Growth opportunities in the UK utilities sector

As the demand for sustainable energy, efficient infrastructure, and technological advancements increases; this opens doors for SMEs in this space to take advantage of this evolving landscape.

We explore some of the key growth opportunities available in the UK utilities sector for UK SMEs.

How’s the current UK Utilities fairing?

A global pandemic. Locked down businesses. Global inflation. The conflict in Ukraine.

It’s not been an easy time.

The common pandemic related disruptions most of us are aware of were the decrease in energy demand as businesses stopped operating. Lessor known impacts saw disruption in supply chains for renewables as lockdown measures hindered the movement of staff and materials. As a result, investment capacity sank.

The war in Ukraine has severely disrupted the flow of Gas supplies to Europe and the UK, with restricted gas exports by Russia and the move to relying less on Gazprom pipelines by the UK, a geopolitical move that has driven up prices.

The reliance on back up coal burners to handle increases in demand for energy during the recent winter cold snap, highlighted where the UK is right now with effectively implementing real, meaningful change with renewable energy supplies.

Global inflation has increased the cost of doing business and rising interest rates to combat this, has caused more expensive debt.

But as we come through this period, there is optimism on the horizon.

The UK government is launching innovative and epoch-making renewable energy schemes to develop this industry and meet Britain's goal of zero carbon emissions by 2050.

The move to developing domestic renewable and nuclear energy alternatives continues. As such, the UK will need to modernise its infrastructure and grid technology; and this offers growth opportunities for SMEs in this space.

However, the failure of one of the largest energy suppliers in the country, Bulb, due to a steep rise in wholesale gas prices and a bailout that could cost taxpayers £6.5 billion, reflect a vulnerable sector.

Challenges continue to persist.

Regulatory Environment

Navigating the complex and ever-changing regulatory landscape remains a significant challenge in the sector.

A review of how electricity markets work through the Review of Electricity Market Arrangements consultation and the establishment of the Electricity Generator Levy, a new temporary tax on the profits of low-carbon generators such as nuclear renewables and biomass has caused grumbling in the industry.

Political pressure on the supply of energy through interconnections with other countries, especially Norway, has added to this discontent.

Adapting to new regulations and ensuring compliance can pose a barrier to entry and expansion for smaller businesses.

Technological Advancements

The rapid pace of technological advancements has created an opportunity and challenge at the same time.

While this offers routes to growth, keeping up with emerging technologies, such as smart grid systems or energy storage solutions, requires continuous learning and investment.

Limited resources and expertise could hinder a business’s ability to adopt and integrate new technologies, potentially impacting competitiveness and an ability to deliver innovative solutions.

Market Competition & Talent

As with most sectors, the utilities industry in the UK also remains highly competitive.

SMEs face a challenge competing for talent with larger market players. As the sector changes, a highly skilled workforce needs to be proficient in understanding the core growth areas of renewable energy, smart grid technology, and energy management.

Access to Funding

Like with all UK SMEs across all sectors, accessing the right type of funding, at the right time, that’s right for an individual business – has become significantly challenging as banks retrench bank loans for SMEs.

Developing renewable energy projects, investing in infrastructure, growing teams and talent or acquiring necessary equipment often requires substantial financial resources.

However, securing financing from banks is becoming harder. Government programs can be difficult and more limited than they were during the pandemic. A lack of collateral or limited financial track records can put off other investors.

To take advantage of the current growth opportunities in the utilities sector and scale up operations – SMEs need funding.

Where do the growth opportunities lay?

The UK government targets to achieve a net zero carbon emission by 2050 which led the utility industry to invest in low-carbon energy solutions.

The latest technologies are evolving for renewable energy generation, energy storage and power grids that contribute to decarbonizing existing supply and meeting the new electricity demand.

Renewable Energy

One of the most significant growth areas in the utilities sector is renewable energy. The UK government has set ambitious targets for achieving a net-zero carbon emissions economy, creating an immense demand for clean and sustainable energy solutions. SMBs can take advantage of this by specialising in renewable energy generation, such as solar, wind, or hydroelectric power.

Additionally, providing consultancy services for energy efficiency and helping businesses transition to renewable sources can also be lucrative avenues for growth.

The UK government has set clear goals for reducing carbon emissions. Energy companies and government need to incentivise the transition to electric vehicles.

One of these initiatives is banning new petrol and diesel cars by 2030 and trucks by 2040.

The UK government has been striving to implement clean power by introducing the maximum use of renewable energy sources emitting low to no carbon. The four main renewable energy sources to be harnessed are wind, solar, hydroelectric, and bioenergy.

In the CFD (Contracts for Difference) scheme's fourth round, the government aimed at securing 12GW of electricity with a funding of £285 million a year for low-carbon technology.

