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COOLING AS A SERVICE

COOLING AS A SERVICE: A NEW BUSINESS MODEL FOR SUSTAINABLE REFRIGERATION


With cooling demand expected to triple by 2050 and increase to 30 percent of global electricity consumption, global markets and populations will face increasing pressure to find more efficient, sustainable and long-term cooling solutions. Further, the climate impacts of cooling are immense with both emissions from energy usage and high global warming potential (GWP) refrigerants contributing significantly to the global climate crisis. It is estimated that a coordinated global effort towards energy-efficient cooling could avoid up to 460 billion tonnes of greenhouse gas emissions over the next 40 years. Cooling as a Service is one of the ways we can address the growing cooling demand and the need for more energy efficient solutions. In this three-part series, Queen’s University Engineering grad Julian Burger talks about how this model was conceived, how it works and the potential benefits of using it in North America and beyond.


WHAT IS THE COOLING AS A SERVICE MODEL?

Cooling as a Service (CaaS) is a new innovative financial model that aims to directly address the issues of growing cooling demand and the need for more energy efficient solutions. The high upfront costs associated with purchasing higher-efficiency cooling systems mean that while they have cheaper life-cycle costs, the majority of people are not buying them.

The CaaS model is a relatively new idea and was co-developed in 2019 by two non-profits, the Basel Institute for Sustainable Energy (BASE) and the Kigali Cooling Efficiency Program (K-CEP). It was endorsed by the Global Innovation Lab for Climate Finance as being one of “the most innovative, actionable and scalable financial instruments to drive sustainable investment in 2019.” There are currently over 20 pilot projects taking place across the world with focus areas in Asia and Africa where cooling demand and the need for cheap, clean solutions are expected to see the most growth in the future. While these areas are currently seeing CaaS deployment, BASE believes that the model can and should be adopted worldwide and expects to see it take off in Europe and North America in the next 10-20 years. 

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CaaS is a servitized model in which the cooling provider owns and operates the equipment and covers all operational costs including electricity. Customers then pay for the cooling in the form of a periodic monthly payment with the cost being set in a contract established with the cooling provider. The payments are based on the unit usage of the cooling system and as such are not affected by any performance issues from the equipment. This incentivizes the cooling provider to install the most energy efficient and high-quality systems which in turn lowers the life-cycle cost of the equipment making CaaS a cost-effective solution.

CaaS projects are typically co-financed by the cooling providers and third-party investors such as commercial banks. In most cases, the equipment will be paid for through an established Special Purpose Vehicle (SPV) by the cooling provider in which investors can help finance and establish expected returns over the project’s lifetime. In Canada, the major banks are already starting to establish sustainable finance funds aimed at investing in innovative projects that will tackle the climate crisis. For example, BMO recently announced a $150 billion capital commitment to companies pursuing sustainable outcomes by 2025.

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WHAT IS THE VALUE TO CUSTOMERS?

The advantages of CaaS for customers include:

  • No upfront capital expenditure on cooling equipment meaning companies can focus investments on other initiatives.
  • Reduced life-cycle costs and resulting operating expenses throughout the projects lifetime as a result of using high-efficiency equipment.
  • Ability to move debt off balance sheets due to the recurring payment model if desired.
  • No performance risks or liability on equipment malfunctions as maintenance, repair and operational expenses are covered by the provider.
  • Complete outsourcing of cooling service meaning that the customer can focus on its core business operations.
  • Leverage the emissions reductions from lower energy consuming equipment to demonstrate action-driven CSR gains.

 

WHAT IS THE VALUE TO INVESTORS?

The advantages of CaaS for investors include:

  • Opportunity to invest allocated “green” funding in a sustainable project and grow overall CSR commitments.
  • Establish set returns on projects and invest in asset generating cashflows.
  • Work with established and experienced cooling providers such as CIMCO who have familiarity over the service thus reducing the risk profile of the project.
  • Investing early in a sector that has yet to employ servitization providing a first mover advantage with global scalability. 

WHAT IS THE VALUE TO COOLING PROVIDERS?

The advantages of CaaS for cooling providers include:

  • Reach new customer segments through a more diversified offering of products and services.
  • The opportunity to deploy the highest quality and most advanced cooling equipment which can help push forward new innovations.
  • Evolve from a transactional contractor to a valuable partner and develop long-term relationships with customers.
  • Lower operational costs by optimizing and controlling cooling processes. For example, generating electricity during cheaper periods and storing for use in more expensive periods.
  • Be a sustainable champion in the refrigeration market by demonstrating leadership in deploying high-efficiency solutions.

With more and more success stories of CaaS, such as a deployment with the major frozen food producer Dr Oeteker in South Africa, the CaaS Alliance predicts that this new model will pick up steam and earn its place in the global market. The refrigeration world understands its immense role in society and as a major emitter, and the positive global impact it can have if sustainability and energy efficiency are prioritized. CIMCO is currently assessing the feasibility of bringing CaaS to Canada and being the first company to do so. Looking at the right target customers to pilot this new service with, as well as potential investors who are willing to take on projects, will be key steps in whether CaaS is ready to implement in the next 5-10 years.

Read the next installment in this series: Is Canada Ready for Cooling as a Service?