A global study of venture capital investors and tech developers active in the low-carbon space found that 99% of UK respondents have invested in or already developed a Carbon Capture and Storage (CCS) project, with 79% saying they plan to do so in the next year.
The research conducted by multinational law firm Pinsent Masons underlines the strong market interest for investing in CCS technology but also suggests there are early signs of players looking to diversify.
Inside the Energy Transition surveyed 964 Venture Capital investors and technology developers worldwide who are actively deploying or funding low-carbon technologies. The study maps the priorities, opportunities and perceived risks that will shape investor sentiment in the low-carbon sector in the year ahead.
In the next 12 months, CCS investment is predicted to drop to 79% while there will be increased activity in E-fuels (28% up from 15%) in Lower Carbon Hydrogen projects (25% up from 4%) and Wind Power (17% up from 7%), while interest in Nuclear Fission remains the same at around 29%.
UK respondents have made use of foreign governments’ financial incentives for developing and investing in low carbon technology, with 34% active in Germany, 31% in Australia and 29% in Hong Kong. Tax credits were useful to 42% of UK respondents, 38% took advantage of loan guarantees and 35% Contracts for Difference.
Australia and Hong Kong were top of the list for those in the UK who expected to launch or expand low carbon activities in the next 12 months (34% and 32% respectively), while Indonesia, France, Germany and Malaysia were all ahead of the UK’s appetite for domestic investment, at 21%.
Reasons which prevented companies investing in low carbon in the last 12-24 months included an unstable regulatory landscape (50%), lack of government backed incentives (44%) and high cost of compliance (30%).
Commenting on the findings, Edinburgh-based Pinsent Masons Head of Energy, Julia Maguire said: “It’s clear the global low-carbon ecosystem is entering a new phase in its maturity. CCS continues to dominate in terms of immediate plans for deployment and that tallies with the number of projects active globally.
“However, the emergence of technologies now gaining serious traction, from the resurgence in low carbon hydrogen, to E-fuels and Nuclear Fission to geothermal and even tidal power, tells us that diversification is high on the agenda for players in this market.”
Beyond specialised low-carbon technologies, energy system optimisation is also a popular area for activity, with 53% of respondents reporting engagement in demand optimisation, 52% in short duration energy storage and 50% in long duration energy storage.
Understanding that carbon credit alignment is appealing because of its ESG and climate value, the study also examined the importance investors place in technologies with guaranteed carbon credit eligibility.
All UK developers surveyed (100%) and 98% of investors agreed this was a core feature, however 78% said it was difficult to keep up with changing regulation around carbon credits, while 85% agreed that international regulatory divergence created barriers to scaling carbon credit solutions.
Energy Transition Partner, Stacey Collins said: “What this data also tells us is that carbon/greenhouse gas removal credits have moved from an ancillary consideration to a defining feature of how low-carbon technology is explored and financed.
“Investors are prioritising projects that can offer credible, guaranteed credit alignment, and developers are increasingly designing projects with carbon credit eligibility at their core. The research also highlights that there is still work to be done in addressing the barriers created by complex verification processes and regulatory divergence if carbon credits are to reach their full potential in supporting global net zero ambitions.”
Energy Supply Chain Partner, Laura Ayre, added: “By exploring developer and investor attitudes, this research provides a comprehensive picture of where priorities are matched and where they diverge.
“Investors are taking an increasingly global view of the low carbon market, scanning for opportunities across borders, while developers remain rooted in the realities of their regional markets. Over time, this mismatch could make it harder for capital to connect with the developers best placed to deploy it.”