A Utility Tale: from Energy Supplier to ESCO
I saw it directly with my eyes.
What we witnessed was a big change in the overall strategy of our company.
It’s all about creating value for our clients, no matter what.
In a few years a typical supplier of electricity and gas transformed itself into a fully fledged ESCO.
Of course it was not a sudden process, it took a few years, some failures and a few successes.
It started with the electricity market unbundling in 2007 and it ended almost 10 years later.
Now we sell Energy Services to our clients, and electricity and gas are just some of those services.
Here’s the main stages of this transformation.
Falling Energy Prices
At the beginning of 2008 the first signs of the financial crisis that hit all economies started to impact also european energy prices.
The German EEX year ahead electricity index fell by 45 euro per MWh within 9 months, and our company was badly hit from this sudden change in the market fundamentals.
Lower prices generally mean lower margins, especially after the energy system unbundling which was finalized in Europe in 2007. The proliferation of new energy suppliers, our competitors, in a period of falling prices caused margins to shrink to a level never seen.
We were facing a challenge that was completely new for this market. An old monopolistic market finally had to face the same path which had to follow the TLC market.
We had to find a way to increase customer value by crafting new business models revolving around the idea of better using energy.
The LED revolution
Our mother company in 2008 patented a LED street lighting fixture cheap and efficient enough to allow the realization of Energy Performance Contracts (EPCs) related to the modernization of public lighting systems.
It was the perfect example of how the combination of energy supply, energy efficiency and a convenient financing scheme could provide added value to our clients. Those EPCs were achieving energy savings, increasing comfort and safety for people without affecting the towns’ cash flow. And it was a relatively easy technological upgrade which allowed us to fully grasp the potential of energy services.
The natural step after public lighting was to bring the same model to industrial lighting systems modernizations.
The advantage of this form of projects lied in the higher number of hours of operation which indoor lighting could guarantee, thus shortening the return on investment of such projects.
Other factors needed to be taken in to consideration, such as operational safety, health and safety norms and regulations, production constraints and other future proof obstacles, such as the frequent production layout changes typical in a factory or other industrial environment.
The no brainer idea was always the same: we invest in the technology, we guarantee the savings, you get the new stuff for the price of the old one.
The Potential of Heating and Cooling
As an energy supplier we always had a big advantage compared to traditional ESCOs, i.e. having already a wide portfolio of industrial and commercial clients. The salesforce marginal cost of offering other services, alongside electricity and gas, was very minimal.
We started to analyze the typical issues which were giving Energy Managers headaches, and the undisputable winner was inefficient technology for heating and cooling generation and distribution, both for production processes and for buildings comfort.
After analyzing some concrete business cases, we identified big potential in old compressors for cooling generation and unused waste heat. Finding a technical solution to improve the efficiency of the cooling process and at the same time reutilize as much as possible waste heat proved to be a winning idea.
Especially I was shocked by the total lack of coordination between different areas of a production site. Waste heat generated in one side of the building would just be get rid of and a separate gas boiler would be installed to heat an adjacent building.
A first seed of circular economy was planted, and we started to develop on it
Heat Pumps: Our Preferred Technology
Slovakia is a country rich in underground water and its capital, Bratislava, is crossed by the Danube river. Here there are optimal conditions for exploiting underground water for energy purposes.
Water Water Heat pumps are the ideal solution to maximise the Total Cost of Ownership in a new development project.
We started to analyze and refine the business model to make the most out of the biggest benefit that Heat Pumps provide, i.e. the chance to produce heating and cooling at the same time with the same technology. Heat pumps while cooling produce excess heat that could be utilized to supply hot water.
Our proposal to developers aimed at utilizing large water water heat pumps systems as a baseload source production of heating and cooling within an Energy Service Agreement or ESA. This was never done before and we opened a new market which proved to be successful.
Energy Service Agreements are the future
The path we underwent was a long one, it affected the whole company. We went through initial skepticism to first successes and eventually Energy Services became so important that we even changed the company name to adapt to the new vision.
Being an ESCO means finding any possible way to provide the biggest value to our clients, in relation to energy usage. It also means to put the money where our mouth is, because we widely adopt Energy Performance Contracts.
In my opinion the future lies in offering services which can be easily understood and adopted by our clients. We have to abandon the notion of selling MWh of Energy, and rather focus on providing what the client really needs, i.e. light, heating, cooling, etc.
Has your utility undergone a similar path? I’d be very interested to learn from your experiences and exchange views on this topic. Any comment would be very welcome 🙂