Deep dive: Public-private partnerships & climate governance — what's working, what's not, and what's next

The UK has committed £28 billion annually to climate-related public-private partnerships through 2030, yet analysis from the National Audit Office reveals that only 34% of these partnerships are delivering emissions reductions on schedule. This gap between ambition and execution represents one of the most consequential governance challenges of our time. As the UK navigates post-Brexit regulatory independence while maintaining alignment with European sustainability frameworks, the mechanisms by which public and private actors collaborate on climate action have become both more critical and more complex. Understanding what drives success—and what creates friction—in these partnerships is essential for sustainability leaders seeking to deploy capital effectively and achieve measurable climate outcomes.

Why It Matters

Public-private partnerships (PPPs) in climate governance represent the intersection where governmental policy ambition meets private sector execution capacity. In the UK context, this intersection has become increasingly significant as the government pursues its legally binding commitment to net zero by 2050, with an interim target of 68% emissions reduction by 2030 compared to 1990 levels.

The scale of investment required is staggering. The Climate Change Committee estimates that the UK needs to mobilise approximately £50 billion annually in low-carbon investment by 2030, with private capital expected to constitute roughly 80% of this total. Government cannot achieve these targets through public spending alone; the Treasury's fiscal constraints post-pandemic and post-energy crisis make private sector engagement not merely desirable but essential.

In 2024-2025, the UK witnessed a 23% increase in climate-focused PPP announcements compared to the previous year, driven largely by the Green Industries Growth Accelerator and expanded Contracts for Difference auction rounds. However, the Infrastructure and Projects Authority reported that project delivery timelines for green infrastructure PPPs averaged 2.3 years longer than initially projected, creating significant implementation gaps between policy announcements and operational capacity.

The stakeholder incentives in play are frequently misaligned. Public sector actors optimise for policy compliance, electoral cycles, and regulatory defensibility. Private actors optimise for risk-adjusted returns, balance sheet treatment, and shareholder value. Environmental outcomes often serve as constraints rather than primary objectives for either party. This misalignment manifests in contract structures that inadequately price climate risk, in performance metrics that measure financial viability but not emissions impact, and in governance arrangements that diffuse accountability for environmental outcomes.

The hidden bottlenecks are perhaps most consequential. Planning permission delays add an average of 18 months to renewable energy projects. Grid connection queues extend beyond seven years in many regions. Skills shortages in critical technical domains—heat pump installation, hydrogen engineering, carbon capture operations—constrain deployment capacity regardless of available capital. These operational frictions often receive less attention than headline investment figures but determine actual climate outcomes.

Key Concepts

Public-Private Partnerships (PPPs): In the climate governance context, PPPs refer to contractual arrangements between government entities and private sector organisations for the delivery of climate-related infrastructure, services, or outcomes. These arrangements typically involve risk-sharing mechanisms, long-term contractual commitments (often 15-30 years), and performance-based payment structures. UK PPPs in the climate space range from traditional project finance structures for renewable energy to more innovative outcome-based contracts for building retrofits and nature-based solutions.

EU Taxonomy: The EU Taxonomy Regulation establishes a classification system for environmentally sustainable economic activities. Despite Brexit, the EU Taxonomy remains highly relevant to UK-based organisations, particularly those with European operations, investors, or supply chains. The taxonomy sets technical screening criteria that determine whether an activity can be classified as "sustainable," influencing capital flows and reporting requirements. The UK is developing its own Green Taxonomy, expected to be finalised by late 2026, which will create additional compliance considerations for organisations operating across both jurisdictions.

Transition Plans: Transition plans are strategic documents that outline how an organisation will achieve its climate commitments over time. The UK's Transition Plan Taskforce (TPT) published its final disclosure framework in October 2023, establishing expectations for credible, investor-grade transition plans. These plans must articulate decarbonisation pathways, capital allocation strategies, governance mechanisms, and metrics for tracking progress. For PPPs, transition plans are increasingly required as part of procurement qualification criteria, with the Cabinet Office mandating climate transition plan disclosure from suppliers bidding on major government contracts from 2024.

