26 July 2023 | Global
The science is clear. We need to act on climate change today. In order to implement Net Zero ambitions, organizations must know how to overcome barriers to climate action, roll out a decarbonization program over multiple sites and multiple countries, and identify technological, financial, and procurement synergies.
This podcast explores how replacing fossil-fuel based utilities with green on-site alternatives is a viable solution - especially for energy-intensive sites.
Transcript has been edited for clarity
Clemence: Hello, welcome to DecarbonACTION. The podcast where we discuss concrete actions, strategies, and innovative models to reduce carbon emissions at scale and create a more climate-friendly future.
From establishing actionable roadmaps to managing on-the-ground execution. The science is clear, we need to act on climate change today. This podcast series is all about implementing decarbonization in a company, how to overcome barriers to climate action, how to roll out a decarbonization program with multiple sites in multiple countries, how to identify technological, financial, and procurement synergies, and how to leverage them.
Today, our topic is utility as a service (UaaS), and more specifically how this project contributes to decarbonization. But first, I'd like to introduce our guest for today, Stephane Rapoport. Stephane is a managing director at ENGIE Impact. He has 20 years of experience advising on energy and carbon reduction strategies. He combines a strong technical and business understanding to assist industries from pathway definition to decarbonization projects and program implementation, he uses tool development to optimize on-site green electricity, green energy sourcing, and more. Welcome Stephane.
Stephane: Thank you, Clemence. I'm very happy to be here and share with our listeners about UaaS.
Clemence: In our previous podcast, we talked about several levers to decarbonize industrial sites, in particular energy efficiency, or on-site solar energy. But today, I'd like to address another topic, which is the heat or the steam or the cold that are required on industrial sites. And by the way, that's very often the biggest challenge in terms of decarbonization. Indeed, replacing fossil fuel fire utilities with green on-site alternatives could be considered a costly barrier to decarbonize, especially for energy-intensive sites. But there are ways to tackle it, and that's what I'd like our guests to explain today. So, Stephane, could you explain what's behind this complex acronym, UaaS?
Stephane: UaaS stands for utility as a service. That is a model that aims at implementing decarbonization solutions on industrial sites and lowering the risk of this implementation for the company. Lowering risk both in terms of operation and terms of financing. The UaaS model allows companies to avoid having to mobilize CAPEX upfront to invest in the decarbonization assets required on their sites while ensuring that the investments that are required are happening on their site. This allows them to follow the capitalization ambition that they have set for themselves.
Clemence: So, is it a contracting model? Is it a way to finance projects? Can you explain it a little bit more?
Stephane: Great question. It is both a financing and an implementation scheme that aims at simplifying the decarbonization of industrial sites. The idea is to remove the technical and financial barriers to enable the deployment of green solutions required on the sites.
Clemence: What type of assets are we talking about? What type of energy needs are we talking about through this model?
Stephane: It depends, but it is a wide range of assets and energy. We encompass all the utility needs on the site. It's the electricity need, it is the heating need, the steam needs, the cooling needs that are all on-site. We want to look at all of these energy requirements and see if it is possible to decarbonize and remove the carbon emissions associated with these energies.
Clemence: Today, those emissions are carbonized?
Stephane: Yes, unfortunately, today they are mainly carbonized. If you look at electricity, there is carbon emissions associated with the consumption of electricity coming from the grid. And, if you look at the production of heating needs or steam needs, this will be based on natural gas usage, and natural gas when it is burned emits CO2,
Clemence: I assume maybe oil or even coal in some industries can be used for these utilities. Okay, and what are the solutions to replace those fossil emissions?
Stephane: What we see is that it's a mix of solutions that will be applicable to get to decarbonization, and that will depend on the specific characteristics and energy demand of the site. The context of the site includes which country it is located in and what energy is available around the site. This will influence the solution. What types of solutions? It can be going to electrification, where we do two heat pumps solution to deliver part of the heat requirements, it can be a biomass-based solution, producing heat with biomass boilers, it can be deploying anaerobic digesters, or reusing waste products on the site. The objective is to transition towards a low- and ultimately a no-carbon emitting site with a step-by-step approach.
Clemence: How do you select the right technologies? How do you know which is the best technology for your site to replace the existing fossil-based technologies or assets that you have?
