UK energy transition investment outlook improves as investor confidence grows

Investor sentiment regarding the United Kingdom’s energy transition has strengthened, with a significant majority of industry participants anticipating increased domestic capital flows in the coming years. This optimism persists despite ongoing challenges related to rising costs and policy uncertainty. The findings are drawn from a recent report by Brodies LLP, a leading legal firm, which surveyed senior executives, financial sponsors, developers, and general counsels based in the UK. The research indicates that eighty-two per cent of organisations expect the appetite for domestic investment to rise over the next twenty-four months. Furthermore, developers and financial sponsors also anticipate an increase in cross-border inflows during the same period, suggesting a broad-based recovery in confidence across the sector.

A primary driver of this positive outlook is the UK Government’s decision to reset its Contracts for Difference scheme. Keith Patterson, partner and co-head of renewables at Brodies LLP, noted that government-backed mechanisms are crucial for supporting investment in low-carbon power generation. He explained that infrastructure investors are typically more risk-averse than those in technology or other sectors. Because renewable energy projects require substantial capital expenditure upfront followed by relatively low maintenance costs, governments worldwide have sought to de-risk these investments through tools such as Contracts for Difference. Patterson emphasised that such instruments will continue to be necessary to foster and support ongoing investment in the sector.

Despite the shift towards renewables, a considerable portion of respondents are maintaining their exposure to conventional energy assets. Thirty-seven per cent of participants indicated they are keeping their investment in traditional sources, with many specifically eyeing opportunities in gas pipelines and distribution networks. This strategy reflects the view that fossil fuels remain essential for ensuring a reliable energy supply that supports economic stability. These conventional assets provide the foundation necessary for delivering low-carbon infrastructure. However, the report highlights a lack of policy clarity that currently discourages investment in these critical oil and gas projects, creating a gap between market needs and regulatory frameworks.

Clare Munro, partner at Brodies LLP, argued that the most meaningful action the Government could take would be to amend the Energy Profits Levy. She stated that the oil and gas investment market is global, and a seventy-eight per cent tax rate on a mature basin such as the UK Continental Shelf makes the sector uncompetitive compared with other countries where capital can be deployed more efficiently. Given recent global conflicts and resulting uncertainty, many nations are actively trying to attract investment in conventional hydrocarbons to reduce reliance on imported oil and gas, often offering low tax rates as an incentive. This competitive pressure underscores the need for the UK to review its fiscal approach to remain attractive to international investors.

The research suggests that the energy transition is not simply a matter of choosing renewables over traditional energy. Instead, many organisations are combining scalable low-carbon energy sources with conventional ones to guarantee a steady power supply. Patterson clarified that fossil fuels are still required for certain industrial and transportation activities, meaning the economy cannot simply eradicate their use. This is why the national target is net zero rather than zero. An overnight transition is not possible, and the cost of transitioning from fossil fuels to alternative low-carbon fuels is currently expensive. Therefore, the process will happen gradually, requiring good planning and a long-term perspective on both infrastructural and technical developments.

Munro concluded that while there is a clear appetite for energy transition investment, the process is complex and requires specific government action. She called for more pace from the Government in areas such as grid reform and consenting processes to fully realise the potential of the sector. The survey was conducted in collaboration with Infralogic and involved one hundred senior professionals based in the UK. The report, titled Evolution Not Revolution: Investing in the Energy Transition, was published earlier this year.