Cooling as a Service (CaaS)

About

Conventional cooling systems rely on HFC gases, thousands of times more potent than CO2 in their contribution to global warming. Reducing HFC emissions and improving energy efficiency of cooling systems is critical to achieving global climate goals. Phasing down use of HFC gases in alignment with the Kigali Amendment to the Montreal Protocol has the potential to avoid up to 0.4° C of global warming by the end of the century, and up to 0.5° C if the phasedown is accelerated.

Clean cooling technologies exist, but their deployment is limited by high up-front costs, perceived technology risks, and a lack of knowledge of energy efficiency benefits.

The Cooling as a Service (CaaS) approach is an innovative financing model where cooling technology providers supply cooling equipment, maintain it, and pay electricity costs, while customers pay per unit of cool air consumed to minimize consumption and optimize technology and maintenance.

The Solution

Cooling as a Service accelerates clean cooling deployment in emerging markets by lowering the upfront costs of state-of-the-art equipment and aligning incentives for energy-efficient operation and effective maintenance.

Cooling as a Service (CaaS) aims to accelerate deployment of clean cooling technologies through three key features: structured payments, shifting technology risk, and aligning incentives for clean cooling. Structuring equipment payments between the technology provider and cooling customers over a multi-year period eliminates high upfront cost barriers associated with the purchase and installation of clean cooling equipment. CaaS payment structures also incentivize technology providers to design, install, and maintain the most efficient technology possible to reduce electricity payments and drive customers to reduce cooling consumption to its most efficient level to reduce monthly usage fees.

Implementation and Impact

The proponents of the CaaS model, BASE and K-CEP, are setting up early implementations of the model in Jamaica and the Dominican Republic. Alongside implementation in these countries, the CaaS Initiative will aim to implement three subsequent flagship pilots of the CaaS business model on three continents to demonstrate its efficacy in driving clean cooling deployment in varied contexts, and the initiative will provide resources to support further CaaS implementation.

CaaS holds promise to reduce high-global warming potential emissions, increase deployment of efficient cooling technology, and improve adaptive capacity to increased heat in various target sectors including industrial and commercial building cooling and agricultural cold chain storage.

Design

A CaaS transaction begins when a cooling technology provider signs an agreement with a cooling customer under a CaaS contract. CaaS allows cooling users to focus on their core business, and technology providers to optimize the provision of clean and efficient cooling.

Under the contract, equipment remains owned by the cooling technology provider who commits to maintenance, repairs, and utility payment. Cooling customers pay for use in a fee per ton of refrigeration consumed, and higher efficiency equipment makes this total cost attractive compared to utility expenses for older, inefficient equipment.

The cooling technology provider can be recapitalized in several different ways – including either a sale-leaseback approach with a financial institution, or through an SPV jointly owned by investors. Under sale-leaseback, a bank purchases cooling equipment and then leases it back to the cooling service provider. With the SPV, investors jointly own an SPV that buys the equipment from the technology providers and signs CaaS contracts with clients. The technology provider takes care of the maintenance and operation of equipment, including utility bill payment.