Slowly but surely, UK and European governments are providing the policy support to incentivise private markets investments in cleantech innovation.
It only finances a box, but a £50 million (US$68 million) equity investment by the UK’s new National Wealth Fund (NWF) in SME AMP Clean Energy has the potential to deliver major reductions in fossil energy use by industry across the country by storing energy from renewables.
But the NWF, a public finance institution reincarnated from the previous government’s Infrastructure Bank – now endowed with additional financial capacity and an enhanced risk budget – has also disclosed a much larger box yielding a series of new projects.
In its new five-year strategy, the fund aims to catalyse dozens more private market investments, especially targeting assorted decarbonisation projects beyond solar, wind or marine electricity generation with £27.8 billion in capital. Major sectors include battery energy storage systems (BESS), battery manufacturing, carbon capture, use and storage (CCUS) and green hydrogen. The NWF is particularly focused on crowding in more private markets involvement.
“We get involved to try and take a level of technology risk the market might not take, and we may well take market demand risk the market won’t take, looking at sectors with a degree of policy uncertainty that we couldn’t ask a commercial lender to take,” says Ian Brown, Head of Banking and Investments at NWF.
Most of these projects are for technologies less mature than solar and wind, but industrial decarbonisation and green transition solutions considered by the bank represent an emerging opportunity for private markets. Recent policy is driving this industrial transition forward in a number of jurisdictions, urging more investment to thrust these technologies to the centre stage.
In the EU for example, an Industrial Decarbonisation Bank (IDB) is due to be launched in Q2 2026 generated by the EU’s Clean Industrial Deal, a new industrial strategy published in 2025. With a planned budget of up to €100 billion, the bank is designed to finance the industrial green transition.
Patient capital is valued at a premium. Many of the industrial decarbonisation projects and technologies, such as green hydrogen and CCUS, are more challenging than solar and wind in their early days, which involved comparatively homogeneous installations characterised by less complexity. Consequently, initiatives to green hard-to-abate industrial facilities and related logistics are moving ahead only slowly and with caution.
Mature decarbonisation technologies
Consensus is beginning to emerge in the public sector around the right approach for enabling some of the later-stage or more mature decarbonisation technologies, with investments following through as a result. Offtake agreements generating long-term revenues form a major piece of the project jigsaw. “Where it works best is when governments create clear, durable market framework that lets private capital come in behind them,” says Ruairi Revell, Head of Sustainability – Economic Infrastructure at Aberdeen Investments, a long-term infrastructure investor.
But in many cases, he sees significant parts of that jigsaw lacking. “Where it still falls down is when investors are expected to take technology risk, demand risk and policy risk all at the same time,” says Revell.
One effective example he does note includes the Long‑Duration Electricity Storage cap‑and‑floor regime in the UK, confirmed in March 2025, which sets predictable parameters to stabilise revenues over the asset life, thus helping to encourage investment in large-scale, long-duration, non-lithium-ion technologies.
In Italy, Revell sees the biomethane sector – generating gas from organic waste to reduce reliance on gas imports – benefitting from a well-judged approach on the demand side. The Italian government provides 40% capex grants and backs offtake, making revenues predictable. Further, a green gas support scheme gives up to 15 years of CPI‑linked tariff support for grid‑injected biomethane. “This de-risks the projects and reduces merchant exposure,” says Revell.
In contrast, he sees poorer finance support in the UK than in many EU countries for technologies in the BESS sector, some of which are still emerging. “While batteries are clearly an important enabling technology, the revenue stack in the UK is still quite volatile and largely merchant. That makes it meaningfully less investable than in some other markets where revenues are more stabilised,” says Revell.
Revenues have relied on volatile wholesale, balancing mechanisms and ancillary markets rather than long‑term, indexed contracts, which makes investment more risky. “Merchant share rose sharply in 2024–25, lifting cashflow volatility and so not showing the predictability that most infrastructure funds look for,” he says.
Incentives and innovations
NWF has used its role as public lender to help resolve volatility. Brown considers some emerging types of batteries challenging to finance. Revenue support is an obvious way to manage this, but the fund has been taking on the problem from another angle. To address the unpredictable revenues experienced by start-ups in 2022, it provided debt alongside commercial lenders, but now no longer needs to do so.
