Britain’s reputation as Europe’s cleantech powerhouse is being undermined by a brutal funding drought at the bottom of the pipeline. New figures show investment in the country’s newest low-carbon and renewable energy companies has fallen to its lowest level in five years.
Research published by Cleantech for UK (CTUK) shows that the value of early-stage deals halved in 2025, while the number of transactions fell from 188 in 2024 to just 94 last year. The slump came despite the broader sector attracting a total of £7.2bn in investment, well outpacing Germany’s £1.7bn and France’s £1.4bn.
The headline number can flatter or deceive. If you leave out the late-stage mega-deals, you get a far more uncomfortable picture of an industry whose seeds are being eaten before they can even germinate.
“If we allow the pipeline to dry up now, it means we won’t have any new innovation in cleantech in five years,” warns Sarah Mackintosh, director of CTUK and former head of innovation at the Department for Business, Energy and Industrial Strategy. “Fundors will sit there and wait for expansions, and none will come.”
CTUK, which was set up in 2023 to bridge the gap between Whitehall and the venture community, attributes the early collapse to what it calls a “triple squeeze”: shockingly high industrial energy prices, the government’s quiet closure of the government’s net-zero innovation portfolio last year without a successor and investor caution due to higher interest rates.
Westminster’s recent decision to decouple gas and electricity prices, severing the link that has long allowed expensive gas to set the price of cheaper renewables, is expected to have what Mackintosh calls a “fairly immediate impact”. Yet it does little to address the underlying reality that UK industry’s energy costs remain among the highest in Europe, posing a particular handicap to the capital-hungry sectors at the heart of the energy transition, such as battery manufacturing and carbon capture infrastructure.
Adding to these domestic headwinds was a new geopolitical shock. The US-Iran conflict and tensions around the Strait of Hormuz have reignited fears of an oil and gas price spiral. The International Monetary Fund warned that Britain was facing the sharpest growth slowdown in the G7 and, as a result, one of the highest inflation rates.
Mackintosh points out that higher rates and increases in employers’ national insurance contributions have also dampened the appetite of venture capital firms, whose money, she says, “doesn’t go as far as it used to.”
Further up the funding ladder the picture is rather rosier. Total capital investment in cleantech rose 58 percent year-on-year to £3.9 billion, although the majority of this capital went to late-stage software companies and proven operators. Standout achievements included a £750m capital raise by Kraken, the energy technology platform of Octopus Energy Group, and a £130m funding round for energy infrastructure specialist Highview Power. However, the total is well below the peak of £11.9 billion in 2023.
CTUK is now urging the National Wealth Fund and the British Business Bank to use their clout more aggressively to help young companies cross the so-called valley of death between a laboratory breakthrough and a commercial factory. The National Wealth Fund announced in January that it plans to pour up to £5 billion a year of taxpayers’ money into green energy projects. However, the question for SMBs is whether any of this will resonate with companies that are still trying to test their technology at scale.
Mackintosh describes British innovators such as battery technology company Anaphite, materials specialist Immaterial and carbon removal company Supercritical as the kind of “world-leading” companies that are now at risk. “These are the kind of companies that will put Britain on the map,” she says. “It would be a travesty if we didn’t even put the ideas into action because they lack the support to scale up.”
The warning lights are flashing for a government that has staked much of its industrial strategy on green growth. Without urgent action to revive early investment, ministers risk presiding over a clean energy economy that imports tomorrow’s breakthrough technologies rather than exporting them.