Corporate Sustainability Reporting Directive (CSRD): The CSRD is EU legislation that significantly expands mandatory sustainability reporting requirements. Although a European regulation, CSRD affects UK companies with substantial EU operations (subsidiaries with >250 employees or €40 million turnover in the EU) and UK subsidiaries of EU parent companies. The directive requires detailed disclosure on environmental, social, and governance matters, including climate transition plans, value chain emissions, and climate risk assessments. For UK organisations engaged in cross-border PPPs, CSRD compliance represents a significant governance consideration.

Permitting: Permitting encompasses the regulatory approvals required to develop and operate infrastructure. In the UK climate context, permitting challenges have emerged as perhaps the single greatest bottleneck to PPP deployment. The planning system, environmental impact assessment requirements, grid connection processes, and sector-specific licensing (for activities such as carbon storage or hydrogen production) collectively determine whether projects can proceed from announcement to operation. The government's 2024 reforms to the National Planning Policy Framework and the proposed Planning and Infrastructure Bill seek to address these constraints, but implementation remains uneven.

What's Working and What Isn't

What's Working

Contracts for Difference (CfD) Mechanism for Renewable Energy: The CfD scheme represents perhaps the UK's most successful climate PPP mechanism. By providing revenue certainty through a government-backed strike price, CfDs have enabled over 30 GW of renewable generation capacity to be contracted since 2014. The 2024 allocation round saw record participation, with offshore wind projects cleared at strike prices 60% below 2015 levels in real terms. The mechanism's success derives from clear risk allocation (government absorbs price risk, developers absorb delivery risk), long-term revenue visibility (15-year contracts), and competitive price discovery through auction. Private capital has flowed accordingly, with institutional investors treating CfD-backed assets as near-sovereign credit quality.

UK Infrastructure Bank's Catalytic Capital: Established in 2021, the UK Infrastructure Bank (UKIB) has deployed £5.2 billion in direct investment and guarantees through 2024, catalysing approximately £18 billion in total project value. UKIB's intervention typically occurs where private capital faces barriers that policy can address but market mechanisms cannot. Its role in providing subordinated debt for early-stage hydrogen projects, credit enhancement for local authority retrofit programmes, and anchor investment for emerging technologies has demonstrably accelerated project progression. The bank's dual mandate—commercial returns and crowding-in private capital—has enabled it to take positions that conventional investors avoid while maintaining investment discipline.

Local Authority Climate Bonds: Municipal climate finance has emerged as an unexpectedly successful PPP variant. Local authorities including the Greater London Authority, Greater Manchester Combined Authority, and West Midlands Combined Authority have issued over £2.8 billion in green bonds since 2019. These instruments typically finance building retrofits, public transport electrification, and urban green infrastructure. Success factors include strong local political commitment, integration with spatial planning powers, and access to revenue streams (business rates retention, congestion charging) that provide repayment certainty. The bonds attract both institutional and retail investors, with oversubscription ratios averaging 2.3x across recent issuances.

Industrial Clusters Approach: The UK's industrial clusters strategy concentrates decarbonisation investment in geographic zones (Humber, Teesside, Merseyside, South Wales, Scotland) where shared infrastructure can serve multiple industrial users. This approach aligns stakeholder incentives by creating collective interest in common infrastructure, enabling economies of scale that no single actor could achieve alone. The East Coast Cluster, combining the Humber and Teesside regions, has attracted over £15 billion in committed investment for carbon capture, hydrogen production, and industrial process electrification. The cluster model's success reflects deliberate coordination between government (providing revenue support mechanisms), infrastructure developers (building transport and storage networks), and industrial users (committing to offtake agreements).

What Isn't Working

Grid Connection Delays: The UK's electricity grid has become a critical bottleneck constraining climate PPP deployment. As of late 2024, the National Grid ESO queue for new generation connections exceeded 700 GW—roughly seven times current peak demand—with connection dates extending beyond 2035 for some projects. Renewable energy developers report that grid connection timing uncertainty makes project financing extremely difficult, as debt providers require firm connection dates to underwrite loans. The queue dysfunction reflects inadequate transmission investment, an outdated "first-come-first-served" queuing methodology, and regulatory structures that were designed for centralised generation rather than distributed renewables. Despite Ofgem's queue reform proposals, implementation has been slow, and many viable projects remain stranded.

