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Netflix-style subscription services for building products can help cut carbon emissions and, by encouraging the reuse of parts and materials, create a more circular economy. But what is the scale of the opportunity and is the industry able to switch to this unfamiliar approach to procurement?
Content subscription services like Netflix, Prime Video and Spotify have drawn in millions of customers with their no-hassle approach of fixed monthly fees for unlimited access to music, films or TV box sets.
A similar business model is now successfully being pursued by manufacturers of building products, including lights, lifts, air-conditioning systems, and even plants, which they claim can not only cut costs for building owners and managers, but also provide better levels of performance and sustainability.
The Products-as-a-Service (PaaS) concept comes in different forms, but the general idea is customers pay a regular fee for a guaranteed level of performance, whether that’s for light, cooling, or air quality etc, and all responsibility for product purchasing, installation, upkeep, and ultimately removal is transferred to the manufacturer.
Apart from helping end-users avoid upfront capital costs, the model aligns well with sustainability principles and the circular economy. Paying for performance can reduce energy consumption and by virtue of retaining ownership of installed products, manufacturers are motivated to make them last longer and easier to reuse.
The PaaS approach is gaining traction, but still has a long way to go to overturn traditional less climate-friendly methodologies. Certain types of building products remain a difficult fit for a ‘pay as you go’ business model, while entrenched methods of project procurement and industry finance and investment pose further barriers.
Stephen Richardson, European director for the World Green Building Council (WGBC) tells E&T: “As a manufacturer, you’ve got to be willing to take a bit of a risk and shift your business model. If you choose to retain ownership of all the products you produce, they remain on your balance sheet, which is a totally different picture to the typical manufacturing business model. From the perspective of an investor or a lender that makes the risk profile look very different.”
In case you’re behind the curve on such matters, we live in a linear economy where raw materials and products typically end up as garbage at the end of their useful lives. Material and product suppliers operate under a linear financial system and effectively relinquish responsibility for the long-term optimal performance of products at the point of sale.
A circular economy, by contrast, endeavours to minimise waste by ensuring that all materials are reused once an item’s usefulness has expired, making sure they go back into the economy to maximise value.
Products-as-a-Service offerings adhere to this principle because vendors retain ownership of products and are therefore motivated to make them longer-lasting and make them easier to reuse or recycle.
“It’s about extended producer responsibility, like the ‘polluter pays’ principle,” says Richardson. “You’re tying the product, across its whole lifecycle, to the company that produced it. They have a responsibility to steward that product, including the resources that have gone into it, in a totally different way from merely selling it.”
Some PaaS manufacturers have switched to modular product designs that permit the easy replacement of individual parts and components, or which incorporate more recycled materials or reused metal or plastic for example.
Philips Lighting (now Signify) pioneered the idea of Lighting as a Service, asking customers to pay a regular fee for light consumed in exchange for handling all design, equipment, installation, maintenance and upgrades.
“From a circularity standpoint, if you have an equipment failure, ideally you’re not having to replace the entire light, just the part that’s broken,” says Stephen Rouatt, CEO at Signify UK & Ireland. “The more modular you can make your product, the more easily serviceable it is, the easier it is to offer because it lowers the total cost of maintenance.”
Signify now produces 3D-printed parts, which use 50-60 per cent less materials than regular parts and can be returned into manufacture to close the loop even further. Digitally connected lights are also supplied that can monitor performance and usage as part of a more proactive approach to maintenance that can extend the lifetime of the product and therefore it’s value.
Buildings and construction are responsible for around 40 per cent of emissions worldwide and with many buildings not performing as designed, a practical response could be to pay for performance, rather than for products, as per PaaS business models.
Air-conditioning systems are an increasing source of energy consumption as the climate warms. Singapore-based manufacturer Kaer claims its outsourced Air-con as a Service (ACaaS) model can help significantly reverse that trend because the firm takes on the burden of energy efficiency, not the building owner.
Current clients include major energy guzzlers, such as data centres, pharmaceutical companies, hotels, and shopping centres, covering 10 million square feet of space worldwide.
Two different types of ACaaS are available: Kaer Water provides chilled water to the building owner at pre-agreed temperatures, and Kaer Air provides space conditions such as temperature and humidity.
