Britain’s reputation as Europe’s cleantech powerhouse is being undermined by a brutal funding drought at the very bottom of the pipeline, with new figures showing investment in the country’s youngest low-carbon and renewable energy companies has collapsed to its lowest level in five years.
Research published by Cleantech for UK (CTUK) reveals that the value of early-stage deals halved in 2025, while the number of transactions plunged from 188 in 2024 to just 94 last year. The slump comes despite the broader sector pulling in £7.2 billion of investment overall, comfortably outstripping Germany’s £1.7 billion and France’s £1.4 billion.
The headline figure may flatter to deceive. Strip away the late-stage mega-deals and a far more uncomfortable picture emerges of an industry whose seed corn is being eaten before it has chance to germinate.
“If we allow the pipeline to dry up now, it means we’ll have no new innovation in cleantech coming through in five years’ time,” warns Sarah Mackintosh, director of CTUK and a former head of innovation at the Department for Business, Energy and Industrial Strategy. “Funders will be sitting there waiting for scale-ups and none will come.”
CTUK, established in 2023 to bridge the gap between Whitehall and the venture community, attributes the early-stage collapse to what it terms a “triple squeeze”: punishingly high industrial energy prices, the quiet closure last year of the Government’s Net Zero Innovation Portfolio without a successor, and investor caution rooted in 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 for cheaper renewables, is expected to deliver what Mackintosh calls a “fairly immediate impact”. Yet it does little to address the underlying reality that British industrial energy costs remain among the dearest in Europe, a particular handicap for the capital-hungry sectors at the heart of the energy transition such as battery manufacturing and carbon capture infrastructure.
To these domestic headwinds has been added a fresh geopolitical shock. The US-Iran conflict and tensions around the Strait of Hormuz have rekindled fears of an oil and gas price spiral, with the International Monetary Fund warning that Britain faces the sharpest growth downgrade in the G7 and one of the highest inflation rates as a consequence.
Mackintosh notes that higher rates and the increase in employers’ national insurance contributions have also dulled the appetite of venture capital firms, whose money, she says, “doesn’t go as far as it used to”.
The picture is rather rosier further up the funding ladder. Total equity investment in cleantech rose by 58 per cent year-on-year to £3.9 billion, though the bulk of that capital flowed to software businesses and proven, late-stage operators. Among the standouts was a £750 million raise by Kraken, the energy technology platform owned by Octopus Energy Group, and a £130 million round for energy infrastructure specialist Highview Power. The total nevertheless sits well shy of the £11.9 billion peak struck in 2023.
CTUK is now urging the National Wealth Fund and the British Business Bank to deploy their firepower more aggressively to help young firms cross the so-called valley of death between a laboratory breakthrough and a commercial factory. The National Wealth Fund signalled in January that it intends to channel up to £5 billion a year of taxpayer money into green energy projects, but the question for SMEs is whether any of that will reach companies still trying to prove their technology at scale.
Mackintosh points to British innovators such as battery-tech firm Anaphite, materials specialist Immaterial and carbon-removal venture Supercritical as the sort of “world-leading” businesses now in jeopardy. “These are the sorts of companies that are going to put the UK on the map,” she says. “It would be a travesty if we didn’t even start the ideas because they haven’t got the backing to scale up.”
For a Government that has staked much of its industrial strategy on green growth, the warning lights are flashing. Without urgent intervention to rekindle early-stage investment, ministers risk presiding over a clean-energy economy that imports tomorrow’s breakthrough technologies rather than exports them.
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Britain’s green start-ups face ‘triple squeeze’ as early-stage funding crashes to five-year low