“Over time and possibly because of us becoming involved in the sector, banks have become much more comfortable – to the extent now that if you want to raise debt for a battery storage deal it’s relatively straightforward,” he states.
Conversely, equity finance has become more difficult to secure in the meantime, he says. “The equity market for storage is not so healthy, particularly as the amount of storage required increases, and the scale of storage required increases,” explains Brown. To remedy the struggles of firms to tap the equity markets, the fund has been taking equity stakes in SMEs such as AMP Clean Energy.
Policy and incentives for BESS, a critical sector for decarbonisation and grid stability, is patchy across Europe. Jean-Charles Arrago, Fund Manager at Eiffel Investment Group, a Paris-based asset manager with €7 billion AUM, sees major progress in Italy in particular. “They have launched a big battery energy storage plan, providing price guarantees for 15-20 years,” he notes.
Lessons have been learnt by governments over time, motivated by climate and energy security concerns. Revell suggests BESS policies are improving in the UK and also observes good policy in Italy. “Some markets, such as Italy and to some extent the UK have got models for BESS that provide more reliable capacity payments to operators that reduce merchant exposure,” he says.
Recent innovations to stimulate decarbonisation investment include carbon contracts for difference (CCfDs), piloted in several European countries in 2022-2024. These guarantee a fixed price for saved carbon emissions, closing the gap between high-cost emerging green technologies and low, changeable carbon market prices. Germany is one country pioneering this. “In Germany, CCfDs have now been signed for the first 15 industrial decarbonisation projects, paying the gap to clean production and giving investors price certainty,” notes Aberdeen’s Revell.
Green hydrogen is a difficult sector that will also benefit from this kind of innovation, not least because it suffers from a critical lack of long-term offtake. The high cost of green hydrogen compared with hydrogen from fossil fuels is a major obstacle to economic viability. CCfDs provide a remedy by covering the cost difference between a conventional and a low-carbon product, stabilising revenue streams.
Along with a low demand base for green hydrogen at present, several further factors affecting viability are lacking. “Green hydrogen production is a chicken-and-egg. People are afraid to produce because it’s not particularly transportable at the moment, so you need customers pretty close,” notes Brown at NWF.
Conversely, industry is reluctant to sign up to green hydrogen because not enough companies are manufacturing it. At the same time, the technology is earlier stage than some other decarbonisation technologies. “It is heavily policy‑led… with a lot of risk sitting with investors. That puts finance more in venture capital, growth equity or balance‑sheet territory for now,” says Revell.
Private equity leadership
Given current low demand, debt finance is tricky for green hydrogen. But one consortium shows that finance for nascent technologies can be led by the finance sector. Hy24 aims to stimulate green hydrogen through equity finance. Engaging over 50 industrial and financial players, its Clean Hydrogen Infrastructure Fund has raised €2 billion euros and committed to numerous projects.
The asset manager uses tailored investment instruments for different projects. “This means we can support these initiatives while incorporating mechanisms to adjust for evolving risks as the projects mature. This approach makes it possible to enable high-potential, innovative projects that might otherwise struggle to secure conventional funding”, says Aleksandra Policha Lebrethon, a spokesperson for the group.
According to studies from the Organisation for Economic Co-operation and Development (OECD), a key strength of Hy24 is its collaborative nature, involving both finance and industry actors to leverage a broad base of industrial expertise and financial resources.
The revenue unpredictability characteristic of many newer technologies means debt finance may be less attractive for decarbonisation in the early years. “Equity is expected to play a larger role than debt financing for industry decarbonisation projects in general, relative to other energy-related sectors, due to a combination of longer payback periods, lower technology maturity, and fluctuating global demand,” says Eleonora Moro, Decarbonisation Analyst at the OECD.
Decarbonisation technology finance may benefit from the hindsight and confidence built from solar and wind investment. Ruairi Revell sees some shifts. “Governments are starting to focus on the right issues, especially offtake,” he says. But Arrago of Eiffel IM nevertheless sees industrial decarbonisation as a mammoth undertaking.
“A lot more support will be needed to decarbonise industry, such as developing green steel plants,” he states.
