Servitisation of the

cooling industry:
Cooling as a
Service (CaaS)
White paper
4 BASE - Cooling as a Service
February 2022

Authors: Contributors:
Carla Della Maggiora, Senior Climate and Environmen- Dave Mackerness, Director at Kaer,
tal Finance Specialist at BASE, Dawie Kriel, Head of Engineering and Business devel-
Dimitris Karamitsos, Senior Energy Efficiency Business opment at Energy Partners Refrigeration (EPR),
Developer Specialist at BASE, Iain McKechnie, Director of Strategic Programmes at
Thomas Motmans, Senior Sustainable Energy Finance the Advanced Services Research Group, Aston Busi-
Specialist at BASE. ness School (ABS),
Dr Parikshit Naik, Business Development Manager at
the Advanced Services Group Limited (ASG)

About the Basel Agency for About the Clean Cooling

Sustainable Energy (BASE) Collaborative (CCC)
The Basel Agency for Sustainable Energy (BASE) is a Clean Cooling Collaborative (formerly K-CEP) is an
Swiss not-for-profit foundation and Specialized Partner initiative of ClimateWorks Foundation focused on
of the United Nations Environment. The expertise and increasing access to climate-friendly cooling.
mission of BASE is in developing innovative, action- In 2016, leading climate foundations collaborated
able financial strategies and market-driven solutions ahead of the Montreal Protocol meeting in Kigali,
to unlock investment in climate change solutions. Rwanda, and pledged more than $50 million to create
BASE builds bridges between sectors and actors at the the largest-ever fund of its kind for action on efficient,
nexus between climate solutions, finance and interna- climate-friendly cooling. The following spring, the Kiga-
tional development. The actionable solutions that the li Cooling Efficiency Program (K-CEP) was born, under
foundation designs, develops and implements seek to the management of a new secretariat assembled by
be disruptive, self-sustaining and replicable. and housed within the ClimateWorks Foundation. In
In 2018, BASE launched the Cooling as a Service 2021, K-CEP refreshed their strategy and updated their
(CaaS) Initiative in collaboration with the Clean Cool- name to reflect their revised scope of work. Now, as
ing Collaborative (formerly K-CEP), to design, develop, the Clean Cooling Collaborative, they will continue
implement and mainstream the pay-per-use model to build on their past efforts to place cooling on the
around the world to accelerate market adoption of global agenda by catalyzing organizations, institu-
sustainable cooling solutions. In 2019, the model was tions, companies, and governments to bring efficient,
endorsed by the Global Innovation Lab for Climate climate-friendly policies, financing, and technology
Finance as one of the most innovative tools for climate solutions to the world.
finance.

Descriptors:

Sector Climate finance

Region Global

Servitisation, Servitization, Cooling as a Service, CaaS, pay per use, clean

Keywords energy efficient cooling, circular economy, sustainable finance, innovative
business model, climate change mitigation, climate change adaptation.

Carla Della Maggiora; carla.dellamaggiora@energy-base.org

Contacts Dimitris Karamitsos; dimitris.karamitsos@energy-base.org
Thomas Motmans; thomas.motmans@energy-base.org
Index
Executive summary 04

About Cooling as a Service 05

Market barriers 08
What is servitisation? 09
Advantages of CaaS 12
Results of CaaS today 15

Implementation challenges 17
Key contractual risks 20
Getting started with CaaS 22
Conclusion 24
4 BASE - Cooling as a Service

Executive summary
The dramatic increase in direct and indirect carbon emissions
from the use of refrigeration and air conditioning across sectors
and regions creates an urgent need to shift from power-hungry
equipment to efficient cooling technologies that rely on cleaner
refrigerants. This is all the truer in light of the latest IPCC report
released in August 2021.
The standard business model of selling cooling equip- the service provider, which is often better placed to
ment does not encourage deploying commercially shoulder these. It drives efficiency by enabling the ser-
available, clean and energy-efficient systems due to vice provider to maximise its profits by selecting the
numerous demand-side barriers. However, alternative most efficient technology and optimising operational
business models, particularly servitisation, can help efficiency throughout the lifecycle of the asset. The
to unlock investments in energy-efficient and cleaner provider also has the flexibility to reallocate equipment
technologies (e.g., using natural or low global warming as needed, thus maximising the use of embedded
potential (GWP) refrigerants), while also helping econ- resources. The model also incentivises the provider to
omies to recover faster from the COVID-19 pandemic repurpose, re-market or recycle the asset (or part of it),
thanks to reduced operational costs. therefore playing a key role in the circular economy.

This white paper aims to draw attention to the suc- Several pioneering companies, including ColdHubs
cessful application of servitisation in the cooling and KoolBox, both in Nigeria, Energy Partners in
industry and share on-the-ground insights from the South Africa, Kaer in Singapore, MGM Innova Group
Cooling as a Service (CaaS) Initiative launched and in Colombia, SokoFresh in Kenya and Oorja in India,
implemented by the Swiss not-for-profit organisation have successfully implemented the model in sectors
BASE – Basel Agency for Sustainable Energy with the ranging from commercial air conditioning and industri-
financial support of the philanthropic organisation al refrigeration to cold storage for medical and agricul-
Clean Cooling Collaborative, formerly known as K-CEP tural supply chains.
(the Kigali Cooling Efficiency Program). The aim of
this initiative was to develop, test and scale-up the These companies have shown that the key challenges
adoption of the pay-per-use CaaS subscription busi- and risks related to the implementation of the CaaS
ness model around the world. The initiative has been model can be overcome. These include, but are not
hailed as a success by technology providers seeking limited to, entirely transforming the corporate culture
to implement the model, investment funds and banks towards a service mindset, improving the modularity
seeking to create green portfolios, and international of the technology, using artificial intelligence to im-
organisations like the World Green Building Council prove the service offering, bundling projects, leveraging
getting involved to engage users. The model has innovative financial structures and risk mitigation
received awards from organisations such as the Global mechanisms and creating diversified portfolios.
Innovation Lab for Climate Finance and the Keeling
Curve Prize and has been referenced in publications Key stakeholders’ interest in the CaaS business model
from the likes of the Economist Intelligence Unit and has risen significantly over the past few years. More
the World Economic Forum. than 65 members have joined the CaaS Alliance and
are actively seeking to integrate the model into their
The servitisation business model has been shown operations. Just as power purchase agreements have
to align the interests of businesses, people and the revolutionised the solar industry, servitisation is a
planet. The model shifts the upfront investment as game changer for the cooling industry, which is shift-
well as the project performance risk from the user to ing to a subscription-model-based industry.
5 BASE - Cooling as a Service

1. About Cooling as a Service

Cooling is an invisible industry essential to our modern society
– from the cold chains that safely deliver our food and vaccines
to the air conditioners that make our workplaces and homes
comfortable, and in some cases habitable.

