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The writer is a visiting professor in practice at the London School of Economics, and a former FT business editor.
In Bristol, a 20-year partnership between the city council, a US cleantech business, and a Swedish energy company demonstrates how government, business, and private investors can collaborate to attract private capital on a large scale to address the country’s most pressing challenges.
Bristol City Leap aims to decarbonize the seventh-largest English city by providing business and investors with the necessary policy certainty for long-term commitment. Through a partnership with Ameresco and Vattenfall, the project will direct approximately £630mn of public and private investment over five years into solar, wind, heat networks, heat pumps, and other energy efficiency measures to help Bristol achieve its goal of being “carbon neutral and climate resilient” by 2030.
The challenges of designing such a partnership should not be underestimated, but there is significant interest from the private sector. Over 180 companies expressed interest in participating. This project provides a model for government-private sector collaboration in addressing the UK’s economic, environmental, and social challenges.
Increasing private capital is crucial to tackling these challenges. Given fiscal constraints, private investment is the only way to bridge the financing gaps in the UK economy. Smart electricity grids and improved elderly care require innovative approaches to deploying public funds and attracting private capital on a large scale.
The UK government has the opportunity to achieve better results from taxpayers’ money by establishing more partnerships like Bristol City Leap and working creatively with businesses and investors to develop financing structures that combine public and private capital to address public policy priorities.
There are already successful examples of blended finance structures in various sectors of the economy. Government departments and local authorities have embraced the opportunities presented by this approach. However, greater ambition across the government is needed to fully realize the potential of blended finance.
The Green Finance Institute has conducted trials to design an investment vehicle tailored to different types of capital providers. This vehicle could be instrumental in driving the growth of the electric vehicle battery sector, which is estimated to be worth £24bn per year by 2025.
To attract private finance and help companies in this sector scale up, the GFI and industry representatives consulted with government bodies and private investors. The consultation revealed significant interest from the private sector in investing, with public capital as a cornerstone overseen by an independent fund manager.
The GFI’s proposed Battery Investment Facility aims to attract private capital, support companies in reaching commercial viability, and expand the pool of investors in the sector to establish the UK as a globally competitive player in the EV battery industry.
The Grantham Research Institute on Climate Change and the Environment at LSE will soon publish research showcasing more examples of successful blended finance in the UK and internationally. These examples can be replicated at a larger scale.
Failing to do so will come at a significant cost. The UK’s international competitors are outpacing it in embracing the opportunities presented by blended finance. The EU’s Green Deal plans to catalyze €372bn of private investment through regional budget spending, while America’s Inflation Reduction Act provides $369bn for energy- and climate-related programs, redirecting global investment to the country.
The UK has tried and tested pathways to catch up, but time is running out.
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