The Lay of the Land

Compared to the rest of Europe, the UK has made promising strides towards its ambitious power decarbonisation goals – targets that the new government has brought forward to 2030. In particular, the rollout of offshore wind has been a UK success story, and wind power will ultimately form the backbone of the UK’s future energy generation. Increasing renewables capacity and ending reliance on coal has helped steer us in the right direction, but we are now at an inflection point where we must do more if we are to have any chance of meeting the UK’s legally binding Carbon Budgets and the 2050 net zero target.

The new government’s energy and climate agenda provides an opportunity to support new clean technologies through initiatives such as Great British Energy (a proposed new government entity designed to own and invest in clean power projects and leverage private finance to help address long-term energy and sustainability goals) and the National Wealth Fund (to help unlock institutional investment for green infrastructure such as ports, gigafactories, hydrogen and steel projects). Alongside this, the Green Prosperity Plan aims to revitalise Britain’s economy, with a focus on lowering energy prices and investing in clean energy.

However, renewables alone cannot bear the weight of meeting the UK’s energy and climate ambitions and ensuring the long-term security of supply we will need in an increasingly fractious geopolitical environment. We also need to invest in firm, low-carbon energy projects – from long duration energy storage (LDES) to small and advanced nuclear power and other nascent technologies.

The Golden Goose

The good news is opportunities for investment in clean technologies have never been more promising. The energy transition is a monumental investment opportunity on the same scale as the first industrial revolution – which also began right here in Great Britain.

The UK already has many competitive advantages, from a global financial centre in London, which has a track record in developing innovative green finance and investment instruments for clean energy projects, to world-class science and research institutes. It has manufacturing capacity for various clean energy technologies components such as electric trains, heat pumps and turbines for geothermal and hydroelectric generation and a robust start-up and innovation ecosystem.

Mind the Gap

Despite the potential of promising projects ready to scale in the UK, the investment decisions needed to unlock their potential are few and far between. There has been a growing number of venture investments in promising cleantech start-ups, though the same young companies struggle to secure growth funding beyond series A and B. The same goes for clean energy projects, which struggle to access project finance and combine the necessary funding to deploy emerging climate technologies.

Cleantech for UK just released a First of a Kind (FOAK) Report that highlights the multi-trillion-pound economic opportunity that FOAK cleantech projects in the UK represent. Their research reveals there is a significant funding gap that is curtailing the progress of potentially successful projects. The misalignment between FOAK project needs and UK funding models threatens to undermine the UK’s potential leadership in crucial cleantech innovations.

But this challenge is solvable. The UK will need to leverage the public balance sheet to drive private investment into clean energy technologies to meet the estimated £50-60 billion per annum that the Climate Change Committee indicated is needed from 2030 to hit net zero targets. Clearly, with limited fiscal headroom, the public balance sheet cannot bear the massive amount of capital expenditure that the energy transition needs. But the government can create a stable and robust policy and regulatory framework and overhaul lengthy permitting processes, so companies have the confidence to invest, hire and train labour, and develop long-term supply chains.

The clean economic transition demands collaboration through genuine public-private partnerships to drive it at the pace and scale required. If established correctly, the new National Wealth Fund (NWF) can play a critical role in leveraging private capital investment, but as the Centre for Economic Transition Expertise (CETEx) report on designing a new fiscal framework to meet the climate challenge notes, the NWF needs sufficient operational flexibility so that it is outside the UK’s self-imposed fiscal rules. This will allow the NWF to use balance sheet leverage to create the fiscal headroom for debt and equity investments, which will be critical in driving private capital investment for the energy transition.

There are many funding and financing models that can work and, indeed, the UK was once a pioneer in establishing innovative procurement models like Public-Private Partnerships (PPP) in the 1990s and 2000s that successfully harnessed institutional money to provide the capital for infrastructure investment. At Breakthrough Energy, the Catalyst programme demonstrates how private and public partnership can enable first-of-a-kind projects for emerging climate technologies, leading to larger-scale adoption and lowering the green premium. One such project is the recent €75 million funding to Rondo Energy to support three groundbreaking industrial decarbonisation projects across Europe. The groundwork has been laid for the EU-Catalyst model to be replicated in the UK, where it could supercharge green tech investment.

The Path Ahead

The new Government has a historic opportunity to spearhead a whole-economy shift, igniting a clean industrial revolution and creating new industries that will be an engine of growth and prosperity over coming decades. Collaboration between government entities and private sector companies will help mobilise the UK’s green ambitions – but only if they are set up correctly and have the flexibility to leverage private finance. Resources and capital will be the bedrock of action, but we need to get capital flowing into clean energy projects now.