McDonald is co-founder and CEO of Tem, a company that last year raised $13.7 million in a Series A round led by Atomico. “There is so much more capital coming into the space,” he says. “Originally, this was under the guise of climate tech. Now energy itself is what excites investors most.”

Energy Innovation And The Economy

As he sees it, the sector is benefitting from some useful tailwinds, not least an understanding on the part of governments and businesses that demand for electricity is set to rise and that costs must be kept under control. That demand is being driven by an increased use of power-hungry AI and the arrival of electric vehicles on the roads.

Consequently, says McDonald, the rising cost of electricity will have to be addressed at a policy level. “Governments are realising they can’t allow this to continue. If it does, the cost of living will go up, and manufacturing will leave. You’ll become a tourist state,” he says.

One of the first countries in Europe to privatise the electricity industry, Britain today is burdened by expensive power when compared with its neighbors. According to a House of Lords report, electricity is 19% higher than the E.U. average, although this is slightly offset by lower gas prices. The government’s answer is to invest more in wind, solar and nuclear energy but that feeds back to the problem of consumer resistance to short-term increases in bills.

Saving Money

So where do startups fit in? Jacob Bro is a founding partner of 2150, a VC firm focused on solutions to ensure that urban living remains sustainble as populations rise. Energy is central to its investment strategy.

“There is an enormous opportunity around creating efficiencies within the system,” he says. “That means software and intelligent solutions – lets call it AI or whatever – that optimise the way we utilise the existing infrastructure or utilise the system for industrial processes.”

For his part, Joe McDonald says there are three areas where innovation is required, namely: generation; distribution; and transactions between suppliers and customers.

Tem has pitched its tent in the transactional space. The company’s software platform is designed to connect generators directly to providers of renewable energy, allowing purchases to be made without an intermediary.

“What we’re seeing is that there is money to be saved through transaction fees,” he says. “There is £6 billion sitting there that can be saved.”

In that respect, Tem – although dealing in renewables – is selling a services framed around cost savings, rather than sustainability. “If it isn’t cheaper, you won’t get buy-in. That’s the big shift away from the sustainability argument. It has to save money,” says McDonald.

That’s not to say that startups are turning their back on the importance of sustainability. Arguably, the change in the messaging. “We are not telling people more renewables should get built. We are saying that by building more renewables, you can facilitate cheaper energy to businesses, so maybe, you should build more renewables,” says McDonald.

Jonathan Carrier agrees. He is co-founder and CEO of Allye Energy, a startup company that has just raised $2.5 million in Seed capital. As Carrier explains, the company provides battery technology both to deliver consistent power in off-grid situations, such as construction sites or film sets and to support grids at a time when demand for power is rising and more renewables are coming on stream. He stresses the importance of providing services that deliver financial benefits to customers,

“Any cleantech solution has to work first because financially it makes sense,” he says. “And then you can also save CO2, reduce greenhouse gas emissions, and contribute to net zero. We are laser-focused on a solution that over its lifetime will deliver superior returns for customers.”

Challenges To Startups

However, the ability of startups to innovate is currently constrained by the challenges associated with operating within a regulatory framework that was designed for a different era – a time when power generation was highly centralized. Go back half a century or so, and no one foresaw power being fed back into the grid from local solar units or EV charging hubs. Nor did anyone expect batteries to play a major part in balancing supply and demand.

Carrier cites rules preventing network operators from owning generating assets (including batteries), which are holding back progress. He believes that by looking again at regulation and also at the way subsidies and pricing mechanisms are layered into bills, policymakers could open the door to more innovation and lower costs in the short term.

Robert Groves also stresses the need for change. He is the CEO of Smartest Energy, a company that that began life with around 20 employees and has since grown its payroll to more than 800. It provides business clients with tailored supply contracts and tools to track their renewable energy consumption. In addition, the business provides battery storage to help customers mitigate any intermittency in supply. Groves argues that the market should be opened up to innovation.

“We must also see a continued focus on grid reform. Capacity is often reserved for projects that haven’t yet been approved, and this is slowing down energy generation. The opportunity here lies in making sure capacity is freed for approved projects, which will also increase access to the energy market for new players, instead of the established big players retaining all the control,” he says.

Nevertheless, Bro argues there is room for innovation. “There many more types of servies and transactions that need to take place. You can have relatively big businesses operasting at the fringe of the grid, such as peer-to-peer between buyers and sellers. ”

The progress of energytech companies may also be affected by a shifting political mood. The current U.K. government has pledged to meet rigorous net zero targets, but two of the other main parties, including the official opposition, have rowed back on these commitments. This may affect the decision-making of customers. “We are facing headwinds because of mixed messages. Consistency is really important. Businesses rely on consistency,” says Carrier.

Energy tech is flourishing in U.K., and companies working in the field say there are real opportunities to work towards net zero without pushing up costs to customers. Progress depends on regulators and policymakers opening up the market to innovation. This needs to go hand-in-hand with a consistent approach to the net zero agenda.