Traditional Financing Models
Overview: Traditional financing models for energy storage typically involve upfront costs where the customer purchases the equipment outright or through loans. These models focus on the asset itself, requiring buyers to cover all associated costs including purchase, installation, and maintenance.
Pros:
- Ownership: Customers own the asset and can control its use and maintenance.
- No Performance Risk: The buyer bears no risk related to the performance of the system; instead, they are responsible for maintaining it.
- Long-Term Savings: After paying off the initial costs, savings on energy costs can be substantial.
Cons:
- High Initial Costs: Requires significant upfront financial investment.
- Maintenance and Repair Costs: The buyer is responsible for all maintenance and repair costs.
Outcome-Based Financing
Overview: Outcome-based financing focuses on the results or benefits achieved from using the system, rather than purchasing the asset itself. This model is often seen as “pay-for-outcome,” where payments are based on the performance or output of the energy storage system.
Pros:
- No Upfront Costs: Customers can access energy storage systems without a significant initial investment.
- Performance Risk Shifted: The provider bears the performance risk, ensuring that the system meets expected outcomes.
- Cost Management: Customers pay only for the results achieved by the system, aligning costs with benefits.
Cons:
- Less Control: Customers have less control over the system, as it remains owned by the provider.
- Dependence on Provider: The quality and reliability of service depend heavily on the provider’s capabilities and contracts.
Example: Siemens Outcome-Based Model
Siemens Financial Services offers an outcome-based financing model for its energy storage systems, where customers pay based on the battery’s output rather than purchasing the system outright. This model is particularly beneficial for commercial and industrial users who can manage electricity costs more effectively by shifting peak usage to off-peak times.
In summary, traditional financing models involve ownership and an upfront financial commitment, while outcome-based financing focuses on achieving specific energy-related outcomes without initial capital expenditure, shifting performance risks to the provider.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-outcome-based-financing-compare-to-traditional-financing-models-for-energy-storage/
