For Rent: Lighting as a Service

 In LED Lighting

A combination of rapidly advancing technology and a change in U.S. accounting standards is encouraging a new business model for financing lighting and other energy-system upgrades.

The new approach to lighting ownership, called “lighting (or lumens) as a service” (LaaS), is coming to the fore thanks to three unique trends. The first is the rapid deployment of new LED lighting equipment, driven by falling prices and performance that meets or exceeds legacy fluorescent and HID systems while using significantly less energy. Second, there is a parallel interest in increasingly affordable sensors and controls, both to meet stringent new energy codes and make use of the broad range of data-collection capabilities sensors provide. The third is a move to change how businesses account for equipment leases in their balance sheets, which is making service agreements more attractive than leases when it comes to financing new equipment purchases.

Though the LaaS model is a new concept and not yet broadly deployed, its proponents suggest the concept would be familiar to any commercial office manager familiar with financing photocopier operations. In most cases, companies don’t buy photocopying equipment. Rather, they make a monthly payment for an established number of photocopies over a period of time. The manufacturer or distributor retains ownership of the equipment, along with responsibility for the machinery’s maintenance.

“You pay for function. You pay for output,” said Tanner Smith, director of national accounts and strategic partnerships for Sparkfund, a Washington, D.C.-based startup specializing in the financing of LaaS agreements.

From energy expense to income stream

The Rocky Mountain Institute (RMI) outlined one approach to the LaaS model in a May 2017 report, “Lumens As A Service.” The RMI envisions LaaS suppliers “renting” the ceiling space (and, perhaps, wall space) from commercial building owners, with the right to install lighting and related controls in that space. The suppliers then sell the output of that equipment—­illumination—back to the owner for a monthly fee. A portion of the related energy savings is rebated to the owner as a monthly rent payment, which creates a new revenue stream on the owner’s balance sheet.

Iain Campbell, managing director of the RMI’s building practice and one of the report’s co-authors, said the rental idea addresses several pain points for commercial building owners and managers seeking to improve their facilities’ efficiency.

Campbell listed several reasons that efficiency measures in buildings don’t get done, including a lack of capital, an insufficient return on investment and uncertainty over the return such efforts might generate.

Cloud-based controls

The companies now participating in the LaaS market aren’t necessarily following RMI’s rental model. One of the current leaders, Enlighted, Sunnyvale, Calif., helps line up financing for customers’ lighting upgrades, but its primary service offering is based on the data it gathers from its proprietary sensor systems.

“We are essentially an IoT [internet of things] platform for the commercial building market,” said Sanjiv Kaul, the company’s executive vice president for marketing.

Enlighted uses the ubiquity of lighting, along with its available power, to support broad networks of its sensors, and provides a suite of apps that enable its customers to ensure lighting levels are optimized and better understand how their current space is being used.

Working with lighting-fixture manufacturers, Enlighted has developed troffer-style retrofit kits that are designed to minimize installation time. With labor being the biggest expense in a retrofit operation, these fixtures can be installed into existing troffer framing in five to seven minutes, Kaul said. The improved efficiency of the LED fixtures, with operation optimized by the company’s controls, creates immediate savings.

“Typically, when you do an LED upgrade, along with our control sensor, the savings are 75 to 80 percent,” he said.

Lighting as a subscription

Closer to the RMI model is the LaaS approach championed by Sparkfund, which provides customers with upfront financing for LED lighting and control upgrades that are paid back under what the company calls a “subscription” model. This approach meets the definition of a service agreement as described in RMI’s report.

Like Enlighted, Sparkfund also includes mechanical equipment and control upgrades in its service offerings, though lighting is generally the first option customers consider, Smith said, because the resulting savings are so immediate. Subscriptions are priced over a five- to seven-year range and offer a path to eventual ownership of the installed systems, while still providing savings over previous related energy costs.

The company sees value in customers viewing the subscriptions as an ongoing relationship that enables regular access to new technologies as they evolve, with no upfront capital costs. The monthly payment takes care of the technology, itself, along with the costs of installation, operation and maintenance.

“Really, what we’re talking about is outsourced equipment—we are taking on the risk of ownership,” Smith said. “This is really a method to take advantage of that continuing curve of improvement. People want a mechanism to implement smarter technologies and to continue to add on as the technologies become more scalable.”

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