Britain’s standing as a leading European centre for clean technology is under pressure after new data revealed a sharp decline in early-stage investment, raising concerns about the future pipeline of green innovation.
A report by Cleantech for UK (CTUK) shows that funding for the youngest low-carbon and renewable energy firms has fallen to its lowest level in five years. The value of early-stage deals was cut in half in 2025, while the number of transactions dropped from 188 in 2024 to just 94 last year.
The decline contrasts with the broader cleantech sector, which attracted £7.2 billion in total investment. That figure still places the UK ahead of Germany, which secured £1.7 billion, and France, which recorded £1.4 billion. However, analysts warn that headline totals mask a growing imbalance between mature companies and early-stage innovators.
Sarah Mackintosh, director of CTUK and a former government innovation lead, warned that the slowdown at the earliest stage of funding could have long-term consequences. She said that without consistent investment in startups, the UK risks losing its next generation of cleantech companies before they reach commercial scale.
CTUK attributes the downturn to what it describes as a “triple squeeze”: high industrial energy costs, the closure of the government’s Net Zero Innovation Portfolio without a replacement, and reduced investor appetite amid higher interest rates.
Although recent government reforms have attempted to separate gas and electricity pricing, reducing the influence of expensive gas on renewable pricing, energy costs in the UK remain among the highest in Europe. This continues to affect capital-intensive sectors such as battery manufacturing and carbon capture.
External pressures have also added strain. Ongoing geopolitical tensions linked to the US–Iran conflict and instability around the Strait of Hormuz have contributed to concerns over energy price volatility. The International Monetary Fund has warned that the UK could face one of the sharpest growth slowdowns in the G7, alongside elevated inflation risks.
Despite challenges at the early stage, later-stage investment in cleantech remains relatively strong. Equity funding rose 58% year-on-year to £3.9 billion, driven largely by established firms. Significant deals included a £750 million raise by Kraken, part of the Octopus Energy Group, and £130 million for Highview Power. However, this still falls short of the 2023 peak of £11.9 billion.
CTUK is urging greater action from the National Wealth Fund and the British Business Bank to support early-stage firms struggling to move from research to commercial production. The National Wealth Fund has previously indicated plans to deploy up to £5 billion annually into green projects, though questions remain over how much will reach smaller companies.
Industry figures warn that without renewed support, promising UK startups in battery technology, materials science and carbon removal risk failing to scale. The concern is that Britain could lose its position as a global leader in clean technology innovation just as international competition intensifies.
