Exploring the financial condition of the UK local energy business sector

Fabián Fuentes González, Janette Webb, Maria Sharmina, Matthew Hannon, Timothy Braunholtz-Speight & Dimitrios Pappas

August 2021

If local energy systems are to be an important part of the UK net zero targets, then it is important to understand how they work financially. By using publicly available financial ratios, we examine the financial condition of UK legally-constituted energy (-related) businesses, as well as identify commonalities and differences linked to their level of localism.

The sample includes highly-local energy businesses, which are distinguished by three characteristics: very limited contribution to assets and turnover of the UK local energy business sector, high reliance on long-term debt, and comparatively low profitability. Conversely, private sector energy businesses with a shallower local commitment tend to be in a stronger financial condition.

Insights into the financial performance of local energy businesses reveals commonalities associated with their level of localism (how ‘local’ such businesses are), which might indicate specific financing and asset management strategies, as well as characteristics that businesses have in common and transcend their technology, ownership, and localisation.

The findings include policy recommendations for supporting growth.

Future work should examine terms and conditions of financing for local energy businesses, and geographical aspects related to energy businesses’ performance in terms of value creation, retention, and delivery at a local level.