In this white paper, we refer to cooling as any human

activity, design or technology that dissipates heat and
reduces temperatures, typically including refrigeration
and air conditioning.

We refer to “clean and efficient cooling” as cooling

solutions that not only bring about an increase and
optimisation in operational energy efficiency, but also
prioritise non-ozone-depleting refrigerants with low
global warming potential (GWP) in alignment with the
Kigali Amendment to the Montreal Protocol (United
Nations, 1987), or ideally natural refrigerants.
As urbanisation and planetary warming increase and
as populations and economies continue to grow, the
demand for cooling is growing exponentially on a
global scale and will lead to a rapid escalation of asso-
ciated energy and resource use. Air conditioning alone
accounts for 10% of global electricity consumption
and adds significant fugitive greenhouse gas (GHG)
emissions of refrigerants used for cooling. Common
refrigerants like hydrofluorocarbons (HFCs) have accordance with the Kigali Amendment, which aims
200–20,000 times the GWP of carbon dioxide (CO2). to phase down the use of high-GWP coolants (UNEP,
It is estimated that in 2019 the electricity consump- 2016), has the potential to reduce warming by 0.4–
tion for space cooling was responsible for 1 GtCO2 0.5°C by 2100 (K-CEP, 2019).
globally (IEA, “Future of Cooling”, 2018). Further, the
IEA estimates that global annual energy use from Improving the energy efficiency of cooling systems
space conditioning alone will triple to amount to 6,200 and shifting to cleaner refrigerants present an op-
TWh/year in 2050 under a business-as-usual (BAU) portunity to reduce energy use and GHG emissions
scenario (IEA, 2018). While creating enormous busi- in buildings and supply chains while delivering cost
ness opportunities, the speed, technology and method savings, improved air quality, comfort and increased
with which we meet this demand for cooling will have productivity. Furthermore, this represents a cumulative
a major impact on climate change, air pollution and market opportunity currently worth 135 BUSD per year
demand from the electrical grid. and expected to grow to 170 BUSD per year by 2030
(Economist Intelligence Unit, “The Cooling Impera-
There is an urgent need to reduce cooling’s energy tive”, 2019).
intensity, to cut pollution from the process and to en-
sure that efficient cooling systems are affordable to all Unfortunately, the standard business model of deliv-
those who need them. Cooling has in fact been high- ering cooling does not encourage the deployment of
lighted by the UN Secretary-General as both a critical clean, energy-efficient systems. Indeed, it typically
need for vulnerable populations and a key opportunity involves the manufacture, sale, use and disposal of
for cleaner growth (UN News, 2019). Phasing out equipment with higher production volumes general-
HFC coolants and aligning technology deployment in ly supporting more sales and more profit, while the
equipment user remains responsible for covering
6 BASE - Cooling as a Service

Figure 1: The Services Staircase (source: ©The Advanced Services Group Ltd)

the operational and maintenance costs. As a result, on the output of the solution. The previous steps of
manufacturers tend to lack a strong incentive to focus the staircase help organisations to gradually change
on minimising cooling systems’ use of energy and operations.
resources. In addition, demand-side barriers limit the
deployment of the most energy-efficient technologies. The highest value for customers occurs when providers
These impediments include high up-front costs, the remain responsible for the outcome of the products,
perception of greater performance risk, maintenance processes and business platforms (the top three steps
cost uncertainties and other investment priorities. of the staircase). This allows the distribution of risks
to the stakeholders that are best placed to absorb
Alternative business models exist and can promote them (e.g., lorry manufacturers being responsible for a
much more energy- and resource-efficient technolo- fleet of heavy goods vehicles because they know the
gies. The servitisation* business model in particular best way to ensure maximum mileage, highest perfor-
can help overcome these barriers, align incentives and mance and lowest fuel consumption).
unlock investments in cleaner technologies. Through
servitisation, manufacturers move away from selling Servitisation also enables economies to recover faster
products and spares and instead provide a bundle from the COVID-19 pandemic. It helps reduce oper-
of products and services that focus on the outcome ating costs without the need to invest. Servitisation
of the solution. While this may seem like a radically also entails a higher correlation between these costs
different business model, manufacturers can take and a user’s revenue streams (e.g., more clients for
incremental steps to reach this goal by providing a hotel result in a higher revenue stream and also a
supplementary services such as assured maintenance higher consumption of air conditioning; more sales of
contracts and performance advisory. These steps can agricultural commodities result in higher revenues for
be illustrated using the Services Staircase (Figure smallholder farmers and also a higher consumption of
1). Servitisation occurs once the provider operates in cold storage).
the blue zone of Figure 1, where assets are under the
ownership of the provider and contracts are based

*“Servitisation” can also be written as “Servitization”; both words are used in industry. One being in British English and the other in American English.
The reader is advised to search both words when seeking for literature or content on the model.
7 BASE - Cooling as a Service

To tackle this, the Swiss not-for-profit organisation industries to stress-test the toolkit’s design and ensure
BASE (the Basel Agency for Sustainable Energy) value enhancement for all stakeholders involved. The
launched and implemented the CaaS Initiative in 2019 team launched an incubator which supported five
with the support of the Clean Cooling Collaborative, companies in Argentina, Costa Rica, Grenada, India
formerly known as K-CEP (the Kigali Cooling Efficiency and Nigeria in adopting the model in their operations.
Program). The initiative focused on four pillars to sup- Thirdly, the initiative launched a dissemination cam-
port the market in adapting the model. First was the paign with matchmaking events, webinars, interviews,
development of an open-source toolkit (consisting of podcasts, videos, case studies and articles, all to raise
a standardised contract, a pricing model and informa- awareness among users, financiers and implementers.
tive content) to educate stakeholders on the model Finally, the team launched the CaaS Alliance; with
and lower the barriers to adopting CaaS. Secondly, the more than 65 active members today, the alliance has
initiative generated case studies and supported the been designed to bring trust within the markets and
implementation of pilot projects in various regions and help build momentum to scale up the implementation
of the model.

