Long before the war in Iran, British businesses were paying some of the highest energy bills in the world. Now, amid dire warnings of oil and gas shortages and further price increases next winter, more small and medium-sized companies are switching, or considering switching, to making their own solar power as a way to cut and stabilise energy bills.
HDM Energies, based in Hull, which fits rooftop solar panels and battery storage systems for small businesses, had its best week ever in late March, said Dan Rogers, its chief executive and founder. The company signed up to supply £4 million of solar power systems, ten times as much business as in a normal week, he said.
It makes sense. Ed Miliband said last week that Britain was facing its second “fossil fuel shock in less than five years”. The energy secretary said: “The era of fossil fuel security is over and the era of clean energy security must come of age.”
Rogers’s company fits solar panels and battery storage at no upfront cost to its customers, which include farms, football clubs, care homes and offices. Instead, the customer signs up to a power-purchase agreement with HDM, which means they pay their electricity bills to the company over the life of the deal. It supplies them with energy generated by the panels and stored by the batteries, topped up with off-peak energy from the grid when needed.
The average price customers pay using this model is 18p per kilowatt-hour (kWh), said Rogers, compared with an average electricity price of 24.3p per kWh for business users, according to the latest Office for National Statistics figures, which are for 2025 and will have risen. The difference in price cuts bills by more than 25 per cent and is high enough to cover the cost of the materials and installation and generate a return for HDM.
The company finances its capital expenditure with £100 million of funding from Paragon Bank, agreed last year. Power-purchase agreements typically run for between 10 and 25 years, after which time the customer owns the solar-power system outright, can use the energy, then sell any extra into the grid.
London-based Two Blues Solar sells solar systems to larger businesses using power-purchase agreements and has also seen a “bump” in inquiries since the Iran war started, said Daniel Levene, the co-founder. The saving on electricity costs is even higher for companies with more roof space and nearby car parks or waste ground for more panels, such as distribution warehouses, said Levene.
“We’ve seen prices that are 50 per cent of the company’s current energy cost,” he said. “In some cases, it’s been as low as 8p per kWh, and the highest is 19p.”
The long-term nature of the power-purchase agreement is the most common reason that potential customers don’t sign up, said Levene. However, the current level of energy-price volatility, following relatively soon after the price spike caused by the war in Ukraine, means more companies are taking the view that signing up to a contract lasting decades is worth it.
“Having predictable energy costs has an increasing appeal, even if there is an outside chance that electricity suddenly became much cheaper again,” Levene said.
In cases where tenants of commercial properties decide to move after installing solar and signing up to the power-purchase agreement, they can either pay off the remainder of the initial capital cost of the system and become the owner, renting it out to the next tenant, or negotiate to pass the contract on to the next tenant, he said. Two Blues funds its installations with investment from True Green Capital, a renewable energy infrastructure investment fund.
Rogers is not under any illusions about why the small businesses he works with are making the change to solar now: “Solar is cheap energy and that’s what is pushing the change forward,” he said. “The green stuff is great, but anything we do has to be born from sound commercial sense, because that’s what people care about — their businesses, their livelihoods and their homes.”
Ofgem, the energy industry regulator, said last month that the majority of British companies were on longer-term energy supply contracts lasting three to five years, so won’t be immediately exposed to higher energy costs.
However, the regulator estimated that about 10 per cent of companies needed to sign up to new contracts in March and April this year, and a further 10 per cent between May and July.
The government has also widened access to a scheme designed to lower electricity costs for energy-intensive manufacturers. The British Industrial Competitiveness Scheme was announced in the government’s industrial strategy in June and was limited to 3,000 businesses. It has now been expanded to more than 10,000 companies that operate in the government’s eight industrial strategy areas and are intensive users of electricity.
However, it will not take effect until April next year and intensive gas users are excluded. Business lobby groups, including the Institute of Directors and the British Chambers of Commerce, pointed out that high energy costs affect all companies and have called for more wide-ranging support.
HDM, which was set up in 2022 during the last energy price shock, has already grown rapidly. It said it reached revenues of £33.5 million last year and was expecting sales of between £55 million and £60 million this financial year. By 2030, Rogers is targeting sales of £2 billion and a profit of £450 million.
The company employs about 100 people and has warehouses in Basildon, Bournemouth, Port Talbot, Sheffield and Livingston near Edinburgh, as well as its Hull headquarters.
Rogers chose to focus on small businesses because he believes they have the fewest options in the electricity market as it is set up: “The likes of Octopus are doing amazing things for the residential market and large industrial consumers can interact directly with the grid and create bespoke agreements that suit their business,” he said. “But there’s a massive chunk, millions of customers, in the middle who are completely underserved.”
In addition to the solar system supply business, Rogers co-owns a wholesale solar panel company selling parts and equipment to solar-panel fitters, which HDM employs to do its installations and repairs.
While the solar panels come from China, or South Korea for projects that specify they don’t want to use Chinese products, the metal hardware comes from Germany and HDM is working on a British-made inverter, which converts the direct current electricity generated by the solar panels into alternating current electricity that is used by the grid and in homes. Rogers hopes it will go into production next year.
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He also sees an opportunity for British manufacturers to replace lithium-ion batteries, for which China has cornered the market, with a new type of battery technology.
“One of the ones I’m particularly enthusiastic about is sodium ion,” he said. “The sodium can be produced from the salt in sea water — and we’re an island nation, we’ve got ample access to sea water. They’re cheap to make and it would replace the need to mine lithium, which has a very destructive impact on the planet. For me, it represents a very interesting development.”
However, the technology won’t be ready for large-scale production for at least a couple of years, he said.
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