Building Retrofit Finance Gap: Decarbonising the UK's 29 million buildings is essential for achieving net zero, yet retrofit PPPs have consistently underperformed. The Green Deal Finance Company's collapse, the Green Homes Grant Voucher scheme's early termination, and persistent undersubscription of local authority retrofit programmes all reflect structural challenges in this segment. The core problem is misaligned incentives: building owners capture efficiency savings but bear upfront costs; lenders face repayment risk tied to building occupancy rather than energy performance; and government programmes have been too short-term and volatile to enable supply chain investment. The result is that only 42,000 homes received full energy performance upgrades in 2024, against a Climate Change Committee target of 500,000 annually by 2025.

Skills and Supply Chain Constraints: Physical deployment capacity has become as constraining as capital availability. The UK faces shortages of approximately 225,000 workers in roles critical to climate delivery, including heat pump installers (current workforce: 3,000; required by 2030: 50,000), EV charging technicians, hydrogen system engineers, and offshore wind installation specialists. These shortages reflect inadequate training infrastructure, immigration restrictions that limit access to experienced international workers, and competition from other high-income economies pursuing similar transition pathways. PPPs increasingly fail not because of financing gaps but because contractors cannot source qualified labour to execute projects.

Carbon Capture Revenue Models: Despite significant policy attention, carbon capture, utilisation, and storage (CCUS) projects have struggled to reach financial close. The Track-1 and Track-2 cluster programmes have experienced repeated delays, with revenue support mechanisms (the Dispatchable Power Agreement and Industrial Carbon Capture contract) still under negotiation years after initial announcements. Private developers cite excessive complexity in risk allocation, unresolved questions about long-term storage liability, and government inconsistency in programme design. The contrast with CfD success is instructive: where CfD provides simple, standardised contracts with clear risk allocation, CCUS arrangements remain bespoke, negotiated, and uncertain.

Key Players

Established Leaders

SSE plc: One of the UK's largest renewable energy developers, SSE operates over 4 GW of onshore and offshore wind capacity and has committed £40 billion to low-carbon investment through 2030. SSE has been a consistent participant in CfD auctions and plays anchor roles in industrial cluster developments, including hydrogen production at Keadby.

National Grid plc: As owner of the electricity transmission network in England and Wales and the gas transmission network across Great Britain, National Grid occupies a central position in climate infrastructure delivery. The company has committed £30 billion to network modernisation and expansion, including the "Great Grid Upgrade" programme essential for renewable integration.

Octopus Energy Group: Grown from a retail supplier to a significant player in generation, flexibility services, and technology, Octopus has deployed proprietary technology platforms (Kraken) that enable efficient integration of distributed energy resources. Octopus Renewables manages over £6 billion in assets and has pioneered innovative retail financing models for domestic solar and batteries.

Legal & General: The insurance and asset management group has emerged as one of the UK's largest institutional investors in climate infrastructure. Legal & General Capital has deployed over £2 billion in direct investment into renewable energy, housing, and urban regeneration, while the asset management arm offers climate-focused funds to external investors.

Balfour Beatty: The UK's largest construction and infrastructure company, Balfour Beatty delivers many of the physical assets funded through climate PPPs. The company has committed to net zero operations by 2040 and is investing in offsite manufacturing and digital construction capabilities to address productivity and skills constraints.

Emerging Startups

Octopus Hydrogen: A joint venture between Octopus Energy and industry partners, Octopus Hydrogen is developing distributed green hydrogen production facilities to serve industrial clusters and transport applications, targeting 1 GW of electrolyser capacity by 2030.

Cuerva UK: Originally a Spanish engineering firm, Cuerva has established UK operations focused on smart grid technologies, battery storage integration, and renewable energy optimisation for industrial and commercial customers.

Equinor Ventures / Purfresh Energy: Purfresh Energy, backed by Equinor Ventures, deploys modular carbon capture systems for distributed industrial applications, addressing the challenge of bringing CCUS to smaller emitters outside major industrial clusters.

Paua Technology: An EV charging infrastructure developer, Paua operates one of the UK's fastest-growing charge point networks and provides software platforms that enable fleet electrification and grid services integration.

