Green Investment Dream, Not What it Seems
Distortions, business models & residential retrofit — why isn’t there a clear win?
As an EdTech investor, with capital to deploy, I’m keen to find companies training people for the Net Zero transition. It’s a whole economy shift, yet there are so few “Green Skills” start-ups that are readily investable. In this article I dive into one knotty part of the market to unpick what’s going on.
In my ‘green skills’ article a year ago (linked here), I predicted (the perhaps obvious point) that the most mature parts of the climate tech market would be where ‘green skills’ start-ups are created. This is exactly what happened. When I refer to the “mature parts of the market,” I mean those technologies which have a strong track record, such as heat pumps, solar panels, wind turbines etc. However, despite this prediction coming true and companies being created, in this seemingly mature market segment, why haven’t Ufi Ventures made an investment?
The answer is, in short, due to market and business model challenges. Viable ‘green skills’ businesses in the UK currently all seem to coalesce around one sub-market: residential green energy upgrades, aka residential retrofit. Start-ups in this sub-market provide services to increase the uptake of heat pumps and other home retrofit measures. The majority of those I have seen are running pilots or providing consultancy services, but few can say they have repeat customers. Yet all those I’ve seen project quite significant B2C revenue in 2024.
The UK’s B2C residential retrofit market doesn’t appear ready yet for significant growth, though it will be in the mid to longer-term.
There is no denying tacit demand for heat pumps, and home retrofit, due to their green credentials and potential cost savings. However, re-insulating homes to then install heat pumps can be costly (upwards of £20k) and may not be a priority for homeowners who are still dealing with high mortgage rates and increased living costs. Additionally, technology in this field is evolving rapidly and many homeowners are choosing to wait until air source heat pumps become quieter or until both ground source and air source systems become cheaper, more interoperable, and efficient, before committing to installing them. Many are nervous about getting the ‘right’ advice, and the risks of being an early adopter. Similarly, landlords across the UK (though there are regional differences) are waiting for a more definitive Government roadmap before acting[1]. Furthermore, large energy providers such as EDF or Scottish Power, and manufacturers such as Bosch, are already capturing much of the demand that exists in the market, because people are already their customers, they are trusted brands and have large marketing budgets. The macro picture needs to shift for these intermediaries to gain traction in the B2C space, but there are opportunities now for B2B and B2G business models.
Given this environment, it’s been fascinating to see the various residential retrofit start-ups all focus on selling to homeowners directly (B2C). Rather than growth drivers in the current market. From my research, the growth opportunities are coming from B2G (Future Homes Standard 2025, off-gas programs, schools and training), and/or B2B (property developers, insurers, mortgage lenders, installers and trainers). Some of these residential retrofit start-ups have B2G and B2B elements, but their primary concern is B2C. This is evidenced by their remarkably similar B2C-first business models.
Let’s break down these business models. These companies are not insulation or heat-pump installers; instead, they aim to create a middle layer to simplify the process and provide value. Let’s call them “intermediaries”. Each intermediary is slightly different, but overall they all plan to:
- Create a bespoke plan for homeowners. This plan includes costing activities needed to retrofit and install green energy in homes. The more innovative companies propose doing this fully remotely, using video and pictures. The intermediary will charge homeowners about £200-£500 for the plan.
- Connect homeowners with vetted insulation and heat pump installers. The intermediary will take a percentage from what is paid to the installer. The intermediaries also (ideally) offer training programs for installers.
- Provide installers with access to finance so they can undertake multiple jobs. The intermediary will take a cut of the interest earned from finance providers.
What I am trying to understand is why all these companies are doing similar things in the same B2C space. Why are they not pivoting to a B2B strategy (working with installers who work as contractors/installers for incumbents like EDF) and positioning themselves to be acquired quickly by one of these larger companies (before the large company builds the same thing in-house)?
I’d love to know your thoughts . Drop me a line on ellasaid.woodhouse@ufi.co.uk with any answers, or if you’re a company in this space who has already pivoted. I would love to see more pivots and more company creation in the residential retrofit space, as well as in the less mature sides of the green skills market.
Speaking about the wider green skills market, this brings me back to the start. We, like many other EdTech investors I speak with, want to invest into green skills companies. That could be residential retrofit, or anywhere across the Net Zero transition landscape.
We need more incubators, accelerators, grant funders, VCs and others to echo this message…to show the water is warm and that potential “Green Skills CEOs” should take the plunge.
Huge thanks to Hannah Spungin at Bristol City Leap and Charlotte Surrey at The Green Register for your insights that helped inform my research. Both are trailblazers for the just transition — and increasing the numbers of women in the built environment & Net Zero sectors. Thanks also to the team at the Energy Skills Partnership.
