Energy consultancies have a perennial income problem. The dominant commercial model in UK energy consultancy is not advisory work. It is procurement commission.

When an energy consultancy (or more precisely, a third-party intermediary) brokers an energy supply contract on behalf of a client, it earns a per-unit commission on every kilowatt-hour consumed for the duration of that contract. The revenue is recurring and relatively friction-free. It requires no site visits, no project management and little technical risk. It arrives automatically, indexed to the client’s consumption, for as long as the contract runs.

This income stream is, by a considerable margin, among the highest-margin activities most energy consultancies perform. The cost of servicing it is negligible once the initial procurement is complete. The gross margin substantially exceeds anything achievable through advisory services, energy audits or project delivery.

The consultancy’s business model is therefore optimised for maintaining energy consumption at a time when clients are increasingly trying to reduce it through efficiency, electrification and self-generation.

Every kilowatt-hour the client consumes generates revenue. Every kilowatt-hour the client saves reduces it. This creates a structural tension that much of the industry has yet to fully resolve.

The delivery disincentive 
The tension between procurement revenue and project delivery is not subtle. Yet the industry continues to treat it as a peripheral concern rather than a defining strategic challenge. Consider the commercial logic that follows a successful energy efficiency project.

A consultancy recommends a building services upgrade (LED lighting, HVAC optimisation or renewable generation) that permanently reduces a client’s annual energy consumption by a material percentage. The recommendation is sound. The client benefits. The carbon reduction is real. The consultancy’s reputation is enhanced.

The consultancy’s business model is therefore not optimised for reducing energy consumption. It is optimised for maintaining it.

But the consultancy’s procurement revenue is also reduced by the same proportion. The per-unit commission that flowed automatically from every kilowatt-hour consumed now flows from a smaller base. The reduction is not temporary. Every successful project the consultancy recommends, and every project it delivers, reduces its most profitable recurring revenue line.

The delivery project itself generates revenue, of course. But it is typically one-off revenue, earned at margins significantly lower than procurement commission. The delivery project also carries risk, requiring site management and consuming operational bandwidth. This is the commercial tension at the heart of the prevailing energy consultancy model.

Why the cultural resistance? 
In many energy consultancies, the individuals who hold the most senior commercial positions have built their careers, and compensation structures, around procurement revenue. Departmental budgets, commercial performance and internal influence are often closely tied to the margin performance of the procurement book.

These individuals are not irrational. They recognise the value of project delivery in principle. But when a specific project proposal crosses their desk (one that will permanently reduce metered consumption for a key client) the commercial calculus becomes more complicated.

The result is a form of institutional resistance that rarely presents itself as opposition to delivery. Instead, it manifests as caution: concerns about liability, questions about capability, requests for further analysis or suggestions that the timing is not right. The consultancy’s genuine lack of delivery experience can become a justification for reluctance that is, at least in part, commercially driven.

Regulatory and transparency pressures are beginning to surface these dynamics. Clients are increasingly aware of the commission structures embedded in their energy contracts, and some are demanding greater disclosure.

But transparency alone does not change the underlying incentive structure. A consultancy may disclose that it earns commission on energy consumption, but the commercial reality remains the same: successful energy reduction can still reduce its most profitable recurring revenue stream.

Why is this a threat to energy consultancies? 
The commission paradox would be an internal strategic problem, uncomfortable but manageable, if it existed in isolation. It does not.

The market in which energy consultancies operate is fragmented, competitive and increasingly transparent. A consultancy’s reluctance to deliver is not invisible to the market. It is an opportunity for competitors offering integrated advisory and delivery capability.

If a consultancy’s client has committed to net zero targets, adopted a science-based carbon reduction pathway or simply recognised that energy efficiency projects deliver genuine cost savings, that client will seek delivery from someone.

The question is whether the reluctance to deliver is fundamentally a capacity problem or a compensation mechanism.

If the incumbent consultancy cannot or will not deliver, the client has two options: procure delivery independently or engage a competitor that offers both advisory and delivery as an integrated service.

The competitor that takes the delivery relationship does not stop at project management. It builds a direct relationship with the client’s facilities team, develops operational familiarity with the estate and demonstrates delivery capability. When the procurement contract comes up for renewal, that competitor is already embedded within the account.

The incumbent consultancy’s choice is therefore not between full procurement revenue and reduced procurement revenue. It is between a smaller revenue stream (procurement commission reduced by successful delivery) and potentially no revenue stream at all because the client relationship has migrated elsewhere. That is the strategic reality now emerging across parts of the sector.

What is the point of greatest vulnerability?  
The sharpest expression of this competitive risk occurs at contract renewal. Procurement contracts typically operate on multi-year cycles. For the duration of the contract, the incumbent consultancy’s position can appear secure. Revenue flows. The client relationship appears stable.

But renewal creates a moment of re-evaluation. Procurement teams and increasingly sustainability teams ask a relatively simple question: what has this relationship delivered?

If the answer is advisory reports and procurement services alone, the incumbent may become vulnerable to competitors offering advisory, procurement and delivery as a combined proposition.

The competitor does not necessarily need to undercut on price. It only needs to demonstrate that it can convert recommendations into measurable outcomes. For consultancies with large procurement books, this vulnerability is not theoretical. It recurs every time a contract approaches renewal.

What can be done?  
The consultancies navigating this transition most successfully tend to share one characteristic: they have stopped pretending the conflict does not exist.

The commission paradox is not a problem resolved through incremental improvement, additional sales training or simply bolting on another service line. It requires a structural response – a deliberate decision to build or partner with delivery capability that allows the consultancy to convert its own recommendations into implementation.

One possible response is a delivery assurance model in which a specialist layer sits between the consultancy and the subcontractor, managing procurement governance, contract architecture, site oversight and margin protection. The consultancy retains the client relationship and advisory revenue. The subcontractor carries the delivery risk. The assurance layer manages the interface.

Within this structure, commission erosion created by successful delivery can be offset through additional revenue streams, including delivery margin, maintenance and monitoring contracts, and stronger long-term client retention.

The consultancy does not replace procurement revenue with delivery revenue. It supplements a reduced procurement stream with a broader and potentially more resilient commercial base. But this approach requires an honest internal conversation.

The question is not simply whether the consultancy lacks the technical skills to deliver because those gaps can often be addressed through partnership. The question is whether the reluctance to deliver is a capability issue or in fact a compensation protection mechanism.

The consultancies that address that question honestly are likely to define the next phase of the energy services market. Those that do not may find themselves increasingly exposed as client expectations, competitive pressures and commercial models continue to evolve.

The views and opinions expressed in this article are strictly those of the author only and are not necessarily given or endorsed by or on behalf of the Energy Institute.

• Further reading: ‘The consultancy ceiling: why energy advisory firms struggle to capture delivery revenue’. Energy consultancies occupy a paradoxical position in the market. They are trusted to diagnose problems, quantify savings and recommend solutions – yet the moment a client asks ‘Can you deliver this?’, the most profitable part of the relationship walks out the door. The solution is to build a delivery layer, argues Managing Director of Optimised Energy David Hesketh.
• 'Connecting the dots for SMEs’ net zero journey’. Where do I start? This is the question most small and medium-sized enterprises (SMEs) ask themselves as they try to respond to increasingly ambitious sustainability and net zero goals. Discover the answer.