Could the UK’s cash-strapped local authorities hold the key to a successful energy transition?
A place-based investment approach, including closer collaboration between private investors and the UK’s local authorities could play a vital role in bridging the climate finance gap, according to new research
The UK’s transition to net zero requires between £26bn and £36bn in annual investment until 2050. A new report by Energy Systems Catapult, in partnership with Phoenix Group, highlights the crucial role of the UK's 317 local authorities in bridging the gap between climate ambition and financial reality.
The report highlights the benefits of a place-based approach, where tailored regional investment strategies can halve costs and double socio-economic benefits compared to a one-size-fits-all national model. By integrating local priorities, net zero investments could unlock up to £431bn in energy savings and broader economic advantages, including job creation and improved public health, the report’s authors argue.
Local authorities play a vital role in the development of clean energy infrastructure, in part due to their role in granting planning permission for new infrastructure projects. But hey are also facing an acute funding crisis. Between 2010 and 2020, central government spending on local authorities has been cut by 60%, according to the Local Government Association, making them more dependent on private investment.
However, the research identifies major challenges, including a lack of visibility of local investment opportunities and disparities in access to finance across UK regions. Many local authorities struggle to attract private sector backing, with 75% relying on grants and only 15% exploring private finance options. The report calls for better coordination between public and private sector stakeholders to scale up investment.
“It all builds on the thought leadership around unlocking investment in climate solutions. When we published our ‘Charting the UK’s Net Zero Future’ report last year, scaling up regional investment was one of the four highest priority areas. The work we’ve done with the Catapult builds directly on this” explains Bruno Gardner, head of Climate Change and Nature at UK insurance giant Phoenix.
He highlights that the group has held long-standing relationships with many local and combined authorities and has been investing in established asset classes such as social housing for years.
But a lack of communication is often a key barrier, he adds: “Speaking to other investors, there is a very shared sense of the barriers to scaling up regional investment in climate solutions. One of the key ones is difficulty in translating great thinking by local authorities on what needs to happen to deliver net zero into investible projects that meet financial institutions’ investment criteria. The work we’ve done with the Catapult is intended to help local authorities do this, for example by providing guidance on what make a project investible and how to prepare investment prospectuses that summarise key details for potential investors.”
The report draws attention to successful case studies from Greater Manchester, London, and Newport illustrating how local authorities can accelerate investment. In Greater Manchester, for example, an £80m renewable energy project pipeline has already secured £26m in solar investment. Similarly, the Greater London Authority has identified a £34bn energy project pipeline, with £53m ready for immediate implementation.
To unlock further investment, the report recommends a six-stage approach, guiding local authorities from prioritising projects to engaging investors. It also highlights the need for innovative finance models, including place-based funds, public-private partnerships, and institutional investment, to secure the long-term capital needed for net zero infrastructure.