Farmers in Nigeria accessing cold storage through CaaS with ColdHubs’

Solar Powered Cold Rooms (click here for more information).
8 BASE - Cooling as a Service

2. Market Higher upfront

investments
barriers The higher upfront costs associated with
high-quality, energy-efficient equipment hinders
customers’ adaptation. The cost savings that

Investments in clean 1 result from energy-efficient equipment generally

materialise over a many years, so customers do
and efficient cooling not typically see the financial benefits of ener-
gy-efficient equipment immediately. This barrier
present attractive returns, is accentuated in countries which have a high
especially in countries cost of capital and a lack of appropriate financ-
ing mechanisms.
where electricity tariffs
are high. They generate
cash savings that allow Technology risks
investors to recover their There is a concern that new and unfamiliar
investment in a reasonable technologies come with hidden costs or that the

period, and they also 2 promised savings are not achieved. Investment
decisions are typically based on the client’s
improve productivity, risk-and-return perception. The cost savings from
energy efficiency are often perceived as com-
efficiency and emissions mensurate with the perceived level of risk. The
reductions. latter, combined with market risks and business
uncertainties, significantly slows down custom-
ers’ adaptation.

Investment priorities
Investments in energy-efficient equipment must
3 compete with other customers’ investment prior-
ities, which typically are investments in enter-
prises’ core business, where the risk and return of
the investment is more familiar. These custom-
ary investments often provide higher visibility or
cover short-term needs.

The misalignment of
incentives between
stakeholders
4 The entity responsible for paying the bills migh-
not be the same entity that is taking the capital
investment decisions. Similarly, in a standard
sales business model, the technology provider
does not pay the electricity and maintenance
bills and therefore does not necessarily have
the incentive to optimise operation and mainte-
nance costs.
9 BASE - Cooling as a Service

CaaS and clean refrigerants

CaaS is particularly effective in accelerating the adoption of more energy-efficient cooling, as
it incentivises the provider to reduce operational costs which are mainly driven by energy use
and maintenance. More generally speaking, the business model creates a direct incentive for the
technology provider to think long-term and select a sustainable solution that does not quickly
become obsolete. This also applies to the selection of the refrigerants being used for the cooling
solution. CaaS therefore encourages the use of clean refrigerants, since these are less likely to
become obsolete with increasingly stringent regulations in accordance with the Kigali Amendment
to the Montreal Protocol. However, significant work is still needed to increase the deployment of
low-GWP or natural refrigerants to make this the norm rather than the exception. The topic was
briefly discussed during the CaaS E-Summit session moderated by the World Economic Forum;
the recording is available here.

3. What is servitisation1
A servitisation approach in which clean and efficient costs through periodic customer payments that have
cooling is delivered as a service without upfront costs been contractually agreed upon. These payments may
can help to address these barriers. It can do this by be priced per unit of use of the service (for example,
creating long-term sustainable revenue streams for dollars per tonne of refrigeration or dollars per kilo of
technology providers and potentially providing op- food stored in a cold room) or may be fixed periodi-
erational off-balance sheet financing structures for cally depending on the application. The payments are
customers (UNEP, 2019). not dependent on the savings (as with shared savings
energy performance contracts), but rather are agreed
The servitisation strategy consists of transforming a upon in advance as a function of actual usage. This
traditionally product-focused business model driven makes it easier and more transparent for the client
by mass production into a service-focused one ded- to predict expenses and visualise savings, which is a
icated to product outcome instead of the product strong benefit in highly volatile and changing markets.
itself2. Another way of framing this is the shift from a
transaction model to a subscription model. Servitisation is characterised by several key advan-
tages. Since solution providers own the equipment
We define this business model as it is applied in the and cover all operating costs, their decisions on the
cooling sector as “Cooling as a Service”. Servitisation technology used to deliver the cooling will be based
involves end customers paying for the service they on a long-term vision rather than on short-term upfront
receive – the outcome (e.g., temperature within a investment considerations. This is particularly relevant
predefined range) or output (e.g., units of cold air) – for cooling equipment. Indeed, the main components
rather than for the physical product or infrastructure contributing to the life-cycle cost of cooling equip-
that delivers the service. The technology provider ment are electricity consumption and maintenance
installs, owns and maintains the equipment, recovering (up to 90% of costs), while the initial investment

1
Baines, T., Bigdeli, A. Z., Bustinza, O. F., Shi, V. G., Baldwin, J., & Ridgway, K. (2017). Servitization: revisiting the state-of-the-art and research priorities.
International Journal of Operations & Production Management.
2
Baines, T., Bigdeli, A. Z., Sousa, R., & Schroeder, A. (2020). Framing the servitization transformation process: A model to understand and facilitate the
servitization journey. International Journal of Production Economics, 221, 107463.
10 BASE - Cooling as a Service

“We need to shift the responsibility of being circular and sustainable away from the customer
and onto the service provider. This is the only way to align the individual business goals with our
collective sustainability goals.”

