Business and Financial Practices

Local energy businesses and financial practices

Why are local energy business and financial practices important for smart local energy systems?

This research aims to broaden knowledge and understanding of UK local energy business structures, services, cash flows, and finances. Existing local energy businesses act as pathfinders for a more decentralised energy system. Our research is increasing understanding of their number, type, operations, and aspirations. This is critical to informing design of policies to enable smart and local energy systems (SLES) to develop further.

The dimension of ‘local’ commitment is explored in relation to ownership, governance, and scale, together with the use of ‘smart’ data systems. Insights into new business models, combining economic, environmental, and social value, will be delivered to support sustainable, smarter, more integrated local energy systems.

What are the EnergyREV team doing in this area?

We are conducting a SLES Business Model survey to learn more about all types of UK local energy businesses. The survey findings will help to answer the following questions:

  • What kinds of UK local energy systems exist?
  • Who owns them? Who operates them? Who works on them?
  • How 'smart' are they?
  • How 'local' are they?
  • What are their social and environmental impacts and how do businesses measure these?

The team will also investigate finance models for local energy businesses and consortia including metrics to evaluate investment opportunities, cash flows and revenue streams, and governance structures. Using the experiences of existing businesses, we aim to develop investment principles for integrated local energy systems.

A GIS map with a sample of UK legally-constituted energy (related) businesses will also be published as part of our research efforts to characterise a local energy business sector in the UK.

Workshops with local energy businesses are being set up to co-design innovative business models that can be used to guide other businesses in the future.

Our insights will be shared via a set of short reports, briefings, and academic articles.

How is EnergyREV exploring these issues?

Our work involves:

  • Reviewing academic and non-academic literature
  • Collecting and analysing data about business performance from existing datasets
  • Designing and running a survey to provide original data on local energy business activities
  • Using statistical tools for data analysis

Iterative internal reviews and external peer-reviews will be secured to provide constructive feedback to ensure the robustness of findings.

What are the emerging insights?

The UK local energy business sector is small  but diverse in terms of ownership, services provided and commitment to localities. There is limited local integration of heat, power and transport businesses, and much scope for innovation in data systems for ‘smarter’ operation.

The current financial performance of businesses with local energy assets is varied. Those with less commitment to a specific locality usually have a stronger financial position, while the more locally-embedded businesses are frequently reliant on debt finance, which may impede their capacity for innovation.

Using a triple-layered Business Model Canvas, a novel approach to recording economic, social, and environmental value streams, our review of SLES projects around the world found that environmental and social impacts, particularly at end-of-life stage, are frequently not considered in project reporting.

Our ongoing survey of UK local energy systems operating on a commercial basis (as opposed to grant-funded demonstrators) finds that both economic and environmental value propositions are important to system operators. However, use of smart technologies is currently more an aspiration than a reality, confirming earlier findings from analysis of business performance data.