Stacey Collins

The research conducted by 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 per cent while there will be increased activity in E-fuels (28 per cent up from 15 per cent) in Lower Carbon Hydrogen projects (25 per cent up from four per cent) and Wind Power (17 per cent up from seven per cent), while interest in Nuclear Fission remains the same at around 29 per cent.

UK respondents have made use of foreign governments’ financial incentives for developing and investing in low carbon technology, with 34 per cent active in Germany, 31 per cent in Australia and 29 per cent in Hong Kong. Tax credits were useful to 42 per cent of UK respondents, 38 per cent took advantage of loan guarantees and 35 per cent 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 per cent and 32 per cent respectively), while Indonesia, France, Germany and Malaysia were all ahead of the UK’s appetite for domestic investment, at 21 per cent.

Reasons which prevented companies investing in low carbon in the last 12-24 months included an unstable regulatory landscape (50 per cent), lack of government backed incentives (44 per cent) and high cost of compliance (30 per cent).

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 per cent of respondents reporting engagement in demand optimisation, 52 per cent in short duration energy storage and 50 per cent 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 per cent) and 98 per cent of investors agreed this was a core feature, however 78 per cent said it was difficult to keep up with changing regulation around carbon credits, while 85 per cent 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.”