Dave Mackerness, Director at Kaer

is only a small fraction. Therefore, the total cost of the ability and business incentive to ensure such a
cooling-system ownership is most effectively reduced long-term strategy is pursued for the solution pro-
by installing the most efficient systems, by optimis- vider, who is best placed to optimise such decisions.
ing operating efficiency, by optimising the preventive It is of equal importance that on traditional sales
maintenance offered to such systems to reduce down- models, every system upgrade needs to go through
time3 (hence minimising the need for more expensive a complex customer-procurement process where the
corrective maintenance) and by applying systemic same demand-side barriers mentioned in the previous
thinking (such as by adding components like thermal section occur. This significantly slows down technolo-
energy storage or passive cooling). gy providers’ implementation of innovation to increase
performance and energy efficiency. With servitisation,
By shifting the performance risk and the operational the provider has the freedom and the commercial
costs to the provider, Cooling as a Service provides incentive to drive system improvements.

3
Baines, T., Bigdeli, A. Z., Sousa, R., & Schroeder, A. (2020). Framing the servitization transformation process: A model to understand and facilitate the
servitization journey. International Journal of Production Economics, 221, 107463.

Large real estate complex in India benefiting from CaaS

provided by KAER. (click here for more information).
11 BASE - Cooling as a Service

Another key advantage of the servitisation business itored, performance degradation is better traced for
model is that it incentivises designing cooling solu- each component. This enables predictive maintenance
tions for long-term use, such as through modular through artificial intelligence, and it is equally import-
designs. If technology providers remain owners of their ant for providers to better serve their clients.
equipment, they will ensure that components are easy
to reuse, replace and recycle4. This is key for a circular Although interest in service-based competitive strate-
economy in which assets are redesigned for long-term gies is not new and broadly applied in industries such
use, avoiding the risk of stranded assets. This opens as software and photocopying services, the concept is
the opportunity for specific parts to be reused for still fairly new territory in the energy-efficiency sector.
alternative, potentially less critical applications, while In the solar sector, power purchase agreements have
modular designs also enable easier maintenance and enabled the unexpectedly rapid uptake of photovoltaic
improved recycling of components. Note that across technology by enabling customers to purchase kilo-
the world E-waste is a critical issue; in Africa less watt-hours of solar energy instead of having to invest
than 0.1% of E-waste gets recycled yearly while in the in solar panels. This has essentially eliminated the
Americas this number is barely above 9% and in Asia performance risk perceived by the customers. Figure 2
11% (more info hereby). Furthermore, since under servi- below shows how servitisation has been penetrating a
tisation the consumption of systems is closely mon- variety of markets in the equipment industry.

Kapoor, K., Bigdeli, A. Z., Schroeder, A., & Baines, T. (2021). A platform ecosystem view of servitization in manufacturing. Technovation, 102248.
4

In the cooling sector, we find Cooling as a Service is now attracting significant

attention across regions because the model has the
ourselves at the brink of this potential to be a true game changer for the cooling
revolution. industry, making the long-term cost-competitiveness
of more efficient technologies immediately tangible.

Figure 2: Servitisation across technologies

12 BASE - Cooling as a Service

4. Advantages of CaaS
Stakeholders involved in Cooling as a Service are typically the cooling
users, the solutions providers and the financiers. More stakeholders
may also be involved (such as insurances and guarantee funds), but
this report focuses on those most often present:

1 2
Cooling users Solution providers
The advantages for customers are numerous. Cooling Adopting the CaaS business model enables solution
users do not need to make any upfront investment, are providers to stand out from their competition by creat-
not exposed to the performance risk of more expensive ing additional customer value and by fully deploying
equipment or to the technology risk of lesser-known the potential of their technology. As Javier Jimenez, VP
technologies and can focus on their core business by of Services and Business Development at Trane Latin
fully outsourcing the cooling service. Engaging in a America, put it: “CaaS allows clients to have access to
CaaS solution allows clients not only to benefit from cooling delivered by state-of-the-art equipment [and]
increased savings due to higher energy efficiency, but also the expertise, resources and know-how that we as
also to reach their climate targets, all while not wor- the experts in this industry can provide to them.”
rying about upcoming new regulations on permitted
refrigerants (which remain under the responsibility of The model can generate higher life-cycle revenues per
the provider owning the asset). system by enabling the provider to ensure that units
in operation are used to their optimum capacity, while
This advantage is especially beneficial nowadays, unused systems are repurposed to customers who
as many clients are short on cash due to the global need the service. It can also create predictable, con-
pandemic but still under pressure to reduce their tinuous and additional revenue streams through the
emissions while running their business. Furthermore, whole product life cycle and in new digitised services.
due to the supplier’s implicit motivation, maintenance,
system uptime and temperature adherence are all Such income streams based on long-term contracts in-
improved. This also yields reduced losses in products centivise the solution provider to continuously improve
which can far outweigh the cost of cooling. Last but the value of their service offering. The risk of lower
not least, CaaS enables customers to accurately fore- revenue streams when extreme events occur (such as
cast their budgets, as there are no unexpected expens- pandemics) can be substantially reduced by operating
es, and the model accentuates trust and transparency a diversified CaaS portfolio.
between the client and the provider.
It is also a strategic answer to sustainability challeng-
To quote Deepak Kumar of Elpro Park: “When you see es by stimulating a circular economy in which the
the contract is transparent, it builds trust and creates a assets are redesigned for longer-term use. The model
win–win cooperation for the provider and customer.” stimulates innovation for solution providers, who
have the incentive to improve systems, make them
more energy efficient and increase their gains and
customers’ satisfaction. The provider has the ability
to bring innovations to market quicker, which other-
wise would require hours of operation for customers’
procurement departments to properly evaluate the
13 BASE - Cooling as a Service

A portfolio of cooling assets is more resilient, sustainable and circular compared to stand-
alone counterparts.
Resilience – A diversified portfolio of assets from multiple industry sectors and regions
can withstand shocks from localised market events. This was shown to be true during the
COVID-19 pandemic when CaaS providers were insulated from market-specific shutdowns
and country-wide lockdowns. As an example, when offices were closed, employees worked
from home during the day and watched Netflix in the evening. This resulted in a massive
increase in cooling requirements for data centres, which offset the reduction in requirements
from offices and shopping centres.
Sustainability – Data collected from the portfolio is used to train machine learning
algorithms that autonomously optimise the performance of all the systems connected to
the network.
Circularity – Modular design principles coupled with “plug-and-play” capability allows
equipment to be moved around the portfolio as needed. This extends the useful life of the
equipment with older technology being repositioned as stand-by machines, leaving space
for newer, more efficient technology to come in and drive the performance of the portfolio.

