Step by step

This is the most important theme to enable private capital to invest in the transition at scale. The development and deployment of low-carbon technology into the market must be unlocked on the supply side, while demand-side measures to make those technologies attractive and accessible to consumers are needed to create predictable market growth.

So far, the balance has been achieved most successfully in renewable energy (although progress needs to accelerate, as we discuss in the next section). Contracts for Difference (CfDs) have provided visibility on long-term returns – previously 15 years, recently extended to 20.⁴ The recent financial close of East Anglia 3 Offshore wind farm raised around £3.6bn and was reported to be 40 per cent oversubscribed, which shows banks’ continuing appetite for the asset class.⁵ In parallel, clear targets for deployment have sent strong demand-side signals (see Decarbonising power: Challenges and solutions).⁶

The challenge is now to replicate this across sectors, but there has been welcome progress in the last 12 months.

Electric vehicles (EV)

Supply- and demand-side policies have the potential to improve market conditions in the UK, following a difficult period. The government has confirmed the Zero Emissions Vehicle (ZEV) mandate whereby carmakers must sell more EVs year-on-year.⁷ And financial support for consumers purchasing an affordable EV model is a welcome step forward.⁸ The continued rollout of charging infrastructure and an awareness campaign on EVs are supporting these measures.⁹ So far in 2025, 21.6 per cent of all new cars registered have been electric.

The policy changes align closely with the key takeaways from our roundtable on the sector (see Decarbonising transport: Five key challenges and how to overcome them).¹⁰ However, more can still be done: for example, drivers without private parking must charge their cars at public charge points, paying 20 per cent VAT on that electricity, against only five per cent VAT for electricity consumed at home.¹¹ Introducing a standard for battery health could also improve consumer confidence in the second-hand market.

Meanwhile, investing in EV charging companies – mostly small, high-growth companies navigating uncertain conditions – continues to be challenging. A national charging strategy could bolster investment by providing a clear roadmap to investors.

Buildings

The government has expanded the Boiler Upgrade Scheme that provides homeowners with financial support to install a heat pump.¹² On the supply side, the Clean Heat Market Mechanism (initially designed under the previous government) requires suppliers to provide an increasing proportion of heat pumps each year (see Decarbonising buildings: Five barriers and how to overcome them).^13,14 Heat pump installations saw a 43 per cent increase between 2023 and 2024.¹⁵ However, recent research has found the UK remains Europe’s smallest heat-pump market.¹⁶

Heavy industry

The government has announced £21.7 billion in funding for carbon capture and storage (to capture CO₂ emissions and store it underground) and low-carbon hydrogen (as a clean energy source) over the next 25 years, including £9.4 billion confirmed in the recent Spending Review to support two industrial clusters over the next four years.¹⁷

Progress is underway with contracts signed for the first carbon-capture project in Teesside and a transport and storage project with the HyNet North West Cluster, and confirmed funding for CO₂ transportation and storage infrastructure under the Northern Endurance Partnership.^18,19,20

The new Industrial Strategy also set out plans to reduce industrial electricity costs through a range of policy and network cost exemptions for energy-intensive businesses.²¹ This will help make electricity more affordable for these sectors, improving the business case for electrifying some industrial processes.²² However, continuing to support a cost-effective roll-out of clean power will be essential to deliver long-term price reductions.

On the demand side, the government has also sought to remedy a longstanding lack of demand signals for low-carbon steel and cement (steel and cement made with processes with low or no CO₂ emissions, like electric arc furnaces for steel). In June 2025, it launched a consultation on possible solutions to unlock a bigger market for low-carbon industrial products, such as green public procurement criteria.²³

The government has made substantial progress on clean power, explaining the policies it has and will put in place in the 2030 Clean Power Action Plan and in the Industrial Strategy.^24,25

This autumn’s annual renewable power auction will be an important test of the measures taken so far. The past few auctions have not fully delivered, partly because strike prices did not keep pace with inflationary supply-chain costs. To meet the government’s 2030 clean power goal, the next two to three auctions will need to secure at least 12 gigawatts in new offshore wind capacity (new capacity needed would still have been high even under the previous 2035 ambition).²⁶ That means the auction design must deliver competitive strike prices and attractive contractual terms to support a range of projects – the recent extension of the contract duration to 20 years should help.²⁷

Energy storage and a reliable power grid will also be crucial. Long-duration energy storage, such as pumped storage hydropower, will play an essential role in a future energy system more reliant on intermittent renewables. Around twice as much new transmission network infrastructure will be needed by 2030 as has been built in the last decade.²⁸ A cap-and-floor mechanism will support investment in long-duration storage, while National Grid is undertaking a £35 billion programme of investment over five years to upgrade the grid and transmission infrastructure.²⁹

In July 2025, the government also announced the outcome of the longstanding review of electricity market arrangements (REMA): it will introduce a reformed national electricity price.³⁰ This will come alongside a range of reforms to ensure that new low-carbon generation and storage infrastructure are located in the most cost-effective and strategic locations for the overall network.³¹ The aim is to ensure clean power generation is more often located close to areas of high power demand, and to prioritise network reinforcements and new storage infrastructure in areas where existing power supply exceeds local demand.  

