeowners.
Mr Karamitsos said that this possible shift in the market could see utilities companies purchasing cooling technology from manufacturers to provide as part a holistic service where a single price is paid for installation, heating, energy use and servicing.
The rise of utilities group offering CaaS packages would not necessarily undermine income from technology providers however.
He added, “At the end of the day, the advantage of the model means the utility company will need to run that system efficiently and will need to maintain systems so they are state of the art. This means that the utility company would need to have the expertise of the current cooling sector to run this equipment.”