On January 9, a specialist energy company based in Malahide, Co Dublin made a discreet entry onto London’s AIM market. eEnergy, known to existing customers as eLight, was founded by Ian McKenna in 2009 to sell lighting as a service, an integrated solution aiming to do for business customers what fleet management had done for vehicles.

McKenna, now 52, was previously a distributor of Philips electrical products including LED lights. He decided to offer the low-energy lights, which have a higher up-front cost, as an off-balance sheet contract service.

Meanwhile, British technology entrepreneur Harvey Sinclair was getting involved in the same business in the UK with Energy Works, a company he co-founded in 2013. Sinclair, 48, is now the chief executive of the newly listed company bringing together the businesses on both sides of the Irish sea under the eEnergy banner. 

The road to January’s IPO has not always been easy. In February 2018, Energy Works went into administration in the UK. “We were a couple of years too early,” Sinclair told The Currency. “When you’re a disruptor educating a market, it can be very expensive. In 2013, 2014, LEDs were very expensive, too.”

He still believed in the model, though, and started looking for critical mass. “International investors would like to invest in larger companies,” he said. That’s when Sinclair and McKenna began to work together.

What is LaaS?

The phrase lighting as a service (LaaS) is modelled on software as a service (SaaS), the business model that has changed the delivery of computer programmes from CDs to be installed on clients’ machines to bill-pay, cloud-based services. “In the same way nobody owns their IT systems anymore, why own the lights in your ceiling? What is the advantage?” Sinclair said.

LaaS contracts include the replacement of old systems with energy-efficient LED lights, finance to cover the upfront costs and maintenance over the lifetime of the investment. Customers pay a monthly fee, taking the whole project off their balance sheet. Because LED lights consume up to 80 per cent less electricity, LaaS providers can squeeze the price of the entire package within the savings achieved on their clients’ electricity bills – and the user can claim the environmental benefits of reduced energy consumption.

Sinclair said the minimum project size considered by eLight is €30,000 in Ireland and £50,000 in the UK. “A retail shop, such as a hair salon, would be £10,000, but typically we would do several of them in one project,” he said. “For a £10,000 investment, we unlock about £3,000 in savings per year. After our fees, they retain £1,000 to £1,500. A £100/month saving to get a maintenance-free service is quite good for a small shop.”

Customers typically own the equipment at the end of the amortisation period and can switch to a simple maintenance contract.

In Ireland, eLight had been operating a project finance model with two companies: eLight Solutions was the sales agent, finding businesses with LaaS needs and organising supplies and contractors to install them. eLights Projects, an investment fund owned by “a number of Irish private investor clients of Merrion Capital,” signed the contracts and supplied the finance. This means projects so far have been off eLight’s own balance sheet. 

The risk to investors has been low: only one Irish customer among its 800 contracts across the UK and Ireland has defaulted so far. Existing customers here include the Square shopping centre in Tallaght and the Watermarque office building in Dublin, Kenmare Community School in Co Kerry and Brooks building merchants around the country.

In 2018, Sinclair and McKenna led a corporate restructure of their businesses to prepare them for a joint IPO. A new company, eLight Ireland, acquired the assets of eLight Solutions and its sub-contractor agreement with eLight Projects. Across the water, eLight UK bought the goodwill and assets of Energy Works, which was then liquidated. Both were placed under the control of UK-registered eLight Group Holdings. 

Last year, eLight Group Holdings agreed the reverse takeover of Alexander Mining, a plc listed on London’s AIM market where investors had agreed to sell off a failed minerals business. “It was essentially a shell,” Sinclair said. The transaction would value eLight at £6.6 million (€7.7 million). The company had revenues of €4.5 million in the year to June 30, 2019 and an Ebitda loss of €978,000.

In addition, eLight borrowed €1.6 million from BPC Ireland Lending in September and raised £2 million in new investment – locked in for one year – in preparation for its listing. On January 9, the company completed the reverse takeover of Alexander Mining and began trading under the new name of eEnergy plc. Following a slight bounce after the IPO from the 7.5p introduction price, eEnergy’s stock price later dropped alongside the rest of the AIM market as the Covid-19 pandemic hit equities around the world.

As its change of name suggests, eEnergy wants to expand beyond the existing eLight business. Sinclair has bold ambitions: “We plan acquisitions, each of which would double our size,” he said. While he won’t identify specific targets, the strategy is to acquire companies in the €500,000-1 million Ebitda size bracket, broadening the business beyond lighting. “Buying an energy company would be a good way of acquiring a customer base,” Sinclair added. While his initial focus is on the UK, Europe could be next.

The IPO aims to offer eEnergy as a vehicle to investors interested in participating in this consolidation: “There aren’t many – or any – energy efficiency investable stocks on the market,” he said. “This is an interesting space to be in: a disruptive player in a market that is going to explode in the coming years.”

The eEnergy bet is that pressure from society to cut greenhouse gas emissions and desire to cut costs will push business electricity customers towards energy efficiency as a service. It draws from a study by Roland Berger Consultants last year, which forecast that the European market for energy efficiency services would grow by 8 per cent each year to 2050, doubling in size over eight years. 