3
risk of investing in upgrades or new systems. Through
long-term contracts with customers, service providers
Financiers
can better plan their service and maintenance teams Cooling as a Service is a very effective vehicle for
based on the income streams the contracts generate. financiers (such as investors, banks and funds) to
Furthermore, having a close, longstanding relationship create a diversified portfolio of green projects. Indeed,
with the consumer also means that any extensions CaaS enables financiers to invest in assets generating
or changes in the customer’s processes are rapidly well-forecasted recurrent cash flows. The model is also
known by the provider, who is then better placed to highly synergistic with sustainable building and con-
adapt accordingly. struction portfolios, which is an increasingly important
part of the activities of banks and investors. Traditional
financing mechanisms can be applied to CaaS, such as
asset-backed mechanisms (e.g., sale and leaseback)
and project finance, with or without the combination of
commercial debt through the creation of “Special Pur-
pose Vehicles”. Furthermore, some banks are already
familiar with servitisation and recognise the value of
the model. Mike Peo, Head of Infrastructure at Ned-
Bank CIB’s Energy and Telecommunications, has said:
“Cooling as a Service is a highly appealing opportunity
which gives banks like NedBank the opportunity to
invest in Green projects and fulfil their ESG and SDG
targets. Servitisation is not new to us, and we are able
to use known expertise to invest into CaaS projects;
indeed, 12 years ago, NedBank invested into Energy
Telecoms where servitisation enabled clients to access
better solutions through off-balance contracts” (view
the highlights of the conversation hereby).
14 BASE - Cooling as a Service

Models to increase investments in clean and efficient several of the benefits mentioned above don’t apply
cooling other than Cooling as a Service exist, but (see box below).

Where does CaaS place itself compared to other

business models for clean and efficient cooling?
1. Servitisation should not be confused with customers’ leasing models, where performance
risks stay with the cooling users. Accordingly, they do not address lowering the demand barriers
that slow down market adoption of innovative technologies. Contrary to financial or operational
leases, service agreements do not provide the customer the right to control the use of an identified
property, plant or equipment (an identified asset) for a period of time in exchange for a regular
payment. The report “Lumens as a Service’’ published by the Rocky Mountain Institute gives
insights into the key differences between a lease and a service, in particular with regards to the
IFRS16 accounting regulations.

2. Another alternative model which has been deployed on the markets is “Energy Performance
Contracts”. However, this model has experienced challenges in being implemented broadly and
often brings friction between the cooling user and the solution provider when energy performance
savings do not match expectations. Estimating savings can be especially complex to evaluate
for solution providers, particularly when customers alter their business operations or their
infrastructure. Cooling as a Service brings an appealing solution to these challenges for both the
cooling user and the solution provider.

Office building in Medellín, Colombia, benefiting from CaaS delivered

by MGM Innova Group (click here for more information).
15 BASE - Cooling as a Service

5. The results of CaaS today

Where does the market currently stand with the servitisation
business model in the cooling industry, and what have been
some of the results?
Cooling as a Service has shown to be a flexible model under CaaS. Case study documents are available for
which can be implemented in any market, particularly several representative projects implemented by these
as both the demand for cooling and imperatives to companies here.
reduce electricity consumption and fugitive emissions
grow. The paper “CaaS - Lab Instrument Analysis”, A video produced by BBC StoryWorks in 2020
written as a collaboration between BASE and the showcases two exemplary projects: the first is Kaer’s
Global Innovation Lab for Climate Finance, outlines use of CaaS to provide cooling to a real estate complex
some of CaaS’s market potential and areas of interest. in India with an artificial-intelligence-powered chiller
The model brings particular value in regions where plant running on 100% solar energy. The second is
energy costs, temperatures and humidity are high ColdHubs’ use of CaaS to enable smallholder farm-
and regulations are already in place to shift to cleaner ers in Nigeria to reduce food waste by storing their
refrigerants. crops in clean and efficient off-grid cold rooms under
a pay-per-crate walk-in model. In India, Kaer enabled
Several pioneering companies, including ColdHubs the customer to gain more than 30% improvement in
and KoolBox, both in Nigeria, Energy Partners in energy efficiency while also using a closed loop water
South Africa, Kaer in Singapore, MGM Innova Group cooling system, thus reducing consumption of water
in Colombia, SokoFresh in Kenya and Oorja in India, in a circular manner. In Nigeria, ColdHubs made it pos-
have successfully implemented the model in sectors sible to tackle one of the country’s major challenges:
ranging from commercial air conditioning and indus- food waste (which applies to many countries across
trial refrigeration to cold storage for the agricultural the globe). It reduced its customers’ agricultural waste
supply chain. Together, these companies own and from over 50% to less than 10% and increased their
operate well beyond US$50 million of cooling assets revenues substantially, while powering the cold-rooms

DataCenter in Singapore benefiting from CaaS provided

by KAER (click here for more information).
16 BASE - Cooling as a Service

CaaS and clean refrigerants

In May 2021, two leading CaaS providers, Kaer and Energy Partners, participated in a webinar on
CaaS organised by the International Finance Corporation where they shared their perspective on
what they see to be a multi-billion-dollar green pipeline opportunity. The recordings of the panel
conversation can be viewed online.

by solar power and using natural refrigerants with a Cooling as a Service has been gaining significant
near-to-zero GWP. Nuhu Sa’eed, a ColdHubs customer momentum over the past years, moving towards the
in Nigeria, said: “Before we used to get a lot of loss tipping point of market adoption. The model was
because things would spoil in the market. We used to increasingly referenced by recognised publications
lose a lot of money; now it’s only 5% or 10%.” and articles, including for instance the Economist
Intelligence Unit, Sustainable Energy for All and the
In addition, the authors of this paper are aware of at World Economic Forum. The model has also been
least 18 other companies actively integrating Cooling awarded by well renowned prices such as being
as a Service into their business operations. These selected as one of the most innovative and actionable
include five companies that were selected for BASE’s climate solutions by the Global Innovation Lab for
CaaS Incubator programme launched in 2020, as Climate Finance, receiving the Keeling Curve Prize, and
well as 13 others that are part of the Cooling as a being certified by the Solar Impulse Foundation.
Service Alliance and are restructuring their teams and
revisiting their business strategy to shift from selling
cooling assets to selling a cooling service.

