How to drive investment in the UK’s energy transition

The steps would help address barriers to energy transition projects surfaced in a major international study led by Pinsent Masons.

Barriers to investment in the UK’s energy transition

Pinsent Masons and Censuswide asked almost 1,000 VC investors and technology developers to share their sentiment towards low‑carbon technology, to uncover global low carbon energy investment trends. The study identified their clear focus on carbon capture and storage (CCS) and their planned pivot towards renewable energy generation over the year ahead, but it also highlighted scalability, lack of incentives, poor infrastructure and regulatory volatility as barriers to investment.

Asked to select up to three reasons that have most prevented them from investing in a low carbon technology in the UK over the last 12-24 months, half of those surveyed cited an unstable regulatory environment, while 38% of respondents selected a lack of access to existing infrastructure to enable their technology. Fewer than half of investors and developers said they were anticipating positive change to the UK’s regulatory landscape over the next year.

The problem with the consenting regime

Developing any type of major infrastructure – including projects relevant to the energy transition like wind or solar farms – is a significant undertaking. Among other things, it requires developers to navigate planning and environmental frameworks, secure grid connections, and line up financing – all in an increasingly volatile environment where policy, regulation, investment and supply chains are prone to change and disruption owing to geopolitical events.

In the UK, the challenges of developing major infrastructure on time and on budget have been growing over time. This problem has been widely recognised by successive governments, which have pursued a range of legislative and non-legislative measures to address this.

Planning reform was put at the centre of the Labour party manifesto prior to the 2024 UK general election and since coming to power it has delivered some welcome reforms. The Planning and Infrastructure Act, for example, streamlines the process for obtaining development consent for ‘nationally significant’ infrastructure projects (NSIPs) across energy, transport, water, wastewater and waste. Additional steps are in train to restrict the scope for delaying NSIPs through judicial review challenge, under a further wave of proposals that have been put forward.

More needs to be done, though.

The existing consenting regime is fragmented and still not fit-for-purpose. This is because obtaining a development consent order (DCO) for an NSIP goes only part of the way towards enabling developers to move forward with their projects: for major projects, hundreds of other permissions, licences, approvals and other consents often need to be obtained too, before a spade can go in the ground.

Examples of secondary consents that developers may require include marine licences or water-related approvals for water abstraction, impounding or discharge. In England, applications for these permissions are dealt with by the Marine Management Organisation and the Environment Agency respectively, under separate processes that normally operate after a DCO has been obtained. Developers may also need to submit applications for protected species licences from Natural England if their project is to be sited near habitats occupied by creatures such as bats.

This layering of regimes, processes and procedures adds complexity and leads to delay, additional cost and uncertainty when it comes to project delivery.

The purpose of the main consenting stage is to provide a framework within which a developer can move forward with obtaining the necessary further approvals for their project. However, at the moment the various authorities involved in overseeing their part of this system operate those processes largely independently. Often this can put developers under time pressure to meet the various conditions a DCO will stipulate, because of delays in securing the specific secondary permissions they require to move forward with their project.

The whole system could be better integrated and streamlined.

There are limits to what elements of the secondary consenting regimes can be wrapped into the DCO process, because it will depend on how much detailed design has been done at the DCO stage, but there is scope to make the different consenting regimes much more integrated and streamlined.

Plans to achieve this were explored when the government was working on the contents of its Planning and Infrastructure Bill, but it decided against pursuing those reforms at the time. It should rethink this as a matter of priority – to reflect the ‘nationally significant’ status conferred on major energy projects and their importance to UK energy security and decarbonisation.

Grid issues impact on project finance too

Consenting is only part of the picture when it comes to infrastructure development.

Britain’s electricity grid was built for a different energy era, where power to homes and businesses was supplied by a small number of mainly coal-fired power stations. Today’s electricity system is much more decentralised, with many more sources of supply and the intermittent nature of renewables like wind and solar requiring a much more sophisticated network to ensure supply always meets demand.

Grid modernisation costs money and the pace at which the necessary changes are happening under current funding models is not fast enough. The result is a crumbling system that is not set up to support the energy transition.