“Batteries are 12 to 24 months away from being economical as a service.”

Harvey Sinclair, eEnergy

Roland Berger highlighted the fragmented nature of this sector. Software developers, engineering and consulting firms, operations specialists such as eEnergy and large utilities all want a slice of the cake, and it has seen “intense activity in the area of merger and acquisitions in recent times” – but it is often difficult for those on the acquisition trail to find the right fit.

Sinclair plans to integrate further services into eEnergy’s offering to capture growth. “We’re very keen on heating as a service,” he said, applying the LaaS model to space or industrial heat generation. Solar generation is also on the cards, as is energy storage: “Batteries are 12 to 24 months away from being economical as a service,” he added. 

The company will also act as an electricity supply broker to tailor a suite of services to each customer. “For example, we could use Laas to cut carbon emissions by 30 per cent, then switch them to a green electricity provider, audit their bills and show data through an app,” Sinclair said. The company is currently developing the tool to roll out its proprietary software to clients and contractors.

This would allow eEnergy to licence out its solutions and partner with more local contractors to distribute them. “There are over 25,000 electrical contractors in the UK & Ireland. The Proposed Directors believe that at least 3,000 fit the size and profile to be capable of offering an eLight LaaS solution in their local region,” the IPO documents state. Sinclair added that eLight had started working with intermediaries such as Pinergy and Actavo. “We would like to work withy more utilities,” he said.

The company had €30 million in its “current pipeline of qualified and engaged opportunities” at the end of 2019 and Sinclair targets specific growth in the education market, with UK schools a major source of customers already, as well as retail and industrial or commercial buildings. 

He said eEnergy’s core business HQ would remain in Malahide, with 22 staff employed and McKenna at the head of Irish operations. This includes finance, back office and technology functions. Meanwhile, 10 people work with Sinclair in the UK and former CEO of Philips Lighting UK and Ireland David Nicholl chairs the board.

Sinclair and McKenna remain the largest shareholders in eEnergy after the IPO, with 15.77 per cent each. Nicholl owns a 10.03 per cent stake.

Startups, electricians and utilities join LaaS rush

eEnergy is not the only supplier of energy efficiency as a service in Ireland. ECI Lighting, also based in north Dublin, is a general electrical contractor offering LaaS options here and in the UK. Its projects include the underground car park of the Hilton Hotel in Dublin’s Kilmainham and Ace Express Freight’s 100,000sq ft warehouse in Lusk. This week, ECI started offering electric vehicle charging as a service for business customers interested in charging their own fleet or offering a paid-for service to visitors, tenants or car park users. The three-year contracts start from €7 per day for each charger.

Dublin-based UrbanVolt, meanwhile, was founded in 2017 by Kevin Maughan, Graham Deane and Declan Barrett. It has gone the tech startup route, raising funds from venture capitalists and a symbolic stake from rugby international Jamie Heaslip to launch LED lighting and solar generation contracts both in Ireland and in the US, developing its own software and customer app in the process. Some of its first clients are Pfizer and Heineken’s Cork brewery. In 2018, it announced a €55 million funding deal with British investment fund Low Carbon.

Utilities such as Energia have developed their own offering of energy efficiency as a service. ESB’s head of customer solutions Paul Fitzpatrick told The Currency that his company had delivered 450 Laas projects across varied industries in Ireland and the UK since entering this market in 2016. There are another 125 in the pipeline, including “a large airport” to add to the contract already signed with the Dublin Airport Authority. 

Fitzpatrick does not see eLight as a direct competitor at this point, adding that the two companies sometimes work together on a sub-contract basis.

ESB targets investments from €500,000 upwards, with its largest single LaaS contract to date worth €10 million. “Most projects are in the €2 million, €6 million, €10 million scale,” Fitzpatrick said. ESB provides finance and contract management, then tenders out the installation of equipment to contractors. The offering is “agnostic on supply” and available to customers of ESB’s own Electric Ireland branch or other electricity suppliers.

“In the electrification of fleets, we’ll take the pain out of it for customers.”

Paul Fitzpatrick, ESB

ESB charges monthly fees for its LaaS service, which “fluctuate with usage,” Fitzpatrick said. Contract duration can range from four to five years in intensive, 24/7 facilities to 10 years for outdoor lighting.

ESB has been broadening the model to more technologies, including heat generators such as heat pumps or boilers using on-site renewable energy. It is now moving into the powering of electrical vehicles. “In the electrification of fleets, we’ll take the pain out of it for customers,” Fitzpatrick said. “We won’t fund the vehicles, but charging infrastructure with chargers on premises paid by usage similar to fuelling stations, and battery leasing for larger vehicles.”

One example is the Crowne Plaza hotel in Dublin’s Northwood, where ESB supplies a charger and a battery for an electric bus as a service. Fitzpatrick is now working with Tesco: “52 of their stores are putting in electric charging,” he said, which will form part of a broader energy efficiency contract with store managers.

When SMEs fail to be convinced by the convenience or environmental arguments of energy efficiency as a service, Fitzpatrick has one more killer line. Assuming a 10 per cent margin, he said: “If you’re saving €1 million a year in energy costs, that’s €10 million in sales you don’t have to make.”