South Africa’s largest dairy company benefiting from CaaS delivered by Energy
Partners Refrigeration’s ammonia solution (click here for more information).
17 BASE - Cooling as a Service

6. The results of CaaS today

Implementing Cooling as a Service does not come without its
challenges (operationally and commercially), which explains
why the model has not been widely implemented yet. With
servitisation, companies move from a transaction model to a
subscription model – from a reactive model to a proactive model.
This requires important changes in a company’s operations in
order to successfully deploy the service to the customers.

Transforming strategy and Transforming

organisational culture: technology design:
Shifting to servitisation requires important changes in The full potential of CaaS is fully tapped only if the
the organisational culture and structure of companies, research and development department5 is involved
and these are reflected across several departments. and the technology design strategy is adapted ac-
cordingly. Indeed, if a company shifts to Cooling as a
The sales teams move from equipment and parts pric- Service, its R&D department should focus on “make to
ing to setting a price per use, and they have to adapt serve” instead of “make to sell”, for example by making
the way they measure success. Most hardware product equipment more modular. For this reason, shifting to
enterprises measure success through the amount servitisation is a fundamental step in transitioning to a
of assets they sell; however, CaaS requires different circular economy.
key performance indicators (KPIs), such as length
of contracts, amount of cooling quantity delivered,
customer loyalty etc. The customer success teams Transforming the contractual
transition from training and documentation to creating arrangements:
customer business value. The marketing teams need
Ideally, CaaS is structured as an off-balance service
to reframe the messaging to the clients. The service
to the client, which means that the well-known con-
delivery teams focus on maximising uptime instead
tractual arrangement of leasing does not apply, and
of optimising the inventory management. The sales
the assets remain on the provider’s balance sheets (or
teams need to gain skills in financial engineering, and
are transferred to those of a financier). This requires
investment negotiations need to be included in the
a reliable, standardised contract with well-evaluated
finance department.
risks which complies with the latest IFRS 16 account-
ing regulations. To develop this, a company requires
Last but not least, there needs to be an adequate data
the adequate resources, experience, time and capital.
management operation in place to ensure effective
Organisations often lack these or require internal
measurement and reporting of the cooling delivered
strategic prioritisation, which may be a challenge due
(for accurate billing) and also a reliable measurement
to shareholder pressure. A standardised CaaS offtake
of efficiency which drives the provider’s profit margin.
agreement is available on the CaaS website to facili-
Kaer is an example of a company that has successfully
tate adoption of the model.
made this cultural shift, first slowly integrating CaaS
as one additional business unit within the organisation
and later shifting to offering only Cooling as a Service
and entirely rebranding itself as such.

5
Bigdeli, A. Z., Kapoor, K., Schroeder, A., & Omidvar, O. (2021). Exploring the root causes of servitization challenges: an organisational boundary perspective.
International Journal of Operations & Production Management.
18 BASE - Cooling as a Service

Setting up appropriate pricing Market approach:

structures6: The first client(s) to be provided with “as a service”
need to be well-known by the solution provider so that
Shifting from selling equipment to selling a service
performance requirements and usage profile needs
also requires revising the pricing strategy. The price per
can be properly evaluated and predicted. Furthermore,
unit of cooling sold must be appropriately estimated;
either clients need to already be aware of such models
such pricing can be value based. A cost-based pricing
or efforts must be brought forward to educate the end
tool is available on the CaaS website to estimate the
customer in the value of the model; the latter involves
price per unit of cooling.
the end user altering how their procurement depart-
ment typically invests capital. In addition, first-time
Both the standardisation of the contractual arrange-
clients typically perform as partners in long-term
ments and the development of robust pricing models
agreements: should challenges occur with the initial
are key to facilitate the successful execution of a proj-
implementation, agreements between the provider
ect, as well as for investors to better evaluate the risk
and the client can be concluded without needing to
and return of such projects and to consider CaaS proj-
resort to legal action.
ects as valuable, sustainable and scalable investment
opportunities. While developing the pricing model and
At the CaaS E-summit event on 1 December 2020,
the standardised contract, companies need to properly
Tomas Naucler, Partner at McKinsey, explained some
evaluate projects’ technology and market risks which
of the building blocks which are required for a success-
may occur during the lifetime of the project, and these
ful transition to products as a service: “Having the right
must be included in the contract and pricing structure
product offering, the right price, creating differentiated
to protect the investment against these.
offerings, migrating existing customers to the model
and promoting the new business model within your
Preparing the product organisation and beyond is essential.”
offerings:
To implement Cooling as a Service, a company needs
Recapitalisation mechanisms:
to properly evaluate the products within its portfolio Including a recapitalisation mechanism is key to suc-
which fit best and are most ready to be delivered “as cessfully implementing a CaaS project. Shifting from
a service”. The system needs to be reliable, remotely selling an asset to selling a service means that the
digitally operable and have clear cost structures and income flow for the provider changes, requiring initial
maintenance requirements (more details can be found capital to make the investment upfront to deliver the
on the research paper from the Advanced Services service to the customer, while accruing revenue over
Group from the Aston Business School). time from the client’s paying for the service consumed.
Companies that have the capital in-house may do
so on their own (or those that have their own finan-
cial institution); otherwise, in order to scale up, other
financial partners need to be brought on board (such
as banks, investment firms or other financial stake-
holders). There are different financial structures that
enable recapitalisation of CaaS providers, in addition
to equity and commercial debt. Two of the key finan-
cial structures currently in use in the market include:

