Lack of finance is holding back existing, as well as new, green technology – Inside track

This post is by Jaya Sood, Senior Economist at the New Economics Foundation.

At the UK’s Innovation Zero conference in April, one argument took centre stage: while private capital flows steadily into proven technologies, the real challenge lies in funding ‘first of a kind’ technologies.

This is supported by striking statistics: in 2024, global investment in the energy transition reached a record $2.1 trillion, with around $1.93 trillion (93 per cent) directed toward commercially scalable, proven technologies like renewable energy, electrified transport and energy storage. Only $155 billion (seven per cent) went to FOAK technologies such as hydrogen, carbon capture and clean shipping, a 23 per cent decline from the previous year.

If proven technologies are already attracting investment at scale, then the government shouldn’t interfere. Where public investment is really needed, the argument goes, is in helping to novel, high-risk technologies to maturity. The National Wealth Fund (NWF), the UK’s most capitalised public finance institution, should intervene to derisk nascent technologies and leave mature ones to the market.

But this is a false dichotomy. Yes, first of a kind technologies need support. But it’s a mistake to think that mature technologies are out of the woods, or that markets alone will deliver them at the pace and scale required.

There’s a finance gap for proven technologies
While technologies such as wind, solar and electrification are well established, barriers to scaling them up remain.  High costs persist not because these technologies are unproven, but due to a broader financing environment where high interest rates, perceived risks and regulatory uncertainty drive up costs.

For example, housing retrofit – perhaps the clearest case of a proven climate solution – remains stuck in first gear in the UK. The Irish government’s retrofit loan guarantee scheme , supported by the European Infrastructure Bank, offers a practical model the UK could emulate, precisely because private capital didn’t step in to scale the market unaided (though lack of retrofit demand is a serious challenge here too).

Similarly, you only have to look at the recent news of Orsted’s withdrawal from the North Yorkshire Hornsea 4 offshore wind project, citing high interest rates, to see that UK renewable projects are struggling to access affordable finance. Costs in this case were not high because the technology is nascent (Hornsea 4 used fixed-bottom technology which is tried and tested, and has seen costs plummet since 2017), but because barriers related to capital costs and scaling the project up remain unresolved.

First of a kind technology doesn’t all come from start-ups
Investment in first of a kind technologies often comes from large incumbents with strong balance sheets and access to cheap capital. BP, ENI, EDF, Siemens and Octopus, to name a few, are major companies investing in carbon capture, green hydrogen and other emerging technologies. While first of a kind technologies are accessible to the right players, they require some risk to be taken on by those players.

This isn’t to say public support for scaling up and commercialising is unnecessary. It is, especially for the following: smaller innovators, without corporate backing, who struggle to secure financing from institutional investors; flagship projects, where public co-investment ensures taxpayer equity shares, like the Green Investment Bank’s early role as 25 per cent shareholder in then novel offshore wind technology, alongside Siemens; high risk technologies, vital for the green transition, where private investment is hesitant but can meet public finance in the middle, such as natural capital, green hydrogen and carbon capture; and supply chain investments that make first of a kind technologies deployable at scale.

But the first of a kind landscape isn’t just made up of fragile, capital-starved start-ups. Much of it is shaped by industrial giants, which changes the risk dynamics. Their contributions are leveraged through large private finance institutions who have their role to play in taking on risk too.

As NWF’s head of banking and investment recently told Infrastructure investor: “The UK commercial banks are unbelievably well capitalised and all talk about how they want to help  the country transition. But I have worked in one of those banks and don’t think they’re taking very much risk”.

Mature technologies shouldn’t miss out on NWF support
The NWF should support both first of a kind and mature ones, as it is already being granted the freedom to do

The Treasury’s recent strategic move to expand the definition of ‘additional’ investments allows the NWF to act where market failures exist, regardless of technology maturity. This will allow it to behave more like the European Investment Bank, which funds both early and late stage technologies, than a policy bank that simply derisks nascent ones.

For the NWF itself, investing in mature technologies can bring the added benefit of strengthening its balance sheet, putting it in a better position to concurrently finance the riskier stuff. Even concessional lending, if extended to tried and tested technologies, carries lower default risk, making it easier for the NWF to scale up, issue bonds and attract pension fund capital.

As NWF CEO John Flint emphasised at the conference: “We need to make the transition easy for consumers so that climate change doesn’t become a political football.” This means making proven technologies cheaper and easier to access and deploying them faster.

And, for that, mature technologies need financing support just as much as first of a kind technologies.