Verco: A building decarbonisation specialist, Verco provides energy engineering, carbon accounting, and retrofit project management services, helping organisations navigate the complexity of building-sector PPP programmes and regulatory requirements.

Key Investors & Funders

UK Infrastructure Bank: The government-owned policy bank provides direct lending, equity investment, and credit enhancement for qualifying UK infrastructure projects, with explicit mandates for climate and regional economic development.

Green Finance Institute: Although not an investor directly, the GFI develops innovative financing structures and provides technical assistance that enables private capital deployment, particularly for building retrofit and nature-based solution investments.

Gresham House: A specialist alternative asset manager, Gresham House manages over £8 billion in assets including forestry, renewable energy, and battery storage, offering institutional investors access to UK climate infrastructure.

Aviva Investors: The asset management arm of insurer Aviva has committed over £10 billion to climate-related infrastructure investment, including direct lending to renewable energy projects and equity investment in climate technology.

Macquarie Asset Management: The world's largest infrastructure investor, Macquarie manages the UK's Green Investment Group (formerly the Green Investment Bank), which has deployed over £12 billion in green infrastructure since its establishment in 2012.

Examples

Thames Tideway Tunnel: This £4.5 billion "super sewer" project represents one of the UK's largest water infrastructure PPPs. Delivered through a regulated asset base model with Ofwat oversight, the project achieved financial close in 2015 and became operational in 2024. The PPP structure involved Thames Water as licence holder, a consortium of infrastructure investors (including Allianz, Amber Infrastructure, and DIF Capital Partners) as equity providers, and a contractor joint venture led by Balfour Beatty and Costain for construction. The project has reduced combined sewer overflow events into the Thames by 95%, eliminating approximately 39 million tonnes of annual sewage discharge. Key success factors included ring-fenced financing structures that insulated the project from Thames Water's broader financial difficulties, an independent regulatory framework that provided revenue certainty, and phased construction that managed execution risk.

Humber Zero Carbon Capture Project: Located in the UK's largest industrial cluster by emissions, Humber Zero combines industrial process carbon capture with hydrogen production and CO2 transport infrastructure. The partnership involves Phillips 66 (refinery operations), VPI Immingham (power generation), and Associated British Ports (infrastructure hosting), with the Humber Industrial Cluster underpinning coordination. By 2025, the project had secured Track-1 status under the government's CCUS programme, with £200 million in public funding supporting first-phase development. The target is to capture 8 million tonnes of CO2 annually by 2030. The PPP structure demonstrates effective coordination of multiple industrial parties with aligned interests—all are major emitters facing carbon pricing pressure—and leverages shared infrastructure to achieve unit costs that individual projects could not match.

Greater Manchester Retrofit Accelerator: The Greater Manchester Combined Authority launched this programme in 2022 to accelerate domestic energy efficiency improvements across the city-region. The PPP involves GMCA providing project coordination and accessing government grant funding, housing associations contributing properties and equity investment, and contractor frameworks delivering installation services. By late 2025, the programme had completed deep retrofits on 8,500 homes, achieving average energy performance improvements from EPC D to EPC B and 65% reductions in heating energy consumption. The model's innovation lies in aggregating demand across multiple housing providers to achieve procurement efficiencies, blending grant funding with housing association capital programmes, and creating long-term contractor frameworks that enabled workforce development. Challenges have included slower-than-projected deployment rates in the private rented sector, where landlord incentives are misaligned, and quality control issues with some installation contractors.

Action Checklist

FAQ

Q: How does Brexit affect UK participation in EU-aligned climate PPP frameworks? A: Brexit has created a dual-track regulatory environment that complicates cross-border PPP structures. UK organisations with significant EU operations remain subject to CSRD and EU Taxonomy requirements through their European subsidiaries, while facing potentially divergent UK requirements domestically. The UK's forthcoming Green Taxonomy may align substantially with EU criteria but is expected to include UK-specific categories (such as nuclear energy and certain gas applications) and potentially different technical screening criteria. For PPPs spanning both jurisdictions—common in areas such as offshore wind, where supply chains are European—organisations must navigate both frameworks. Practical implications include maintaining dual reporting capabilities, ensuring contract terms accommodate potential regulatory divergence, and building flexibility into long-term commitments. The UK-EU Trade and Cooperation Agreement provides some coordination mechanisms but does not harmonise climate finance regulation.

