Well-suited to financing lighting upgrades in large projects, lighting as a service (LaaS) is a lighting industry business model in which the owner purchases light rather than the hardware that delivers it. The owner pays a subscription over a multiyear term rather than as a one-time purchase.
The advantage of LaaS is it avoids an upfront lump sum capital investment for new lighting. It provides the option to pay for the upgrade as an ongoing operating expense that should be less than the energy cost savings, resulting in immediate positive cash flow.
By reducing risk and simplifying the acquisition process, LaaS may facilitate a lighting upgrade that otherwise might be delayed or not approved. In addition, it facilitates the adoption of more advanced, premium features such as intelligent control, connectivity and data collection.
While LaaS has its advantages, the end-user is tied to the terms of the agreement for its duration, and as is typical for payment programs, the overall cost can be higher than paying up front.
“LaaS tackles the two major barriers to purchasing a lighting system: cost and the fear that whatever technology you buy will soon be replaced by something better,” said Mark Lien, industry relations manager, Illuminating Engineering Society. “With LaaS, you pay monthly, often offset by energy savings, and have a contractual end date allowing you to upgrade to new tech without being stuck using an outdated system.”
In the United States, LaaS players include Enlighted, Signify, Sparkfund, Stouch Lighting and Urban Volt, among others. This financing-service model is expected to continue to evolve while growing in adoption. Navigant Research predicts the global market for LaaS in commercial buildings will increase from $663 million in 2017 to $2.6 billion by 2026. As a recent example, oil and gas giant Halliburton recently announced plans to contract with Zumtobel for LaaS in six U.K. facilities.
At first glance, LaaS appears similar to other models such as leasing and performance contracting. Leasing involves the end-user paying an ongoing fee for the use of lighting hardware. The owner or a third party may own the lighting, there are no energy savings guarantee, and there may be no services such as maintenance or upgrades built into the agreement. Popular for upgrades in the public sector, a performance contract involves a third party such as an energy services company providing lighting, which the owner pays for from energy savings, in addition to potential maintenance and upgrades.
LaaS implementation varies by organization, ranging from simple financing to financing plus turnkey services that may include an audit, design, installation, maintenance, future upgrades and, in some cases, specialized services, such as data and location-based services. According to Navigant, a shift from financing to full service is a major LaaS trend, and in some cases, services such as control system on-site support and training may be packaged and sold without financing being a part of the model.
In one model, a third party provides new LED lighting on a subscription-based service delivery contact that includes maintenance and full warranty over a three- to seven-year term. Across LaaS models, the end-user may take ownership at the end of the contract or be required to pay for its use as long as they are using it. The contract may include upgrade options, or the end-user may upgrade to newer technology at the end of the contract.
An example is Enlighted, a lighting-based internet of things (IoT) company recently acquired by Siemens. Enlighted takes a financing approach (called GEO) in which the customer pays for the equipment out of shared energy cost savings and then owns it at the end of the term, thereby gaining 100 percent of the energy savings. During the contract, Enlighted provides design, installation and upgrades; maintains the software; and guarantees a minimum level of energy savings.
“Due to lack of available capital and dedicated project management for strategic energy projects, sometimes otherwise cost-effective facility projects are halted or delayed from being implemented,” said Mark Milligan, vice president of IoT Applications and Corporate Marketing, Enlighted. “Our GEO program is a business model developed specifically to address these problems and provide global corporations the ability to accelerate cost reductions and advance sustainability efforts without the need for upfront capital.”
Similarly, Signify (formerly Philips Lighting) offers LaaS through its Managed Services initiative, which combines design, installation, operation, maintenance, training and technology upgrades with financing. According to the company, as demand grows, Signify is looking to add services related to human-centric lighting and data in future deals.
LaaS may not be singularly transformative, but as a trend, it facilitates LED lighting adoption, particularly intelligent lighting, by offering an option to eliminate upfront capital investment.