Description
The Pay-As-You-Save (PAYS) model is a financing mechanism designed to eliminate the upfront cost barriers associated with investing in energy-efficiency improvements (e.g., thermal insulation, electric mobility) or renewable energy projects. In this model, a utility company covers the initial costs of the equipment and recoups its investment over time through a fixed charge on the customer's utility bill. This charge is structured to be less than the estimated savings generated by the new equipment, ensuring the customer experiences immediate financial benefits without incurring additional debt. If the fixed charge over the warranty period is insufficient to cover the total cost of the energy-efficiency improvement, the gap can be bridged by additional resources (e.g., grants) – though in a lower proportion than would be needed to cover the entire incremental costs upfront.
Benefits
A PAYS scheme allows to remove upfront capital expenditure for customers, allowing them to adopt energy-efficient technologies, while maintaining energy affordability in check, without needing additional debt. It also allows to serve customers with poor or non-existent credit ratings. For utility companies, PAYS provides a secure and reliable mechanism to recover investments as bill payments are not considered debt reimbursement but operating revenue. Additionally, PAYS can accelerate the path to commercial viability for new clean energy solutions, supporting broader environmental goals by promoting innovative energy-efficient technologies. This model also provides a way to bridge funding gaps with additional resources, such as grants, further enhancing its appeal and effectiveness.
Case Study
Aspiration Energy deploying a PAYS model for solar water heating systems in India
Aspiration Energy, an India-based energy service company (ESCO), implemented a PAYS model to promote solar water heating systems for industrial processes. Founded on a "no initial capital expenditure" approach, the company designs, installs, and operates solar thermal systems, allowing industrial clients to adopt energy-efficient solutions without upfront costs. In 2013, Aspiration Energy's innovative business model received the Parivartan Award for Innovation.
One notable installation made by the company is the Wheels India, where Aspiration Energy's solar water heating system replaced oil boilers, saving nearly INR 7 million in fuel oil costs within the first eighteen months of operation. This success led Wheels India to expand solar water heating across its factories nationwide, displacing 360 liters of fuel oil daily.
Aspiration Energy's PAYS model proved effective not only for solar thermal systems but also for solar battery backup systems and solar power for telecommunication networks. This approach facilitated broader adoption of clean energy technologies, driving both economic savings and significant environmental benefits in India's industrial sector.
Additional Sources
- Pay As You Save For Clean Transport, Global Innovation Lab for Climate Finance, 2018, https://www.climatefinancelab.org/wp-content/uploads/2018/02/PAYS-for-Clean-Transport_Instrument-Analysis.pdf
- Innovative Financing For Renewable Energy, Pace Environmental Law Review, 2015, https://digitalcommons.pace.edu/cgi/viewcontent.cgi?article=1778&context=pelr