Kaer owns and operates the entire air-con system, including the chiller equipment and pipes, and carries out all ongoing repairs and maintenance, which it says gives it the incentive to ensure that only the most efficient systems are installed to reduce energy costs, and to keep them perfectly maintained to ensure a long life and smooth operation.
David Mackerness, customer success lead at Kaer, says: “All of our assets operate at platinum levels and above in terms of efficiency. This has resulted in reduction of energy consumption of between 20 and 50 per cent, depending on the building. We also work with customers to reduce their air-con requirements, most see improvements of 10 to 20 per cent thanks to innovative air-side design and operations.”
These efficiencies are being driven by greater use of Big Data, analytics and AI to monitor systems and run them autonomously, as a more efficient alternative to periodic analysis and tweaking by engineers.
“Data is the gold,” says Mackerness. “It allows us to drive performance of the entire portfolio and every asset that is added to our network makes us exponentially smarter, better and more sustainable.”
In the drive to create a cleaner, greener planet, it’s encouraging to hear that plants, not just man-made products, can benefit from the PaaS business model. Switzerland-based Oxygen At Work offers a subscription service that combines indoor flora, sensors and machine learning to improve office environments and employee health.
Major corporations including Microsoft, Levovo and ING have signed up to the service, which develops tailored planting strategies optimised for factors such as energy consumption, employee health and productivity.
Office owners can track CO2 reductions, humidity levels and other variables on a live dashboard, while analytics give recommendations on how to alter planting, ventilation or other building systems as part of a holistic design strategy for air quality.
Customers can expect at least a 5-10 per cent reduction in CO2 levels and a 10-20 per cent increase in relative humidity (the pandemic has underlined the importance of indoor humidity for reduced virus transmission risk) as well as a reduction in their reliance on mechanical ventilation.
The as-a-Service model is perfect for indoor plants, which require regular maintenance, explains Manuel Winter, co-founder and CEO of Oxygen at Work: “Natural office plants inherently require an as-a-Service model, because they have a much shorter lifespan compared to other physical assets, such as desks or chairs. When they are not maintained well and replaced regularly, soon enough the whole indoor environment will appear outdated... indoor environments always evolve differently than planned, so continuous monitoring and adjustments are needed.”
If the subscription-based approach to delivering buildings is going to take off and deliver environmental benefits on a grand scale, then certain technical and cultural obstacles must first be overcome.
Individual components in electronic products like lights or air-con systems are relatively simple to extract and separate to take back into factory production processes, but parts of the building fabric, like components within walls or structures, are more tricky to get to and extract in an uncontaminated state. As a result, the PaaS model has so far failed to penetrate this part of the market.
Traditional approaches to building procurement and related legal arrangements also create barriers. PaaS are typically recorded as operational expenditure rather than capital expenditure, posing a head scratch for project teams used to buying items based on upfront cost.
When tendering a contract, how do you compare and contrast a bid focused on the initial upfront cost of a product versus one focused on the best value over its lifetime?
“Wider uptake requires a bit more clarity on the legal and procurement side,” says Kiru Balson, senior sustainability consultant at engineering consultancy Max Fordham. “For example, Lighting as a Service might reduce capital costs, but what happens if the service provider goes bust? You might have signed a 10-year contract and invested half a million pounds on lighting, but if the provider goes bust, who then takes ownership of the lighting and continues to maintain it?”
Circular business models can also put off potential investors because they operate in unfamiliar territory in terms of financial arrangements and risk. Greater confidence could result from the introduction of a new classification system for green finance currently being developed under the EU’s Circular Economy Action Plan, a key aspect of its agenda for sustainable growth.
The taxonomy will aim to integrate circular economic, and other environmental, principles with the sustainable finance agenda, setting out the relationships and criteria different stakeholders will have to meet to engage in economic activities and the criteria buildings will have to meet.
“Once the taxonomy criteria are developed and published, we will almost certainly see investors and lenders moving to align with them,” says Richardson at WGBC, which is helping develop the new classification system. “From the point of view of a building, it’s a demand side signal, if you’ve got investors and asset owners saying ‘we want our buildings to be circular’ it sends a signal all the way up the supply chain to the contractors and the manufacturers delivering products.”
The pursuit of a more circular economy will require new approaches for the way we develop, construct, operate, maintain, and repurpose building services and assets. If innovative business models like Products as a Service take off, there’s a chance we can halt the polluting and wasteful legacy of the traditional ‘make more, sell more’ approach.
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