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Partnership reveals new heat-as-a-service model

A public-private partnership between UK manufacturer Baxi-BDR Thermea and the Advanced Services Group (ASG) at Aston University, could signal an innovative way for the UK to meet its decarbonisation goals.

The project aims to explore the viability of Baxi offering a new heat-as-a-service model to customers through servitization. This a heat plan that bundles a new heating system, servicing, maintenance, and energy for a fixed monthly price. Baxi’s “fit and forget” solution changes the focus from selling energy in kilowatt-hours to selling warmth and the outcome-based offer helps the manufacturer drive the adoption of low carbon technologies.

This servitized approach to delivering energy could make the UK Government’s proposals to ban gas boilers in favour of heat pumps, more affordable and viable for homeowners, since it would remove the cost of ownership of expensive heat pumps. Instead, residents could have the heat pump installed free of charge and instead lease the energy they use.

The UK Government recently revealed it is considering pushing back the gas boiler ban deadline by five years, due to backlash over the soaring cost of ‘net zero’ on households, ahead of the COP climate conference in November. A typical heat pump can set homeowners back up to £14,000, with ministers warning that such measures could cost households £400 billion. Heating homes accounts for 14% of total UK emissions and it is hoped the ban will help guarantee a more sustainable future.

The Advanced Services Group believes that Heating-as-a-Service (HaaS) could offer the opportunity to overhaul the UK’s energy system and break the link between levels of fuel consumption and profitability.

Iain McKechnie, director of strategic programmes, Advanced Services Group, commented: “For consumers, fuel is a means to an end, and it is attractive for Baxi-BDR Thermea to sell warmth rather than energy. Investment in digitisation and disruptive business models opens the door to selling heat as a service, offering consumers a full-service solution. They pay for hours of warmth whilst the provider takes responsibility for owning, fuelling, and maintaining the system that delivers it.”

The UK already attempted something similar with its Budget Warmth initiative in the 1980s; a HaaS tariff offered commercially. The plan saw the provision of agreed room temperatures at certain times for a fixed fee, instead of charging for energy use on a per-unit basis. This arrangement enabled building operators to remotely manage heating systems and use electricity when it was cheaper, thereby maximising profits, and exploiting opportunities for greater heating flexibility.

A servitized business model for HaaS takes this a step further and utilises widespread environmental concerns to change consumer attitudes towards energy consumption, enabling homeowners to pay only for the energy they need, thereby saving costs and reducing energy waste.

Supported by a £1.7m of Innovate UK funding, Baxi is working with Aston Business School’s Advanced Services Group to develop a Digital Servitization Demonstrator. Designed to drive adoption of advanced services, the demonstrator will combine advanced services and digital servitization technologies to create a digital model of Baxi's manufacturing and service business.

McKechnie commented: “By moving from selling a boiler to providing heating as a service, it suddenly becomes possible to marry energy efficiency with sustainable business models. Manufacturers are incentivised to save energy and are enabled to pilot and exploit low-carbon technologies without requiring the consumer to pay up front. This way, providing more heat by consuming less energy becomes the name of the game and it is service levels and ecosystem efficiencies that determine profit margins.”

7 September 2021

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