Chapter 11: Hardcore version of EaaS/EMC/ESCO business model

11.1 First distinguish 5 words: installment, leasing, EaaS, EMC, ESCO

If the frontline itself cannot distinguish the pattern, subsequent communication with customers, banks, and capital parties will definitely be chaotic. The most basic distinction is:installmentChanges in payment methods more like equipment sales;leaseMore emphasis is placed on asset use rights and rental arrangements;EaaSMore towards ‘payment by service or result’;EMCIt prefers to 'pay according to energy saving effect or saving sharing';ESCOIt is a service provider that provides comprehensive energy conservation and renewable energy services, financing arrangements, performance guarantees and measurement verification.

The definition of Thai ESCO Association is very suitable for writing into training: ESCO provides a complete set of services related to energy conservation and/or renewable energy, including consulting, project presentation, project management, engineering design, energy consumption analysis, equipment installation and operation, financing arrangements, etc.; its core lies in performance guarantee and clear Measurement & Verification (M&V) process. In other words, ESCO is not a payment method but a service organization with technical, financing and performance responsibilities.

11.2 What is the difference between Guaranteed Savings and Shared Savings?

This is the most confusing concept. According to the definition of the Thai ESCO Association, Guaranteed Savings is closer to 'customers invest their own money, and ESCO guarantees the net income or savings results of the project'; while Shared Savings is closer to 'ESCO or a third party assumes more investment and risk, and then shares the net income with the customer based on the project'. The biggest difference between the two is not the energy-saving technology itself, but who pays, who bears the technical and financial risks, and how the benefits are distributed.

It is very important for you to do EaaS or EMC in the future to clearly explain this difference. This is because many customers say they want “zero down payment”, but in fact they expect Shared Savings or a structure closer to service provider investment; while some customers are not short of money, but just want performance guarantees and more stable project results, then Guaranteed Savings is more suitable for them. If the front line cannot tell the difference, they will give the wrong plan.

Therefore, the first principle of Chapter 11 is not to ‘recommend the coolest model’, but to first determine what kind of risk the customer wants to transfer: investment pressure, technical risk, operation and maintenance trouble, or the risk of less than expected savings. Different risks correspond to different contract structures.

11.3 The correct starting point for EaaS in your current business is not to roll it out in full volume

For your current business structure, the most common mistake in EaaS is to make all projects into a service. In fact, the threshold for EaaS is much higher than that of EPC because it requires you to manage assets, services, repayments, and customer relationships over a longer period of time.

The most reasonable starting point should be: start with some residential and high-quality small commercial projects as pilot projects, and give priority to projects with stable addresses, stable bills, clear daytime loads, high customer cooperation, and good after-sales accessibility. Don’t start with the most complex, cheapest, price comparison-loving customers.

The essence of EaaS is not to reduce the down payment, but to transform a one-time transaction into a long-term service relationship. Therefore, in the pilot stage, the most important thing for the organization is not how many orders to sign, but to run through the chain of contracts, monitoring, payment collection, after-sales and breach of contract handling.

11.4 The core of EMC is not the ‘energy saving story’, but the baseline and M&V

The most difficult thing about EMC is never the equipment, but the baseline. As long as the baseline is not clearly determined, no matter how much subsequent savings are made, there may be quarrels. The definition of Thai ESCO Association places M&V at a very core position, which is very important. Because it means: the contract does not just say "we will help you save electricity", but also clearly states how to measure, how to compare, and which changes are included in the project and which are not.

This is especially critical for small commercial and future industrial and commercial customers. If customer operating hours, tenant mix, capacity utilization, or air conditioning loads change significantly, Shared Savings will simply become a shared dispute if you don't agree on a baseline and change mechanism first. A truly mature EMC project will spend more time on data and baselines in the early stage, but it will save trouble in the later stage.

11.5 What the financial side cares most about is not the story, but defaults, downtime and residual value of assets.

When discussing models with capital, many teams like to talk about a big market, many customers, and good policies. But what the financial side really cares about are three other things: what to do if there is a breach of contract, what to do if the system is down, and whether the assets will still have value after the contract is terminated. As long as these three things are not answered, it will be difficult for EaaS/EMC to move from PPT to real business.

Therefore, the contract must at least consider in advance: the customer's right of disposal when the customer stops paying, the feasibility of system migration or dismantling, the evidentiary power of monitoring data and fault tickets, equipment residual value and depreciation, the transfer of warranty responsibilities, and the handling mechanism when the house is sold/closed/changed in the lease. These things don't sound like sales, but they're the chassis that really make the model work.

11.6 Why you should develop your ESCO language now rather than later

Even if 90% of your current revenue still comes from traditional EPC, organizations should start learning the language of ESCO. Because once you can use 'baseline, M&V, Guaranteed Savings, Shared Savings, risk sharing, and data traces' to understand the project, the actions of sales, engineering, after-sales, and finance will become more systematic.

Looking at the external environment, public discussions on ESCO, low-carbon building financing and energy service models are increasing in Thailand. The low-carbon building project of DEDE and GGGI clearly mentioned that they are promoting the ESCO model and related financing mechanisms to support low-carbon buildings and energy-saving renovations. This means that the future is not just a question of whether you want to do it or not, but that the market and policy environment are gradually requiring more mature service models.