Article
Explainer: The benefits of our Data-as-a-Service (DaaS), off-balance sheet finance model for smart water metering
14 October 2024
The benefits of our Data-as-a-Service (DaaS), Off-Balance Sheet Finance model go far beyond those seen in traditional smart energy meter financing structures.
This is because our innovative financing model not only mitigates but can potentially eliminate many risks associated with smart meter investments. It begins with the DaaS technology model, whereby the meter and related equipment providing the smart water service sit on the financer’s balance sheet under IAS 16 (property, plant, and equipment). This reduces pressure on the water companies’ debt gearing ratios, spreads the cost of the smart meter rollout over 20 years, and frees up capital to support the delivery of strategic objectives.
This innovative off-balance sheet model is advantageous for water companies because it effectively shifts the risk to the asset owner (the financer), meaning we take on the asset liability, with cost recovery managed through the DaaS approach. This ultimately means that minimal upfront capital investment and resource allocation are required for your smart meter investment, and we drive the best value for money and optimise the rollout.
Advantageous features include:
- Fully funded smart meter installations
- A selection of innovative connectivity solutions, such as NB-IoT and fixed networks like the Wize solution from our partner SUEZ
- Flexibility in selecting meter manufacturers
- Add-on data services offering advanced analytics to help identify leaks and reduce per capita consumption (PCC)
- Options for shared financing arrangements
- Provision of a customer-centric appointment management system
- Optional retrospective funding for already installed assets
How the model works from a financial reporting perspective:
Our service encompasses the provision of meters and other related infrastructure, which are essential for sourcing the data. As we are providing the asset as part of a joined-up service with clear risk transfer, the IFRS 16 leasing standard is unlikely to apply, meaning the assets will sit off the balance sheet. Instead, service charges will be accounted for by water companies, and we will recognise revenues in our books under IFRS15 (revenue from contracts with customers).
We collaborate with water companies to structure a Master Services Agreement (MSA) that clarifies the accounting treatment of services. For example, we ensure the MSA is output-driven, performance-focused, and provides the data services provider with the flexibility to choose the equipment within set parameters.
The MSA also clarifies that the asset owner retains title to the asset and has the authority to direct its use. Furthermore, compensation amounts are clearly defined as being service-based, rather than linked to the residual values of specific assets.
This approach ensures the correct accounting treatment is applied.
The illustration below is an indicative illustration of this model.
Context:
This innovative asset financing model was developed in collaboration with CFOs from the UK water industry, including our Finance Director, Simon Bryant, who has worked across water companies, energy smart metering programmes, and the contracting market.
To gain a better understanding of how our DaaS model enables smart meter rollouts, please contact Simon Bryant or our Managing Director, Daniel Reilly.