Stephane: It all starts with building an on-site decarbonization plan. We also call that a Net Zero factory approach. We want to look at all the energy requirements on the side, their evolution through the days and weeks of the year. That picture shows the end use of the energy that we have on-site. How can we meet that energy demand with a decarbonized solution and a set of assets? It's about looking at what technology can be deployed and when should it be deployed, so that you both minimize the cost of the system and decarbonize at the same time. And what's very interesting is that, more often than not, we can combine those objectives. So, having a decarbonization plan that will also deliver positive economic results for the site.
Clemence: That's good news. So, you mean with decarbonization solutions, we can basically lower the operational expense of the site?
Stephane: Yes, it is the operating costs. The cost of the commodities that you use on-site when you go to renew them, you can source these commodities at a price that can be more competitive than the traditional utilities. But, it will come with additional CapEx investment to make new assets on your site. And globally, when you look at both the CapEx investment and the operating cost over the lifetime of your system, you can indeed get a lower cost than if you are continuing to operate your site as you have been doing in the past with the existing assets.
Clemence: Excellent. And I assume that in some countries, we already have a carbon tax or trading scheme. Basically, a cost for the carbon. If we go in the future and have more and more, even the difference between the two might be higher. So could you share an example of decarbonization solutions that you have identified, and that have led to a utility as a service contract?
Stephane: I'd like to share an example with a large consumer goods company we've been working with that's active worldwide. They had set very ambitious decarbonization goals for themselves as well as intermediate goals. So not only long-term goals we want to reach by 2030 but also a goal for 2025, which is basically tomorrow. We want to get to a 70% reduction of our own emissions across our production sites. The question was, how to do that, and how to do that while minimizing costs and avoiding mobilizing CapEx for energy-related projects instead of the own core business of the company.
Clemence: So, they wanted someone else to take the decarbonization CapEx so that they could concentrate their CapEx envelope for their own production? Is that correct?
Stephane: That's exactly right. Because CapEx is a limited amount available, which means they need to allocate and arbitrate. The primary goal of the company is to work on its own products. With the UaaS approach that we were just discussing, it enables us to first define what should happen on the different sites. We've been working on sites in Europe, the United States, and Australia, with that company to define for each of them what should be done on each site. If you take one of the examples from the site, it was about deploying a heat pump solution for the site, and deploying a biomass-based solution on the site as well, combined with heat recovery solutions. For part of the electricity consumed, a PPA solution was developed. I'm not sure if we've talked about PPA already. Just to expanding on that, a power purchase agreement ensures that the electricity that you're consuming on the site is coming from an energy asset that is green, such as wind farms, or solar farms that are built for you.
Clemence: I understand that because of the combination of all those solutions, the energy used on the site will be decarbonized. Is that Is that right?
Stephane: That is correct. An interesting point that we have not discussed yet, and that we all should keep in mind is the first lever to pull is always energy reduction on the site. The best thing you can do is not consume energy at all. So, we need to look at the reduction of the energy demand on the site. It's always the first action to take. And with the remaining energy, we look at how can we optimize it.
Clemence: We discussed energy efficiency in a previous podcast, but indeed, the greenest energy is the energy that we do not consume. Once you've identified an opportunity to install a new, let's say biomass boiler and the contracting and financing model is a utility as a service contract. What happens here? How concretely is it implemented? Are there any extra benefits beyond the CapEx point you mentioned? What's the benefit for the site?
Stephane: The UaaS approach enabled us to guarantee the performance of the system that will be developed. You're working with an energy partner that can ensure the right design of your decarbonized assets and solution, the right engineering solutions, and the deployment and operational maintenance. It's an end-to-end approach. You have the guarantee with the UaaS model that you will get your utilities on-site following the agreed decarbonization trajectory. All of that is embedded into the commitments that are included in the detailed service model. To recap the different benefits, you have no CapEx required to be mobilized. If properly done, it can be also off the balance sheet so that there is no debt impact on your company. The asset can really be on the hook of the partner you are working with. You have the guarantee of the optimum design of the solution to decarbonize your site at the minimum cost. And you are assured that the performance will be guaranteed in terms of operations, maintenance, and failures. If the asset needs to be replaced, it will be the responsibility of the partner. The decarbonization trajectories will also be embedded into the expectations and requirements of the utility as a service contract.
Clemence: Okay, so it embeds some operational objectives, decarbonization objectives, financial objectives - quite a lot of things. I also understand that it includes different phases in the life of an asset, but also the installation. So basically, putting it on the ground. So, does the UaaS include operation and maintenance services?
