Over the last decade the lighting industry has seen two major overhauls. LED lighting technology has rapidly replaced outdated lighting systems across the world with proven benefits such as; energy savings, extended lifespans, and a reduced carbon footprint. Secondly, the controls that operate these systems have become more technologically advanced than ever imagined. Sensors are collecting real-time valuable data. Controls are giving users the ability to maneuver light direction and colors, monitor air quality, control air temps, and even track inventory of materials. The lack of knowledge, experience, and overall trust of these systems are in part to blame for creating a barrier to full adoption. This sets the stage for Lighting-As-A-Service(LaaS).
Lighting-As-A-Service(LaaS) refers to a service contract (not unlike your cable service) where lighting systems and controls for a client are installed and maintained by the provider. The financial savings created by installing these systems are shared between the client and provider for a defined term. Once the term ends, the client keeps the lighting systems and reaps the continued benefits at no cost. The key element in defining this “As-A-Service” contract is the provider guarantees the financial savings generated by the reduced energy consumption. The provider is able to do this by engineered calculations based on the clients’ historical energy use and assessment of operations. Often times real-time metering and measurement/verification is involved.
What separates a service contract from a lease contract? Why is this important?
LaaS can often times be confused with the “Lease-Buy-Back” finance model. This is where a company leases equipment over to a client in exchange for a monthly fee. When the lease contract is due to expire, the client buys the equipment back for a set amount. During the term of the lease contract the client never owns the systems outright. In the past this was a strategic capital dodge and allowed companies to keep from reporting this as a debt on their balance sheet. Providers often referred to this model as “budget neutral” or “off balance sheet” solution to their clients. Not the case anymore as of January 1, 2019!
Companies will now be required to report the assets and liabilities for the rights and obligations created by finance and operating leases. The change in law aims to provide more transparency for financial statement users into the uncertainty of cash flow regarding lease agreements. Yet another reason LaaS is the way to go!
“The true definition of a lighting service contract will be if it is off the balance sheet. Companies do not want or need to carry debt on their books for lighting upgrades. Carrying debt means less borrowing capacity for other revenue producing projects. Providing a solution with zero capital outlay and zero risk for the client is exactly what LaaS does.” - Chris Rawlings, CEO Veteran LED
To learn more about how you can save energy with no up-front costs call us at 804-562-8606.