An innovative company based in Singapore has recently developed an air-con as a service (ACaaS) model, that could lower costs, increase profits, and make a significant contribution to mitigating the environmental impact of two of the most important megatrends facing the next generation: climate change and urbanisation.
The question of whether we need to own things, or whether we simply need the service they provide is at the heart of the circular economy. The traditional 'ownership model' certainly offers advantages. For some businesses it can confer a greater perception of security; for others better cash flow from upfront sales revenue. However ‘owning things’ can also lead to disadvantages, characteristic of the ‘linear economy’, for example asset underutilisation; or product obsolescence leading to increased waste volumes. An alternative, product-as-a service model, can address some of these 'linear' shortcomings to allow for higher utilisation of assets, improve client-customer relationships and facilitate performance optimisation through feedback. Performance models have already been successfully developed for services as diverse as mobility, lighting, washing and furniture.
To place the potential for ACaaS in context: global demand for indoor cooling is surging, driven by an expanding global middle class coupled with rising external temperatures. Lucas Davis, an energy economist at the University of California, has calculated that 700 million air-conditioning units are likely to be installed by 2030, jumping to 1.6 billion by 2050. Most of this growth is expected in rapidly growing economies in warm countries like China and India. However, there is also increasing demand from countries like the UK, due to buildings being better insulated and heat-generating equipment such as computers and TVs becoming more prevalent. Cooling systems in the UK may already account for 10% of total electricity consumption.
Worldwide, the growing demand for air con in the next 15 years will require an increase in energy production capacity of 139 GW, equivalent to more than the current total annual energy demand of Canada. The associated increase in greenhouse gases will be over three times the total current emissions of Britain. Increased air-con use, due to rising external temperatures, is a classic example of how a positive feedback mechanism can accelerate global warming.
“How can society progress without the associated energy increase that goes with it?”
Confronting these uncomfortable facts, Singapore-based Kaer, looked carefully at the traditional concerns around the delivery model for building cooling as well as current design approaches and usage patterns to see how energy demand and the material usage associated with air con could be reduced.
According to Dave Mackerness, “with the systems we were installing we were doing good work and, quite genuinely, designing and installing the best systems available but the transition to the ACaaS model is a step change and now moves us forward radically.”
Driven by its desire to improve constantly, the company developed Kaer Air: an outsourced approach and performance model for indoor cooling. The ambition was to greatly simplify decision making related to the operation of air-con systems. This ACaaS model shifts responsibility from building owners to a third party specialist. All concerns around air-con for the client are removed (and in the Asian climate they are real concerns as a break down in the air conditioning system can have huge ramifications in terms of productivity or customer comfort) giving them peace of mind.
Kaer Air allows the building owner to specify a required temperature for their indoor environment. All aspects around designing, installing and maintaining the air-conditioning system are outsourced to Kaer and upfront costs for the building owner/developer are replaced by a fixed pay-as-you-use rate once in operation – an important aspect of the ACaaS model.
Central to the effectiveness of the business model is the continual collection of data, using IoT technology, combined with data analytics to enable the system to be operated with as little energy as possible. David Mackerness uses the analogy of an F1 car:
“If an ordinary citizen drives an F1 car, it is likely that the car will realise a very small fraction of its true potential. If Lewis Hamilton drives the car, the equipment’s performance will massively increase. However, the best performance is only achieved through the analysis of data from the huge technical team behind Hamilton. They constantly feed him information on track conditions, vehicle data, weather patterns, allowing the driver to optimise the performance of the car. In a similar way, for air conditioning, once the engineers have installed and commissioned the system, data is collected on the equipment and the building space, so the system can be tweaked and operated in the most optimal way.”
Performance models are an important part of the circular economy. They are becoming more widespread (in areas like mobility, washing, lighting, aircraft engines) thanks to the enabling power of digital technology; but also because they create win-win situations and therefore make business sense.
Switching from an ownership model for building cooling systems to a performance model can bring significant advantages. In terms of financial benefits, the reduction in costs is typically 10 - 20% and in some cases can amount to 70%. At INSEAD, a business school in Singapore, the operation of the campus air-con system was optimised, leading to a cut in energy use by 35% within six months, resulting in substantial money savings for the university and a reduction in carbon emissions. Kaer also benefits from the energy savings - if they can reduce the amount of energy required to deliver each unit of cooling, then their margins will improve. Furthermore, energy tariff structures in many Asian countries step up if you exceed certain monthly consumption thresholds. Therefore if Kaer can operate their systems in a way that keeps below these thresholds, they stand to gain even more. The ACaaS business model has been designed to be a win-win partnership. Every party is incentivised to be lean in design and lean in what they use. The result is all interests are aligned.
ACaaS is a great demonstration of the power of a circular business model. The mechanics of the equipment has not really changed at all. Instead usage data is collected and the way the service is delivered has been changed and this can typically lead to a halving of costs and carbon emissions.
“I subscribe for entertainment, I subscribe for phone time, I subscribe for music. Why should air-conditioning be any different? With Kaer Air building owners do not have to own their air conditioning system, they just need to subscribe to the building climate that they desire – better performance, more reliable, and fewer carbon emissions ”.
As already described, the global demand for indoor cooling is growing exponentially. Consider one country: in the next 30 years there will be 400 million new urban dwellers in India. Currently there is a relatively low penetration in the India market, but with growing affluence and the associated development of the city’s building stock, air con installation is set to significantly grow, as a new generation of office workers and homeowners expect and demand a comfortable living and working environment. To avoid this comfort coming at an unacceptably high cost to citizens and the planet, new service models such as Kaer Air need to become the norm. Indeed, Kaer has just opened its first office in India with a view to bringing ACaaS to one of the largest, fastest-growing, air-conditioning markets in the world.