Under the scheme, the government will provide £200 million in funding annually for offshore wind, with £24 million initially allocated for floating offshore wind and £20 million for tidal stream projects with solar and onshore wind.

It's expected that the AR4 will be a significant step in delivering the government's goal of achieving 40 GW of offshore wind energy by 2030.

The innovative biomass projects across Britain have been awarded £37 million in funding, where £32 million was allocated to increase UK's sustainable biomass production and £5 million was allocated to support innovative new technologies that generate hydrogen from biomass and waste.

The growth of clean energy projects

UK government is putting stress on developing clean energy projects such as wind power for a better sustainable world. It produces no GHG emissions and is a clean energy source for the future.

Renewable energy companies must not only work towards producing electricity but also to successfully store it for year-round usage and even export it if possible.

Smart Grid Technology

The implementation of smart grid technology is revolutionising the utilities sector, enabling efficient energy distribution, reduced energy waste, and enhanced customer experience.

SMEs can capitalise on this trend by offering services related to smart grid infrastructure, including the installation of smart meters, development of energy management software, and provision of data analytics for optimizing energy usage.
Furthermore, companies can focus on developing innovative Internet of Things (IoT) devices and solutions that integrate with smart grids, contributing to the industry's growth.

Microgrids are certainly ready for the digital future.

25.4% of UK and Ireland businesses have installed a microgrid or renewable power source to reduce the environmental effects. These grids must fit the complex and bi-directional flow involved with new technologies and efficiently monitor supply and demand.

Energy Storage Solutions

The integration of renewable energy sources into the grid necessitates effective energy storage solutions. SMEs specialising in energy storage technologies, such as batteries, pumped hydro storage, or compressed air energy storage, can cater to the increasing demand for storing excess renewable energy.

These businesses can provide installation, maintenance, and consultancy services to both residential and commercial clients, ensuring a smooth transition towards a sustainable energy future.

Infrastructure Modernisation

The UK utilities sector requires significant infrastructure upgrades to accommodate the evolving energy landscape.

This presents excellent opportunities for SMEs involved in infrastructure modernisation. For example, businesses can focus on the installation and maintenance of electric vehicle (EV) charging stations, supporting the transition to electric transportation.

Similarly, companies can specialise in upgrading aging water and wastewater infrastructure, implementing smart water metering, or developing intelligent leakage detection systems.

How can finance help SMEs take advantage of these growth opportunities?

The growth of SME business in the UK's changing utility sector mainly depends on the proper funding for development and acquisitions. It points out the necessity of taking debt capital to encourage financial growth strategies.

Government support programs for SMEs and sector specific funds from VC’s have lessened of late, resulting in businesses looking at the more traditional routes of applying with their bank for debt capital business loans or taking on outside investment in exchange for equity.

But with banks rejecting SME business loans and business owners reluctant to give up shares, alternative debt lenders are now primed to help SMEs access capital outside of traditional lending institutions.

There is also a risk perception about SMEs operating within the Utilities sector. Utility projects, such as renewable energy installations or infrastructure development, are perceived as high-risk traditional lenders and investors.

Despite this, the role of funding is important and for many SMEs there are advantages in choosing an alternative lender over their bank.

Taking on debt capital can help SMEs finance growth strategies that take advantage of the opportunities in the sector. With the right debt capital injection, businesses can scale-up and get growth-ready.

At SME Capital, we help SMEs with specialised long-term financial alternatives that allow them to invest and scale their business without worrying about the cash flow.

We are experts in this field, and our priority is to become your long-term funding partner and develop trusted relationships so that nothing can stop you from meeting success under the changing market scenarios.

We are here because we firmly believe that our specifically designed finance solutions for UK companies, which will aid in your growth and success, represent a better option.

As experts in SME lending, every customised loan we make for you will be designed especially with the goal of becoming your long-term finance partner.

Whether you need financing for a refinance, succession planning, M&A, or growth and expansion, we give you the opportunity to thrive without asking you to give up control, equity, or personal assets.

SME Capital uses a cash flow-based approach to lending, offering a multiple of business profitability, specifically EBITDA, as opposed to a loan amount being directly tied to the value of specific assets. We can provide an economic solution to consolidate smaller lenders, or refinance expensive short-term loans, while providing additional working capital for the business.

With repayment terms from 3 to 7 years and flexibility on repayment structures SME Capital is an effective, relationship-led, refinance solution for qualifying businesses in any sector that have been trading more than 3 years with £250,000+ EBITDA.

About SME Capital

SME Capital was founded to support the growing number of SMEs who face difficulty or frustration in accessing capital through traditional methods. We understand the importance of real and trusted relationships in the SME lending market and have dedicated Regional Directors based across the UK.

By combining traditional lending expertise with the latest in data analytics, we are supporting established UK SMEs with their long-term objectives and business ambitions.

Growth opportunities for SMES in the UK utilities sector