Market gap analysis to enable profitable delivery of deep retrofit

Engagement

Energiesprong UK engaged Sweeney Tech Consulting to conduct a market gap analysis exercise as part of a project to develop an integrated Comfort and Billing Service for retrofitted homes (using heat pumps). There were two key tasks:

1. To analyse the capabilities and strategic interest of market players operating in the space.

2. To conduct a review of the Energiesprong UK Performance Management Framework (PMF) with a view to reducing the cost of delivering the service.

Energiesprong UK

The Energiesprong UK mission is to help develop a retrofit market that:

• Achieves zero carbon with electrified heat, without overburdening the national grid.

• Has a viable long-term business model, as opposed to grant dependency.

• Is scalable, enabling the UK to achieve its carbon targets.

• Improves outcomes for residents – affordability, health and comfort.

Energiesprong UK do not themselves deliver specific retrofit projects, but work in partnership with solution providers (typically construction companies) to accelerate project delivery and productise retrofit. Energiesprong UK has mostly been working on retrofit houses in the social housing space.

The Performance Management Framework (PMF)

The Energiesprong UK PMF was developed to codify as many of the above objectives as possible, while providing flexibility for suppliers to innovate to find the best solutions. Key elements of the Energiesprong retrofit approach include:

• An ambitious heat demand target: 30-40 kWh/m2/year – effectively requiring external wall insulation.

• A long-term performance guarantee from suppliers allowing maintenance savings to be realised for property owners.

• The resident comfort charge which offsets some of the energy bill savings from the retrofit measures and generates income to pay for the capital cost of the installation.

Delivery

The following activities were conducted across the two tasks.

Task 1: Market analysis of energy management companies

Market review

• Review of relevant market trends and regulations.

• It was recognised that it may not be a single organisation which delivers the service end-to-end. To aid with identifying and characterising relevant organisations, four market segments were defined:

  • Retrofit: Organisations which deliver solutions specifically relating to retrofit such as project planning/design or tools which streamline the delivery of projects to meet certain standards (e.g. PAS 2035).

  • Home energy management: Organisations which provide solutions in the area of analysis and optimisation of energy flows within houses, target energy behaviour change and provide IoT device management.

  • Financing and billing: Organisations which provide finance for energy projects (e.g. ESCos) and/or have capabilities to generate bills and collect payments e.g. energy suppliers.

  • Social housing: Organisations which provide solutions specifically for social housing landlords, recognising the importance of the success of the service on integration with business-as-usual social housing landlord processes.

Service definition

Definition of capabilities required to deliver the service over its lifecycle, summarised across 5 key pillars:

• Pillar 1: Data ingestion flexibility

• Pillar 2: Project design and initiation

• Pillar 3: Installation success

• Pillar 4: Asset management and optimisation

• Pillar 5: Cost recoupment and billing

Market engagement

• Identification of 61 businesses who may be interested in, and/or capable of delivering part or all of the service.

• Creation of a self-assessment tool which provides a framework to assess the suitability of potential providers.

• Direct engagement with 28 relevant businesses by e-mail and through one-to-one meetings.

Recommendation

• Creation of a long-list and short-list of recommended providers assessed across strategic, commercial and technical parameters.

Task 2: Assessment of how to reduce monitoring costs

Energiesprong UK provided a quantified target (ceiling) capital investment and ongoing operational cost to deliver the service. Achieving the given targets would require an 85% reduction in capital costs and 95% reduction in operational costs from the starting point quotations they had received before engagement with Sweeney Tech Consulting. The task was to assess whether there was a feasible pathway to achieve the targets.

The approach taken was to:

• Highlight how the existing quotations received arrived at the quoted costs.

• Show how alternative approaches to achieve the same outcomes would lead to cost reductions in both the upfront capital costs and ongoing operational costs.

• Show how a further small change to the PMF could lead to further reductions in both capital and ongoing cost.

Sweeney Tech Consulting was able to use their deep knowledge of software systems and Internet of Things products, as well as commercial knowledge on on technical solutions available from in the market to inform the approach taken. The recommendation Sweeney Tech Consulting provided was that not only could both the target capital and operational costs be achieved, but that they could be exceeded even without changing the PMF standard.

Tricia Valentine, Project Manager at Energiesprong UK:

"The approach taken showed deep engagement with, and sincere consideration throughout the project. This is reflected in the high quality of the outputs which provide holistic technical and commercial recommendations derived from first-principles with clear answers to the questions asked."

Next steps

Sweeney Tech Consulting wishes to thank the broad range of market players who so openly provided their input and time to this work, in particular those who completed the self-assessment tool and those who made time in their calendars for meetings.

Energiesprong UK's current focus is on scaling up the delivery of retrofit through productising learnings already gained from the delivery of pilot projects.

Sweeney Tech Consulting is open to any conversations with industry players at any time in the area of property retrofit which has the potential to both significantly improve people's lives and is necessary for achieving carbon emissions reduction targets.