The next stage of Britain's energy transition depends on the networks, storage and flexibility that allow the whole system to function says David Walker, head of infrastructure consents, Carter Jonas.
For much of the past decade, energy finance has been viewed mainly through the lens of generation. The first task, which can generally be achieved with existing funding mechanisms, was to bring forward large volumes of low-carbon power and to make technologies such as offshore wind investable at scale. However, the next stage is to fund a more complex electricity system.
Financing systems can be more complicated than financing assets. Electricity is being generated in new places, used in new ways and required in ever larger quantities. Electrified transport and heat will add demand. Industrial users and data centres will increase pressure on capacity. Older assets need renewal and the network has to carry power from where it can be produced to where it is needed. In my work on energy consents, I see this change clearly: the grid is no longer background infrastructure but one of the main tests (and potential sources of challenge, in the short term at least) of rapid delivery.
Political ambition is high and has remained broadly consistent across recent governments. Decarbonisation, energy security and growth all point in the same direction. But ambition is not the same as a bankable, consentable and sequenced programme of infrastructure. The UK has begun to adapt its finance models. The issue is whether it is doing so quickly and coherently enough.
The limitations of existing finance models
Contracts for Difference (CfD) remain one of Britain's most important energy finance tools. They have brought revenue certainty to capital-intensive renewable generation and helped reduce exposure to wholesale market volatility.
This works well for assets with proven technology and predictable output, but the system now needs more than generation. Increasing demands, specifically storage, flexibility, digital control, interconnection and assets that support resilience, do not fit neatly within a commodity model. Their value is often indirect: they reduce constraint costs, allow other schemes to connect, improve security of supply or make the network more efficient. A financing framework built around individual assets can struggle to reward those wider benefits.
That is why regulated models have become more important. Ofgem's price control framework is central to network investment and is increasingly being asked to accommodate anticipatory spending rather than only reactive reinforcement. Public finance, guarantees and co-investment are also playing a larger role – a necessary practical response to risks that cannot be allocated neatly to a single project sponsor.
The confidence challenge
Capital is available; the constraint is confidence in delivery. And a lack of confidence can result in higher financing costs. Construction inflation has narrowed the margin for error and supply chains are more fragile than they appeared during the long period of low interest rates. In the current financial environment, uncertainty is unfortunately priced into bids, financing terms and investment decisions.
Planning and consenting can impact on the financial risk calculation. A transmission project, a battery scheme or a new substation may be technically sound and strategically essential, but it may also face complex land negotiations, environmental assessment, local concern and political scrutiny. Even the Nationally Significant Infrastructure Project (NSIP) regime, which is designed to lift decisions above the ordinary local planning route, still relies heavily on local engagement and evidence.
Smart infrastructure also raises a sequencing problem. Generation without networks leads to constraint. Networks without timely generation or demand can be politically exposed. Storage and flexibility depend on market signals that are still developing. Each part of the system depends on another part moving at the right time. Finance can support that, but it cannot solve a lack of coordination on its own.
The need for a more coherent programme
The next phase needs a stronger link between system planning, consenting and finance. In practice, that means deciding earlier which assets are necessary nationally, how they interact and what risk the public sector can and should absorb. It also means being clearer about the difference between risk that the market can manage and risk that the market will simply price expensively.
Government funding is most useful where the market cannot yet carry the risk alone, especially in the early stages of projects, when technologies, networks and funding routes are yet to be joined up. It is also imperative in the case of infrastructure, when the benefits of the asset are felt across the whole energy system, rather than by one company, for example in the case of long-duration storage, hydrogen networks and carbon transport infrastructure. These may be essential, but their commercial models are still developing.
Policy durability is equally important. Investors and infrastructure providers can work within complex rules, but rules that shift too often become a delivery problem. Auction timetables, connection reform, network price controls, planning policy and market reform need to feel like parts of one programme, not parallel programmes moving at different speeds.
Britain has assembled a varied toolkit: revenue stabilisation, regulation, public co-investment and market reform. It has also acknowledged that the energy transition is a system-wide task. The challenge now is to make that operational. A smarter energy system will only be delivered when finance, planning and sequencing are addressed as one project.