Grid capacity is one issue. In simple terms, there are simply not enough power lines, substations and cables to move electricity around the country.

It is welcome that the government is moving forward with the ‘CATO’ regime, under which businesses can participate in competitive tenders to win onshore electricity transmission licences, which in turn would make them responsible for designing, constructing, financing, owning, and operating transmission assets. A similar regime already operates in respect of offshore transmission, helping to drive investment in physical infrastructure that supports the energy transition.

However, more also needs to be done to attract private investment in technologies that can support the operation of a modern electricity grid. Balancing the grid amidst the peaks and troughs associated with the intermittent supply from renewables is challenging. Technologies like synchronous condensers can help replicate some of the stability that fossil fuel-powered generation offers as those power plants are decommissioned and the electricity they provide replaced by that sourced from renewables.

Introducing new subsidies or incentives for such investment may be politically challenging, however. There is prominent opposition to the ‘net zero’ agenda within UK politics, with existing support schemes such as ‘contracts for difference’ under potential threat if the government changes. It means even those current and would-be policymakers that back the energy transition may be unwilling to divert additional public funds to support schemes – despite the very important role they have played in enabling renewable generation in the UK over the past 15 years.

One option to navigate this sensitivity might be to look to Great British Energy or the National Wealth Fund to play a focused role in catalysing private investment in relation to grid modernisation. A further rethink on tax could also be considered, including around the increase in the rate of the electricity generators levy that is being applied that will hit renewables generators.

Policymakers should look to address curtailment risk. Some energy generation is curtailed, meaning that for certain periods of the day or year generators cannot export more than a certain percentage of their generating capacity into the grid. This impacts on financing models as lower outputs directly affects revenue and impacts on the return investors can achieve if they finance such projects.

At the same time, the process developers must navigate to obtain a grid connection for their energy projects remains problematic, despite reforms.

In 2025, the grid connection process in Britain was reformed, with a move away from a system that operated on a ‘first come, first served’ basis to one where projects are prioritised for connection based on their readiness. The change is designed to address the backlog of projects awaiting connection, by ensuring projects that can genuinely help meet the UK’s long-term energy needs – such as by enhancing renewables generation or storage capacity – get connected, and weeding out speculative projects.

A gated process operates under the revamped system. To receive a connection offer – a proposed date for connection – projects must pass through ‘gate two’. To do so, projects need to satisfy a range of conditions, including providing evidence of land use rights and their application for planning permission. Some projects also must demonstrate alignment with the government’s clean power 2030 action plan.

A gate two offer is highly prized by developers, because it can help them unlock finance. This is because it provides greater certainty to investors that the projects are viable and will offer them a return. However, while the ‘gate two’ reforms are intended to create an element of certainty in terms of the deliverability of projects, the reforms have been plagued by delays. We are aware of some projects otherwise eligible for a gate two offer that are at risk of running out of money because they are still awaiting one.

This uncertainty not only presents risks to the funding of individual projects, but it can also have a wider dampening effect on investment across the market. We are seeing deals taking longer to complete because investors are taking longer to complete their due diligence – with uncertainty around grid connection dates for specific projects being viewed, in some cases, as a risk investors are just not willing to take once projects move past initial stages.

The overall picture

The current challenges around consenting and the grid that face developers behind energy projects do not sit easily with typical investment lifecycles.

Once a DCO is obtained, it can often take two or three years before projects move to the construction phase and then a further two or three years before projects become operational. That can often amount to the entire fund life for investors.

If there is, say, a three-year period where all the DCO conditions and secondary consents have to be discharged and obtained before construction can begin, that further limits the investment pool. If a developer has not spent enough money upfront on detailed design, the consent is more like an outline permission, and there is a longer period before construction can start. That creates a five- or six-year period before any return can be realised. That will always limit the buyer pool for bigger projects because these are no longer projects that can be thrown up quickly.

Ultimately, a series of interventions may be necessary to cut the time it takes investors to realise a return on their investment, to incentivise the level of financing in the energy transition that is required for the UK to achieve its clean energy ambitions.