UK financial service provider ploughs £3m into energy efficiency

Energy efficiency is big business as private investors invest millions.
Published: Thu 11 Aug 2016

Last year, Bloomberg New Energy Finance (BNEF) reported that the UK’s domestic policy landscape continued to limit utilities’ engagement in the implementation of energy efficiency programmes as suppliers’ confidence with regards to the government’s management of energy efficiency policy remained flat. This was based on a study carried out by BNEF which included 38 UK consumer organisations and 29 suppliers between 14 October 2015 and 14 December 2015.

Despite this, a number of private companies continue to see the potential in the UK’s energy efficiency market and are investing large sums.  

Business potential in energy efficiency

One such company is Bibby Financial Services (BFS), a large UK independent invoice finance provider, which has just signed a £3 million funding deal with a leading energy efficiency contractor BillSaveUK.

The Leicester-based contractor, which started trading in October 2015, provides loft and cavity wall insulation for new build homes, as well as retrofitting existing homes. Clients include both small-scale and large-scale house builders, as well as some major utility companies.

To provide working capital for ongoing cash flow and supplier payment, BFS’ Corporate Finance team structured a £3 million invoice discounting facility. The facility enabled the business to kick-start its growth servicing customers.

BFS stepped in to secure a source of capital within a tight timescale but, as an established market player, BFS’ Corporate team were able to see the business’s potential. BFS worked with the business to initiate a capital restructuring and contingency programme.

According to Simon Latham, Chief Financial Officer, BillSaveUK, BFS could see their potential as a supplier in the construction industry. He said: “BFS worked closely with us to restructure our capital and provide the business with the funding we needed to get growth kickstarted. Our industry works on long payment terms and within a sophisticated supply chain that means we need to put our cashflow to work.

“We already cover three quarters of the UK but we plan to grow our footprint further to cement our reputation as a first class supplier of insulation to Britain’s builders, as well as the retrofit market. At this present time we are planning to open three more depots so we can better serve our clients with the very best energy saving materials.

“Having a finance partner with experience of the construction sector was vital for us. With funding in place, we can now start to grow the business further.”

Creating investor-ready projects in Europe

Recognising the need for private investment in energy efficiency, a European financing project has mobilised over €1 billion of private capital from investors seeking energy efficiency projects that deliver environmental and financial results.

The Investor Confidence Project Europe (ICP Europe) has launched an Investor Network to bring together energy efficiency financiers with property developers seeking finance for their projects. It was developed to help address the needs of investors looking for standardised projects that reduce the time, risk, and costs involved in funding energy efficiency building retrofits. [Investor Confidence Project]

According to Panama Bartholomy, director of ICP Europe, the potential market for building retrofits in Europe is worth upwards of €100 billion per year, presenting a massive, untapped investment opportunity. He added that it offers investors a common language to compare risks and savings. It also makes projects simpler, decisions easier, and project performance more reliable.

ICP Europe works to standardise energy efficiency upgrades and make them more attractive to both investors and building owners. Its Investor Ready Energy Efficiency (IREE) certified projects are accredited against industry standards and best practices which ICP Europe says reduces transaction costs and increases confidence in projected savings.

The organisation, which is funded by the European Commission’s Horizon 2020 programme, says the network comprises a wide range of energy efficiency investors who “recognise the value of standardised, investor-ready projects to increase deal flow and drive demand in the marketplace”.

Some of the financiers involved in the project offer additional benefits to developers including accelerated underwriting, reduced transaction fees, and preferable terms for certified projects.

Ben Goldsmith, chief executive of Menhaden Capital Management – one of the charter members of the network – said: “The key obstacle that stands in the way of investors allocating capital to energy efficiency projects is the lack of any kind of standardisation. The ICP Europe Investor Network is a key step towards turning such projects into an investable asset class.”

Among the investors in the project is The Royal Bank of Scotland, which recently revealed that it doubled its lending for sustainable energy projects last year to £1 billion.

ICP Europe also works through an Ally Network and Steering Group to develop energy performance protocols further while maintaining the current level. It also works to make energy efficiency projects more market-ready and investor-friendly.

There appears to be a real need when it comes to financial assistance to put energy efficiency strategies into place. We spoke recently to  Jessica Stromback, chairman of the energy efficiency financier Joule Assets who talked about the many challenges that SMEs face. Alongside its funding activities Joule Assets is participating in EU projects such as Flexiciency, which aims to develop a regional marketplace for energy services. [Engerati-Building The Energy Services Marketplace]. The company is also heading up a new project, Sustainable Energy Asset Evaluation and Optimization Framework (SEAF), with support from the Horizon 2020 research and innovation programme.

The aim of the 2-year project is to develop a streamlined software platform to support SMEs to access funding for energy efficiency projects. The platform will enable independent project valuation, insurance and design standardization, in this way seeking to bridge the gap between the contractors and investors. [Europe’s energy efficiency challenge.]

Capital driving energy efficiency

It has become clear that energy efficiency measures can save businesses and residences a fortune on their electricity bills. Added to that, it saves utilities a great deal of costs and stress when it comes to capacity and new infrastructure. As a result, energy efficiency has become a no-brainer and private investors are seeing the significant value in this sector. While governments around the world have set energy efficiency levels more from a sustainability and environmental perspective, it has become clear that private investment is actually driving energy efficiency-not legislation.

Bill Rumble, director, BillSaveUK “  agrees that UK government energy efficiency goals will only work if there is sufficient capital across the entire value chain but suggests we look at the bigger picture too. He points to the Cambridge Econometrics report, published by the Energy Bill Revolution in 2014, [‘Building the Future: The economic and fiscal impacts of making homes energy efficient’.] It examines the macro-economic case for energy efficiency, exploring the gains which could be made from an ambitious energy efficiency programme if the government were to give it the priority it needs.

Rumble told Engerati: “I often use the phrase, a pound invested in energy efficiency is the pound which keeps on giving. Some estimates put the cost of Hinckley Point C as high as £37 billion to generate 7% of the country’s power requirement. Why? If instead the government set out a clear map for delivering a demand side reduction programme of 7%, then £37 billion wouldn’t need to be spent on generation. In fact, a reduction in energy use of 10–15% could be achieved through a properly executed, joined-up reduction programme.”

We asked Rumble’s opinion of the UK government’s efforts when it comes to promoting energy efficiency. He said: “Not as much as it could. The Government’s energy efficiency strategy acknowledges that improving energy efficiency is fundamental to a whole string of economic, environmental, health and social benefits, but to date it has failed to put the right policies or investment in place. The challenge we’re facing is energy generation ranks far higher on the government’s agenda than energy efficiency does.”.

He added: “The Cambridge report referenced developing an ambitious UK-wide energy efficiency programme which would become a national infrastructure project. It would have the potential for high economic returns and deliver on three agendas - carbon reduction, sustainable supply and affordable energy -  and could be delivered for a fraction of the price of Hinckley Point C.”