Policy relating to the nuclear sector has developed as well. In June 2025, the government pledged £2.5 billion to support its small modular reactor (SMR) programme, with the ambition for the first wave of SMR projects to connect to the grid in the mid-2030s.³² In July 2025, a final investment decision for the Sizewell C nuclear plant was agreed.³³

The third theme is the need to tackle the systemic barriers to decarbonisation, the most important of which are planning and grid connection delays; carbon pricing volatility; and green skills gaps.

Planning delays have historically been a barrier to low-carbon projects. Some new solar and wind projects can wait ten to 15 years to connect to the grid.³⁴

Under proposed grid connection queue reforms, major projects that are ready to connect and essential for a clean power system will be prioritised in the grid connections queue. Under the Planning and Infrastructure Bill, the planning appeals process for major clean energy and grid projects will also be streamlined, and a more standardised approach to engaging and providing benefits to communities hosting new projects will be adopted.^35,36,37 The government is also recruiting 300 extra planners.³⁸ Across all reforms, it will be important to balance more efficient planning decisions with retaining core environmental safeguards.

In May 2025, the government announced it was linking the UK’s carbon pricing mechanism to the EU’s. This would exempt UK businesses from paying carbon border taxes under the EU’s carbon border adjustment mechanism from 2026.³⁹ This was something we called for, hoping it would lead to a more predictable, liquid, and gradually increasing carbon price, creating a stronger incentive for decarbonisation.

We also called for a comprehensive plan to map the UK’s current and future skills gaps across low-carbon supply chains – such as heat pump installers – and to put forward solutions to remedy these skill gaps. In July 2024, the government set up Skills England to identify and resolve these gaps. It also committed £1.2 billion to support skills programmes by 2029 and created the Office for Clean Energy Jobs, focused on growing the future clean energy workforce.⁴⁰

The fourth and final theme is to deploy public investment where it is most needed to unlock private investment. In a difficult fiscal context, that needs a laser focus on priorities. The government has already made some important interventions. It set up GB Energy, a new publicly owned energy company, with £8.6 billion in capitalisation and the British Business Bank’s financial capacity was increased to £25.6 billion. It also invested an additional £5.8 billion into the National Wealth Fund (NWF, formerly the UK Infrastructure Bank). In 2024, Aviva was involved in the NWF Taskforce, where we highlighted three priority areas for public investment:

• First-of-a-kind projects (e.g. the first green chemicals plant):
  • Public co-investment can help reassure private investors where there is emerging technology risk. To illustrate this point, the NWF recently announced a £28.6 million equity investment in Peak Cluster Ltd (as part of a broader £59.6 million equity raise) which will help support the development of a planned carbon dioxide transport pipeline to cut emissions in the UK’s cement and lime sector.⁴¹
• Projects with complex logistics (e.g. 29 million homes need to be retrofitted with energy-efficiency improvements and low-carbon heating by 2050):
  • It is difficult for large institutional investors to invest in individual home retrofit projects, so there may be an aggregating role for public investment. The NWF has begun to look at solutions for this.⁴²
• Critical infrastructure to support multiple sectors (e.g. CCS and hydrogen infrastructure) and low-carbon supply chains (e.g. port investment to support fixed-bottom and floating offshore wind):
  • Industrial decarbonisation, including CCS and hydrogen, fall within the NWF's remit of priority sectors. This will benefit several industries that are likely to rely on the availability of carbon dioxide and hydrogen pipelines within an industrial cluster to cut their emissions, such as steel, chemicals, and cement. The 2025 Spending Review also confirmed up to £80 million for port investment to support floating offshore wind deployment in Port Talbot.⁴³ The Crown Estate also plans to invest £350 million in new port and supply chain infrastructure to offshore wind.⁴⁴

The last 12 months have seen important progress in policy development to support investment in and the deployment of low-carbon technologies and supply chains.

We have seen significant progress in the policy framework to unlock a low-carbon economy. Implementation is now essential. Institutional capital remains willing to support decarbonisation, but financing opportunities are limited.

We will refresh our UK policy roadmap this year, outlining in more detail recent developments, the additional measures we would like to see, and the potential implications for low-carbon investment.