Guiding SMEs on their energy transition journey

A new breed of consultants are helping small businesses navigate their journey to net zero. Steve Fawkes, managing partner at ep group, talks to Impact Investor about helping smaller players make better decisions about their energy transition

Typically, it is large industry players with the clout to invest in future-positive ventures and projects, but there is growing awareness of the huge upside in getting Europe’s estimated 22.6 million fleet of small and medium-sized enterprises (SMEs) onboard as well.

SMEs employ some 100 million Europeans and are a vital source of creativity, innovation and impact-generated job-creation.

Progress towards global Sustainable Development Goals, but also the EU Green Deal ambitions, ultimately comes down to how many “picks and shovels” are working in the projects that matter, suggests Steve Fawkes, managing partner of ep group, a UK-based consultancy and asset management group.

It makes commercial sense too, if smaller players are going to remain competitive in hyper-vigilant consumer markets where unprecedented environmental, societal and governmental (ESG) transitions are taking place in everything, from energy solutions to infrastructure projects. 

Small businesses are only recently coming to terms with concepts like ‘impact’, and even fewer get ideas like stakeholder ownership and what it takes to become a ‘purpose-driven’ enterprise. 

But a new breed of consultants has emerged to help businesses of all shapes and sizes capitalise on the benefits of net-zero and large-scale regenerative infrastructure projects, in ways that suit their budget and outlook. 

Guiding SMEs

“You often see companies claiming things like ‘our tech is going to solve the energy problem or save the world’,” says Fawkes. “But how likely is that? A single technology or single company is not going to be the magic bullet.” 

His company sees itself as something of a reality checker but also an enabler, helping especially smaller players make better decisions about the green or social transition they want to make.

This sets them up to attract the right attention and investment as they design, refine and deliver projects or services aimed at reaching that transition goal more equitably.

There are lessons to be learnt and large-scale models to follow, Fawkes agrees, but smaller businesses often need tailored help to navigate this complex territory. Mimicking larger organisations and copy-pasting investment strategies from sector to sector is not really a viable option.    

This is why his firm helps businesses, governments and investors explore alternative stakeholder paradigms, from rethinking ownership to organisational and structural changes designed to steward profit in more impact-friendly directions.

“There are lessons to be learnt and large-scale models to follow, but smaller businesses often need tailored help to navigate this complex territory”

Steve Fawkes, ep Group

This also prompted the company’s recent decision to become steward-owned itself, to reflect its desire to be an earnest broker for its clients, as they make similar impact-driven transitions. 

As an alternative to profit maximisation, steward-ownership thus harnesses the entrepreneurial spirit while preserving a company’s essential purpose, which is to create products and services that deliver societal value. 

“My father was made redundant when the company he worked for was closed down by asset strippers,” Fawkes reveals. An event which shaped his view of investment and asset management to this day. 

Rolling out ESCOs

While working on an energy overhaul project in Oxford, ep group pioneered a way to enable local authorities and equipment suppliers to develop energy services companies (ESCOs) to provide cheaper, and even fully-funded, energy services to SMEs in their area. 

That led to a new approach marketed as ‘ESCO-in-a-box’. The secret, Fawkes explains, is to start with achievable energy saving measures like installing LED lighting, and then graduate to more capital-intensive refits like new heat pumps and building refurbishments.

As the rationale shifts from cost-saving to return-on-investment, ESCOs can deliver energy efficiency projects on a “scaled finance basis”, which means the client pays thanks to energy cost-savings over time. 

Traditionally, this approach has been limited to larger businesses and the public sector, but that is changing. “Now, even the smallest operators can see that it makes good financial sense and offers a range of other benefits besides reduced emissions.” 

As more ESCOs band together, it generates capital at scale that can be put towards effective localised energy solutions rather than inefficient and expensive centralised systems.

Following the UK experience, this model is being rolled out in Kenya with EEnovators, an energy consultancy, which has identified viable projects for funding. Plans are also in the works for a similar scheme in the Philippines with support from a United Nations Office for Project Services (UNOPS) grant.

Unlocking hidden assets

For ep group, asset management is a relatively new line of business, borne out of changes Fawkes witnessed in the way environmental technologies are understood and marketed. “We created our asset management arm (EPAM) when the Indian state company, Energy Efficiency Services Limited (EESL), called on us to help them find UK acquisitions.” 

This led to a joint venture between EPAM and EESL and a much bigger balance sheet which ep Group is using in tech transfer deals, helping UK energy transition companies tap lucrative Indian markets.

Fawkes says ep is also open to ideas on how to reverse-engineer that flow, bringing Indian green energy solutions to Europe. “We’re happy to hear from investors interested in this space as well.”  

Fawkes says the mounting competition facing many major funds to meet investors’ ESG expectations is pushing them to “look beyond vanilla assets” as they venture into riskier projects, and “infrastructure funds will have to move out of their comfort zones to take pole position on new assets.” 

“Finance has the power to shift the demand curve in the right way as all developers, entrepreneurs and investors react to what the money wants,” Fawkes concludes.