Stephane: Yes, absolutely. What's interesting is that we can have part of the teams that are already on site focusing on the energy side, which will be part of the ETF service model. They can be integrated into the delivery of the operation and maintenance on-site. That's one model. The other model is to have the people ensuring the maintenance that are brought on by the Energy Department.
Clemence: I heard that utility as a service can be considered a value-based business model, versus other types of models, like the quantity-based business model. Can you explain a little bit about what's behind this?
Stephane: Relating back to the discussion we just had a few minutes ago on energy efficiency and savings. This is part of the first lever to be pulled in the details of the service model as well. It also means that the KPIs that will be considered in your contract will also include requirements of decreasing energy consumption on-site. It's much broader than just trying to sell as much energy as possible. It's about combining all the different levers that guarantee the right outcome for you.
Clemence: If I am an industrial site, and I'm operating my energy assets on my own, and I sign a contract for utility as a service model, then there will be a shift because my role will change. I will have a third-party energy specialist who will operate, invest, etc. Is this understanding correct?
Stephane: What's interesting is that it allows you to focus as a company, on your production activities and rely on a third-party partner for the energy-related aspects. As we are talking about new types of technologies to be implemented, it brings a lot of value to work with a partner that already has that experience and expertise. They can bring their own experience with these kinds of projects, as opposed to building a new team internally, with new capabilities to deploy these projects.
Clemence: Let's say I have existing assets like a gas boiler or gas cogeneration and I want a third-party to take over these assets, and to have a supply of energy as an input that is decarbonized. I'm thinking about biomethane, or maybe even hydrogen, is that something I can do it? Will it be a utility as a service contract? How would it work?
Stephane: To your question on the existing assets, absolutely. It can be integrated into the utility as a service model where the existing energy assets on your site, or part of them, can be transferred to a partner that will then be in charge of operating those assets. And as you rightly said, in this decarbonization journey, the type of commodities that we need to solve on the market will evolve. it's very important to embark the procurement teams of your company on the journey so that they can adjust the procurement strategy to the new model. Interestingly, the sourcing itself of the commodities can be part of the UaaS service model. You can have with one partner, a one-stop shop solution where all of the requirements are delivered through your partner. And when we look at hydrogen, that can be part of the solution mix but it depends on the specific requirements that you have on-site. In some industries and sectors, hydrogen is one of the levers that is activated when we get to 2030 and beyond to fully decarbonized the heating requirements.
Clemence: It means I can completely give the responsibility to a third party for my decarbonization, and especially for the heat and cooling paths that we discussed earlier.
Stephane: Right. Absolutely correct.
Clemence: Are these utility-as-a-service contracts only relevant for some industrial sectors? Or does it apply to all sectors?
Stephane: We have seen it deployed across all industries; consumer goods, food and beverage, automotive, chemical, and pulp and paper. It's really across all ranges of energy intensity, not only energy-intensive ones. What we see, depending on the industries, is the type of solutions that will be deployed will vary, but also it will vary through time. Some solutions are readily available now, and we see them deployed quite extensively. We also talked about energy savings, those are solutions that we see intensively. Also, biomass-based types of solutions. The question is, as you get to the Net Zero objective for your sites, how to get there beyond the solutions that are readily available? Then we can explore solutions based on hydrogen, especially for energy-intensive processes that are dedicated to requirements. It's also interesting to consider biomethane, we see a strong development of the industry around biomethane happening in France and in other countries in Europe. We also see the European context on the regulatory side that is evolving to a low biomethane to be one of the levers deployed for decarbonization.
Clemence: Let's say I am a company willing to decarbonize my utilities, and I have one or even several industrial sites, what advice would you have for me?
Stephane: It's always complicated to give advice that is always applicable. But in this state, I think it's possible. The experience we have shows that most companies have already deployed a lot of actions that were low-hanging fruits around energy savings measures that could be applicable to you. We see that the barrier to going to the next type of action to be deployed is difficult and takes a lot of time. The recommendation is to not waste time and act now to work with a partner. For example, use the UaaS model to define your plan and lift this barrier around technical complexity and financing complexity. A solution already exists now and can be deployed to get you to your objective.
Clemence: Do not wait. Let's decarbonize now. Thank you, Stephane, that's a very nice conclusion.
Let's work together to implement your decarbonization strategy.