Small and Medium-sized Enterprises (SMEs) are often overlooked by the energy retail and energy efficiency markets despite being a steadily growing commercial opportunity.

SMEs account for 99.9% of the business population of the UK representing a staggering three fifths of employment and half of the turnover of the UK private sector (£2.3 trillion).

They contribute a significant amount to overall UK emissions and represent a market opportunity for smarter energy services to help them reduce their energy use and carbon impact.

Imminent regulatory changes to private rented building standards, such as the likely increase of MEES (Minimum Energy Efficiency Standards) requirements from EPC Band E to Band B by 2030, where cost-effective will mean that SMEs and landlords will soon be compelled to engage with and improve their working environments.

Despite these factors creating overall positive market signals, there is still a distinct lack of innovative propositions targeting SMEs.

A wave of further policy and regulatory action is indicated in the Heat and Buildings Strategy:

• Minimum energy standards for owner-occupied non-domestic buildings
• Introduction of a Future Buildings Standard for new builds from 2025
• Phasing out the use of high-carbon fossil fuels for heating from 2024.

Key points

The report Barriers to innovation in smart energy services for SMEs developed a range of recommendations, including:

Smart Energy Services

• Smart energy services provide SMEs with more cost certainty over energy bills and investment returns and payback periods for energy efficiency measures; identify of quick–win, no regrets energy saving actions (e.g. systems calibration, behavioural measures) and may offer additional revenues such as offering Demand Side Response for flexibility markets.
• Service providers should use more granular and live energy data to deliver better propositions for SMEs that improve customer relationships and trustworthiness.
• Smart energy services would benefit the creation of smart local energy system business models, especially where high volumes of SMEs in urban centres could provide flexibility services to ease network constraint issues.

Business Models

• Innovative business models can deliver smarter energy services for SMEs such as: targeted tariffs matched to customer needs on cost or carbon; integrated data-driven energy efficiency projects, including installation and finance; optimisation services including access to behind the meter assets that offer flexibility services.
• Energy services must be easy to understand, access and focus on the benefits. Customer journeys should be streamlined with clear explanations breaking down complex issues and making transparent recommendations for SMEs without the skills to perform analysis themselves.
• Aggregating SME businesses together to unlock services and reduce the cost to serve for each individual SME can help to achieve economies of scale – providing lower cost access to energy supply contracts, energy efficiency installations, low carbon technology and finance.

Tenancy Agreements

• Green leases can offer a more climate-progressive tenancy agreement. Established but poorly defined or adopted, green leases encourage tenant-landlord collaboration, with basic principles such as energy consumption data sharing or more progressive joint investment plans. Greater standardisation and deployment of such lease arrangements would accelerate the decarbonisation of the private rented non-domestic building stock.

Smart Meters

• Data about the deployment of non-domestic smart meters should be publicly available, so innovators can target propositions better and help kick-start the market.
• Encourage non-energy suppliers – such as energy brokers, business networks, local enterprise partnerships – to take more of an active role in smart meter rollout.
• Energy services propositions need to provide better meter data access to SMEs. Energy suppliers are not required to provide any means of accessing data upon installation of a smart meter, unlike domestic properties, which have monitors.

Funding

• Energy efficiency grant funding for SMEs, currently coordinated by uncertain council-backed schemes (55% funded by the European Regional Development Fund), should be secured, standardised and streamlined nationally.
• Standards being developed for non-domestic retrofit installations should be made a regulatory requirement when public funding is supporting projects in the same manner as PAS 2030.