6
Ziaee Bigdeli, A., Baines, T., Schroeder, A., Brown, S., Musson, E., Guang Shi, V., & Calabrese, A. (2018). Measuring servitization progress and outcome: the case of
‘advanced services’. Production Planning & Control, 29(4), 315-332.
19 BASE - Cooling as a Service

1. Sale and leaseback: 2. Special purpose vehicles:

Sale and leaseback is a form of asset-backed finance. Using project finance to set up a special purpose
After having signed one or more CaaS contracts with vehicle (SPV) is one of the most common structures
customers, and once these are generating cashflows, used to implement CaaS, and it is widely applied in
the CaaS provider can sell the cooling assets to a bank infrastructure project finance. In such a structure, an
and then lease them back from that bank. The CaaS SPV set up by private or institutional investors pur-
contracts between the customers and the CaaS pro- chases the equipment and signs the contract with the
vider serve as collateral to the bank in addition to the customers. Typically, the investors would expect the
cooling asset. Relevant payment guarantees reducing CaaS provider(s) to supply a portion of the equity for
default risk for the technology providers can also be the investment vehicle (through their own capital or
made out to the bank. debt); this brings confidence to the financier that the
contract provides the solution provider with the right
incentives to deliver quality performance. A separate
agreement is signed between the SPV and the CaaS
provider(s) to guarantee the proper supply, mainte-
nance and operation of the system.

Figure 3: Sale and leaseback structure

Figure 4: Special purpose vehicle structure

20 BASE - Cooling as a Service

In addition to the operation modification detailed with a different set of risks for the solution provider
above, implementing Cooling as a Service also comes and the financier which need to be properly evaluated.

7. Key contractual risks

In this section, we cover some of the key risks related to CaaS
and how they can be mitigated.

Payment risk Payment risk mitigation mechanisms exist in

some countries which may be applicable to CaaS
One of the key risks to which CaaS providers are ex- projects.
posed is the risk of delayed payments or even defaults
from customers. This is a risk that manufacturers and Creating a diversified portfolio will help to mitigate
contractors do not face in the usual transactional the overall impact of a customer payment risk.
business model, as payments are accrued earlier in
the transaction. This risk can be mitigated in several Developing a modular fleet of cooling systems
manners: that are easy to move from one site to another
reduces the damage when a customer fails to pay,
CaaS providers are encouraged to conduct since the system can easily be recuperated and
proper due diligence of the customers they intend repurposed.
to offer CaaS to.
Using IoT technology enabling the remote con-
It is recommended to start offering CaaS to cus- trol of the service and the potential reduction or
tomers with whom a long-term and trustworthy interruption of the service in the case of delayed
relation already exists. payment or default can help to unlock the pay-
ments.
21 BASE - Cooling as a Service

Technical risks Modular systems: As with payment risks, a

modular system enables the solution provider to
Since the provider maintains ownership of the equip- repurpose unused equipment from the client and
ment and is only paid when the service is delivered, place it in locations where it is needed and thus
this exposes the provider to all the risks which may oc- provide revenue streams to the provider.
cur and disrupt the delivery of the service. To minimise
this risk, the use of IoT technology to closely monitor
the systems and their consumption is key. Providers Other commercial risks
then shift from reactive maintenance to preventive/ When starting to implement CaaS, a provider needs
predictive maintenance, enabling a better delivery of to consider all their existing commercial partnerships
the service with minimum disruptions. An additional on the ground. For instance, should they be using third
risk is also the scenario of reduced performance with parties for inspection and maintenance, these should
product degradation. This risk does not impact the be evaluated in the implementation strategy so as not
user directly but will make the asset more expensive to damage existing commercial partnerships.
to operate for the provider. To counter this risk, the pro-
vider needs to implement reliable data measurement
systems to plan a maintenance and upgrade schedule Electricity-price-
which drives efficiency for the provider, with every fluctuation risk
investment decision being backed with business value.
The CaaS provider, who pays the utility bills for the
cooling, should be protected from fluctuations in the
Low-consumption- electricity price. Indeed, while CaaS providers are
of-service risk responsible for the performance of the system, they
should not bear the risk of increase in electricity prices
This risk can be contractually and operationally nor benefit from a decrease in electricity prices. A
controlled with: solution for this is to index a portion of the price per
unit of cooling to the current electricity price, based on
A diversified portfolio: As with the payment risk, a pre-agreed electricity tier.
a diversified customer portfolio ensures that there
are clients with different levels of consumption,
depending on different variables (dependent on A more detailed list of the risks
the industry the end user is active in, the local
temperatures and humidity, the size of the project
can be viewed in the study
etc). This ensures that there is overall stable con- released in collaboration with
sumption across the portfolio of customers. the Global Innovation Lab for
Data monitoring: Enabling reliable smart me- Climate Finance.
tering is key to better understanding customers’
needs and adapting equipment design (see “Mod-
ular systems” bullet below) or contracts accord-
ingly as the CaaS portfolio of a provider grows.

Fixed or minimum fee: Depending on the client

profile, operations and size of equipment, a mini-
mum fee can be requested from the clients so that
the provider has a minimum income for the deliv-
ery of the service. This is combined with a variable
fee based on consumption of the service. Alter-
natively, in some cases a fixed consumption fee
can also be requested, as can a sliding scale of the
variable fee charged to the client, which reduces
the consumption fee when customer consumption
increases above a certain threshold, so as not to
overly penalise the client.
22 BASE - Cooling as a Service

8. Getting started with CaaS

There is no “one size fits all” method to implement Cooling as
a Service. It often takes time and iterations of the operations
of the solution provider, its products and how their clients are
approached. However, below are common factors which we have
noticed often apply:

Customer profiles: Urgency:

