It seems you are right, it is only SW. For example here is Ultra Power saving for Note3:
http://xdaforums.com/galaxy-note-3/themes-apps/xposed-s5-power-saving-mode-t2814113
However I still can't see why greyscale display would mean any power saving - you still need to turn on all R/G/B AMOLED sub-pixels to get white/grey. The only possible power save would be turning the GPU into "greyscale" which would mean that the GPU has to do less calculations. But then there is question if also our GPU supports such greyscale mode.
To render in gery scale, again, it software. The GPU will render whatever the software tell to. As to why it saves power - AMOLED as people know has a very low power consumption if the display area is black (or near black). To render stuff in grey scale will simply increase the chance of display more 'black or blackish' images, hence improve battery.
I'm no developer, but simply read as regarding what UPS does - and I see nothing that can't be done if software allows to. Which most custom ROMs or additional app can do. UPS in my opinion is try to let end-user has a taste of what custom ROM/root app can do by giving them a pre-defined set of environments. Eg. limite the number of software allows in background, throttle CPU/GPU speed (too many app can do this), etc and of course the grey-scale thing. Sure custom ROMs can't do that yet, but most custom ROM has option to turn the menu to holo black - which is achieving SOME power saving.