Q: What risk allocation structures work best for climate PPPs with technology uncertainty? A: The most successful risk allocation structures for emerging climate technologies combine phased commitments, partial government risk-sharing, and performance-based milestones. For technologies with proven physics but unproven commercial deployment (such as green hydrogen or direct air capture), effective structures typically involve government absorbing technology risk through first-of-a-kind support while private capital takes construction and operational risk on proven elements. Revenue support mechanisms should match the risk profile: cost-plus arrangements for genuinely novel technologies, transitioning to CfD-style fixed-price contracts as technology matures. Critical success factors include clear definition of risk categories, contractual mechanisms for adjusting support as technology proves out, and explicit treatment of stranded asset scenarios. The CCUS programme's difficulties illustrate what happens when risk allocation remains ambiguous—private capital cannot underwrite uncertainties that neither contract terms nor business cases address.

Q: How should organisations prioritise among competing climate PPP opportunities? A: Prioritisation should reflect strategic alignment, execution capability, and risk-adjusted return potential. First, assess whether the opportunity advances core business decarbonisation or represents a financial investment only—the former typically generates greater organisational commitment and capability development. Second, evaluate execution requirements against internal capacity, particularly for delivery-intensive opportunities such as retrofit programmes or industrial process modifications. Third, consider the regulatory and policy trajectory: opportunities aligned with firmly established policy frameworks (CfDs, industrial clusters) carry lower political risk than those dependent on emerging mechanisms (CCUS contracts, nature-based solution markets). Finally, stress-test financial assumptions under adverse scenarios, including technology cost overruns, policy reversal, and market price movements. The highest-priority opportunities typically combine strategic relevance, executable scope, and robust downside protection.

Q: What governance structures best align public and private incentives in climate PPPs? A: Effective governance requires explicit outcome accountability, transparent performance metrics, and mechanisms for adaptation over long contract terms. Best-practice structures include joint venture boards with balanced public-private representation; independent technical advisors to verify performance claims; break clauses and renegotiation triggers tied to material circumstance changes; and community benefit agreements that create local stakeholder oversight. Incentive alignment is strengthened when private returns are contractually linked to climate outcomes rather than solely to financial delivery metrics. For example, retrofit PPPs that tie contractor margins to verified energy savings create stronger alignment than those paying solely for installation activities. Transparency mechanisms—public performance reporting, audit rights, and stakeholder engagement requirements—provide external accountability that complements contractual terms.

Q: How will emerging digital infrastructure affect climate PPP structures? A: Digital infrastructure—smart grids, IoT sensors, AI-enabled optimisation, blockchain-based verification—is reshaping climate PPP possibilities in several ways. First, granular performance data enables outcome-based contracts with higher confidence, reducing disputes over whether contractual conditions have been met. Second, real-time monitoring supports dynamic pricing and performance adjustment, allowing contracts to adapt to changing conditions rather than relying on fixed terms negotiated years in advance. Third, digital verification mechanisms (such as satellite-based emissions monitoring or distributed ledger carbon registries) can provide trusted performance data without relying solely on self-reporting. However, digital infrastructure also introduces new risks: cybersecurity vulnerabilities, technology obsolescence, and data governance complexities. Emerging PPP structures increasingly incorporate technology refresh provisions, data sharing agreements, and cybersecurity requirements that were absent from earlier infrastructure contracts.

Sources

National Audit Office. "Net Zero: Government's Approach to Climate Finance and Public-Private Partnerships." December 2024.
Climate Change Committee. "Progress in Reducing Emissions: 2024 Report to Parliament." June 2024.
UK Infrastructure Bank. "Annual Report and Accounts 2023-24." London: UKIB, 2024.
Transition Plan Taskforce. "Disclosure Framework." October 2023.
National Grid ESO. "Future Energy Scenarios 2024." July 2024.
Infrastructure and Projects Authority. "Annual Report on Major Projects 2024." Cabinet Office, 2024.
Greater Manchester Combined Authority. "Retrofit Accelerator: Year Three Evaluation." Manchester: GMCA, 2025.
Department for Energy Security and Net Zero. "Carbon Capture, Usage and Storage: Progress Update." January 2025.