Customers that are used to service businesses (such Some clients with well-established businesses are
as those in hotels, logistic businesses, retail and real either under pressure to reach their carbon emission
estate) and those that are environmentally sensitive targets or are eager to bring savings into the business.
or active in reaching their emission targets and further This is either due to a shift in market needs, which re-
improving their businesses are strong candidates to quire that management have extra cash to invest into
apply CaaS. Implementing CaaS enables clients to in- their core business, or due to extreme events, such as a
stantaneously gain access to higher energy efficiency global pandemic, which can bring businesses to a halt
and cleaner systems without the upfront investment. while the need to use cooling remains uninterrupted.
In some countries where subsidies are handed out The latter is especially painful for a customer when the
for decarbonisation, these could even be agreed to be cooling used on-site is not energy efficient, and they
shared between the solution provider and the custom- are operating in a region where electricity prices and
er. Note, however, that the model is designed to deliver humidity are high, and the core business stores or uses
value without the need for subsidies. expensive assets which are highly fragile to tempera-
ture fluctuations and humidity. As noted by Jigar Shah
(co-founder, ex-CEO of SunEdison, and director at the
Early adopters: Biden administration’s Department of Energy) at the
These are innovative leaders and managers who will global CaaS E-Summit, such customers in urgent need
best understand the value of a business model like to upgrade but without available CAPEX budgets are
CaaS. While some buildings or businesses might strong early adopters of a servitisation offering. This
significantly benefit from the savings delivered by the may apply to airports, libraries, universities, museums,
CaaS model, the early adopters will be those owned, hotels, hospitals, data centres and others. Jigar Shah’s
managed and operated by forward-thinking people. comments can be viewed here.

Customer management:
Management that is innovation curious is highly likely
to adopt CaaS. In identifying the right individual (pos-
sibly the chief sustainability officer (CSO), the chief
financial officer (CFO) or the executive director), it is
key to have a “champion” within the organisation who
drives the entity to change operations and engage in
procuring a CaaS solution from a provider. Note that
the person to reach out to is not necessarily the same
one that service providers are used to connect with
(i.e., typically not the technical manager).
23 BASE - Cooling as a Service

Financial partner: Learn from others’ experience:

The right financial partner must be willing to provide Several entities have already implemented the CaaS
an affordable cost of capital and an investment struc- model in a variety of applications. Many of them
ture which provides enough flexibility to the provider shared their experiences at the Global CaaS E-Sum-
to scale CaaS operations and offer their services at a mit in December 2020, content of which is available
competitive rate to the end user. Even more beneficial until December 2021 on the www.caas-initiative.org
is if the financial provider itself has an existing rela- website. The website also includes an implementation
tionship with the end customer (for example, some- toolkit including a standardised CaaS offtake agree-
times banks’ account executives have a direct rela- ment, a pricing model and explanatory material for
tionship with the CFO or CSO of an entity interested in potential adopters to better understand the service.
CaaS). Such relationships enable financiers to clearly Companies interested in implementing the CaaS
see how CaaS can help their clients achieve their ESG model are encouraged to join the CaaS Alliance hosted
goals while increasing the amount of cash available under the global Servitisation for Energy Transition
to further benefit and scale their core business. As a (SET) Alliance to facilitate the exchange of lessons
financial entity, enabling the financing of innovative learnt and participate in accelerating the momentum
business models such as CaaS, is also an opportunity around the business model.
for financiers to differentiate themselves from compe-
tition towards their customers.

Food producer in Johannesburg, South Africa, benefiting from CaaS delivered

by Energy Partners Refrigeration (click here for more information).
24 BASE - Cooling as a Service

9. Conclusion
Cooling represents the backbone of many industries, and it has
become a survival necessity for several regions. As demand grows
across the world and is set to triple by 2050, implementing clean
and efficient cooling is key to avoiding a climate catastrophe and
a surge in demand from the electrical grid.
Servitisation as applied to cooling, called Cooling as a our dependence and use of raw materials and breaking
Service, is an innovative business model which shifts the cycle of an economic model which brings a linear
the traditional asset-sale mindset to a pay-per-use ser- approach instead of a circular one.
vice model. From industrial cooling to cold storage for
agriculture or vaccine storage, CaaS has been proven While there are challenges related to the shift from a
to facilitate an accelerated deployment of clean and transaction model to a subscription model in the cool-
efficient cooling solutions, even in regions and indus- ing industry, those market players who have invested
tries facing financial challenges. the time and energy to implement the model are
already reaping the benefits of their efforts. They are
Since 2019, the Cooling as a Service Initiative, led by enjoying increased customer satisfaction, long-term
the Basel Agency for Sustainable Energy, has worked strategic partnerships with customers, higher demand
on key pillars to support the market in adopting the for the latest technologies and increased and predict-
model. Through this journey, the CaaS Initiative has able revenue streams.
accumulated key lessons, which have been sum-
marised within this paper. These include the tools Cooling as a Service is set to revolutionise how cooling
required to implement the model, the challenges faced is delivered to people. Similarly to how PPAs changed
by the solution provider, the risks to consider and the the solar market, CaaS is accelerating across regions
benefits that this brings to all stakeholders involved. and industries, enabling customers to gain access to
clean and energy-efficient cooling in a sustainable
By shifting the ownership of the equipment from manner that benefits people, businesses and the
the customer to the provider, the model incentivises planet.
the latter to keep innovating, deploying increased
energy efficiency and modular designs and limiting Cooling is only one element of the scope of servitisa-
the amount of stranded assets – repurposing them tion. The model is currently being applied in heating,
when needed to increase their utilisation rate, but also lighting and other systems at an accelerated pace. The
recycling them at their end of life or remarketing them. CaaS Alliance, today with more than 65 members, is
This all strongly incentivises a circular economy. Bring- growing into the global SET Alliance which will con-
ing forward a model which increases companies’ reve- tinue the work of the CaaS Initiative in supporting
nues by increasing utilisation rates per unit instead of the market in adopting the model of servitisation
increasing the assets themselves is key to minimising in cooling and beyond in a sustainable, circular and
accelerated manner.
www.caas-initiative.org

An initiative led by: Basel Agency for Sustainable Energy

Elisabethenstrasse 22
4051 Basel, Switzerland
P. +41 61 274 04 80
F. +41 61 271 10 10
www.energy-base.org
With the support of:

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