Simon Phelan, founder of Hometree has long term plans to expand in the clean household energy market
The road to a low-carbon future is a rocky one. The United Kingdom government is legally required to deliver “net zero” by 2050. To meet that target, emissions will have to be reduced progressively over the next quarter of a century. A series of interim targets are in place, including an end to the sale of new petrol-driven cars by 2035 and a pledge to implement a 50% reduction in emissions from public sector buildings by 2032.
But the government has been accused of dragging its feet. Earlier this week, the outgoing head of the Climate Change Committee, Chris Stark, said recent decisions to push back the ban on sales of new petrol-driven cars from 2030 to 2035 and slow down the transition from gas household boilers to more environmentally friendly heat pumps provided evidence that Prime Minister Rishi Sunak lacked ambition. In his view, the U.K. had taken a step back.
There are two opposing narratives surrounding Britain’s climate change commitments. The first argues that pressing ahead rapidly will unlock massive economic benefits. The second says the whole net-zero agenda will impose unjustified costs.
Against this backdrop, there are a great many young businesses that have successfully put carbon reduction solutions at the heart of their offer to customers.
Hometree is a case in point. Established in 2015, the company originally focused on installations for residential customers. Since then, Hometree has expanded its offer and now installs heat pumps, solar panels, electric vehicle charging points and batteries. In addition, the company also provides finance for installations and insurance and maintenance services.
“We have scaled up,” says founder Simon Phelan. “We now have 250 employees and a network of 5,000 contractors.”
Further growth is on the agenda. Earlier this month, the company announced it had secured a debt facility from investment and financial services company, Blackrock, which will enable it to pursue growth by acquisition. To date, the company has bought two businesses - namely the Little Green Energy Company (renewables solutions) and Geowarmth Heat Pumps - which together generate revenues of around £15 million.
Against this backdrop, I was keen to find out the extent to which policy - as dictated by government - affects businesses working in the clean energy sector.
In Phelan’s experience, regulation and policy do have an impact but there can be other factors. He cites the example of solar panels. Subsidies were cut in 2016 resulting in a slowdown in the installations. However, demand began to rise again. “The market was growing from 2017 and got a show in the arm from the Ukraine war.”
Despite some subsequent ups and downs - the COVID lockdown was most definitely a dampener - solar installations are growing again and rose 30% last year to a post-subsidy high, indicating that concerns about energy security and the prospect of lower costs are driving sales, even when government help is not available.
Heat pumps do attract a government subsidy of £7,500 per installation, but again there are other factors driving demand. “The biggest challenge is the differential between gas and electricity prices,” says Phelan. “Heat pumps are more efficient but electricity is more expensive than gas, so the economics are not that simple.”
In addition, you could argue that the government’s decision to delay the date when the installation of heat pumps in new houses becomes mandatory sends a signal that will slow demand.
Wanted: A Stable Direction Of Travel
So given that subsidies and targets can come and go and factors ranging from geopolitics to epidemics also impact consumer sentiment, what would the industry like to see from government? “What we need is a stable direction of travel,” says Phelan.
Thomas Farquar, co-founder of Heatio - a tech startup providing a platform to manage renewable energies in the home - agrees on the need for stability. Consistency is the most important factor - consistent targets that businesses like ours can invest upon and consumers can be engaged upon,” he says. As Farquar sees it, the recent loosening of targets announced by the government potentially makes it more difficult for businesses working in the sector to secure investment.
Arguably, one of the key things that the government can do is set the mood. Diane Gilpin is CEO of Smart Green Shipping, a company set up to develop sails for cargo vessels. As such her business is a long way removed from government policies on electric vehicle and home heating targets but there is a bigger picture.
“The narrative around climate change gives investors the confidence to support early-stage start-ups, where a lot of the true green innovation lies,” she says. “I’m concerned that retreating from our ambitious targets opens the door to climate change deniers, delays the new green future, and exacerbates the climate emergency for the millions of people already feeling the impact of it.”
Targets Are Just targets
That said, Gilpin stresses that targets are just targets. It’s the job of business owners. “We’re climate entrepreneurs and will continue to make a strong case,” she says.
In that respect, government-imposed deadlines could well be less important than the ability of entrepreneurs to provide the products and services that people want at affordable price points.
“Ultimately the government can’t make people want this technology,” observes Chris Hocknell, Director of sustainability consultancy, Eight Versa. As he sees it, there is still a considerable degree of customer resistance. “EVs cost more than internal combustion engine vehicles and heat pumps cost more than boilers to operate and install and they are often perceived as inferior products.”
So there is work to be done to drive demand. But as Simon Phelan points out, this is a long game that will play out over many years, particularly in terms of relatively new and unfamiliar technology such as heat pumps. “We think the market will be incremental rather than vertical,” he says. He stresses that his company is in it for the long term. "This is a bet we are making over a ten year period," he says.
And in the longer-term the direction of travel is clear. Even if the targets do slip a bit, decarbonisation is happening and there is money to be made by entrepreneurs as well as large businesses.
