26 Jun 2025

UK Industrial Strategy: Implications for Energy & Grid

The government’s Modern Industrial Strategy is more than a funding announcement; it’s a directional and strategic signal to innovators, investors, and regional leaders. To generate its acceleration capacity, we must align the policy vision with execution capacity, systems thinking, and investment.

Following a significant uplift in clean energy investment announced in the 12 June 2025 Spending Review - With the Department for Energy Security & Net Zero (DESNZ) receiving a substantial 16% budget increase, it's clear that clean energy innovation is a strategic priority. The UK government’s Modern Industrial Strategy report provides crucial context and direction for businesses and investors seeking opportunities in the low carbon economy.

Investment will specifically target critical areas such as wind, advanced nuclear (including SMRs and fusion), hydrogen, energy storage, and smart grid infrastructure. The targeted £22 billion boost for research and development highlighted in the Spending Review positions innovation as a strategic accelerator for the transition to a low carbon economy.

Capitalising on our coastlines and the wind belt (Wind: Onshore, Offshore and Floating Offshore)

The strategy underscores both offshore and onshore wind as pivotal to the UK's clean energy ambitions, setting a target to quadruple offshore wind capacity by 2030 and maintaining momentum after the Government lifted the ban on onshore wind. Investments will enhance ports, manufacturing capabilities, grid infrastructure, and community engagement, benefiting coastal and rural communities, businesses, and supply chains. This strategic focus firmly establishes the UK’s global leadership in wind energy and promises significant economic and employment benefits. The onshore wind sector supported up to 19,700 full-time jobs across deployment and its wider supply chain, generating £191 million annually in exports as of 2022. Industry estimates indicate that each gigawatt of offshore wind installed contributes approximately £2–3 billion in gross value add to the UK economy. In 2022 alone, UK offshore wind exports reached £2.4 billion, and by 2030, the sector is projected to support up to 100,000 direct and indirect jobs.

Scaling Nuclear for Reliable Clean Energy

Consistent with Spending Review commitments, nuclear power remains central to the strategy. The civil and defence nuclear workforce supported approximately 96,000 jobs in 2024, with projections indicating that around 120,000 employees will be required by the early 2030s. The UK's fusion energy ambitions are supported by the UK Atomic Energy Authority (UKAEA), the world's largest fusion organisation, and a dynamic private sector comprising over 550 organisations. It’s highlighted that an estimated global capital investment in fusion energy of between £3–12 trillion from 2050 to 2100 demonstrating the level of opportunity within nuclear, and the importance of alignment from other key stakeholders in the sector

Further details include support for Sizewell C and the accelerated deployment of Rolls-Royce’s SMRs. Additionally, continued funding for nuclear fusion research demonstrates a clear long-term vision.

Energy Efficiency and Retrofit Initiatives

The strategy places considerable emphasis on energy efficiency and home retrofit solutions, with reinforced commitments under the £13.2 billion Warm Homes Plan. The integration of extensive retrofit programs into the broader industrial strategy framework is set to amplify market opportunities, stimulate innovation in energy-saving technologies, and accelerate heat pump adoption, delivering both environmental and economic benefits across communities. Heat pump technology is also positioned as a vital growth area, with exports projected to contribute £500 million in gross value added (GVA) annually by 2050. UK heat pump sales have significantly grown, increasing fourfold since 2019 to over 98,000 units in 2024. According to the Heat Pump Association (HPA), the workforce required to support this growth is expected to reach approximately 70,000 full-time equivalent installers by 2035.

Expanding Hydrogen Infrastructure

Hydrogen is emphasized as a critical component of the UK's clean energy mix. The export market for UK manufacturers specializing in CCUS-enabled and electrolytic hydrogen production equipment is estimated to range between £800 million to £2.2 billion by 2030, potentially rising significantly to £5.8 billion–£9.8 billion by 2050. Additionally, projects from the first Hydrogen Allocation Round are set to commit over £400 million of private capital investment upfront between 2024–2026, underscoring the market's robust growth trajectory. The government outlines plans to build substantial hydrogen capacity, creating dedicated hubs for hydrogen production and distribution. These infrastructure investments will facilitate widespread adoption and integration of hydrogen technologies, positioning the UK as a leader in this emerging market.

Cutting Energy Costs for Business

As part of the new ten-year Industrial Strategy, the government has pledged to cut electricity costs by up to 25% for more than 7,000 manufacturing businesses by 2027 through the launch of the British Industrial Competitiveness Scheme. This will exempt energy-intensive users — including sectors such as automotive, aerospace, chemicals, steel and fertilisers — from major policy costs like the Renewables Obligation, Feed-In Tariffs, and the Capacity Market. These charges, originally designed to fund green programmes, have long been criticised for disadvantaging UK manufacturers compared to international competitors.

The scheme will also expand network charging compensation, increasing discounts from 60% to 90% for roughly 500 of the most energy-intensive firms. While implementation begins in 2026, the move signals a long-awaited structural shift in energy cost burden-sharing, aimed at boosting domestic production, export competitiveness, and clean technology adoption.

To facilitate accelerated clean energy deployment and manufacturing, the government is committed to reducing electricity costs significantly for businesses, particularly key IS-8 manufacturing industries and foundational sectors. This targeted cost reduction aims to boost competitiveness and attract further investment into the UK's clean energy ecosystem. The introduction of the Planning & Infrastructure Bill and revised National Policy Statements aims to remove blockers within the planning system. Emphasis will be placed on ensuring timely delivery of critical infrastructure such as grids, ports, railways, and roads, enhancing overall investment attractiveness and operational efficiency.

Deploying Digitalisation for Smarter Growth

The strategy highlights digitalisation and smart data technologies as essential tools to modernise and stabilise the UK's decarbonised energy system. Emphasis is placed on enhancing flexibility technologies such as consumer-led solutions such as smart EV charging and electricity storage. By 2050, the domestic market for smart systems and flexibility solutions, including EV smart chargers and smart network equipment, could contribute almost £1.3 billion to the UK economy, with exports adding an additional £2.7 billion. The forthcoming Clean Flexibility Roadmap will further detail ambitions for a smarter energy system, supported by industry initiatives like NESO’s data sharing infrastructure and the Automatic Asset Registration programme. The government is also exploring an energy smart data scheme to empower consumers with innovative products and services, enabling informed energy decisions.

Speeding Up Grid Connections

Energy cost reform is only half the challenge. For many manufacturers, developers and energy producers, the barrier is more fundamental: they simply can’t connect to the grid. In response, the government will launch a new Connections Accelerator Service by the end of 2025 — a dedicated concierge-style support mechanism to fast-track projects deemed strategically important for jobs and economic growth.

Alongside this, new powers will be introduced to reform regulatory processes, enabling faster approval for large-scale grid connections. Measures will also apply pressure on network companies to reduce queueing delays, which currently stall billions in investment and risk undermining net zero timelines. This signals a clear shift in government intent: to treat electricity access as critical infrastructure, not a market afterthought.

Unlocking Cross-Sector Synergies

Realising the ambitions set out in the Industrial Strategy will depend not just on vertical investments within specific technologies, but on the effective orchestration of cross-sector enablers.

For instance, the expansion of offshore wind — a cornerstone of the UK’s clean energy economy — hinges on timely upgrades to the transmission network, accelerated port development, and grid-scale energy storage. According to the National Infrastructure Commission, delays in grid connectivity are already stalling gigawatts of clean power. Likewise, increased electrification across heating, transport, and industry will strain distribution networks, requiring faster rollout of smart grid technologies and digital infrastructure.

Skills are another shared constraint. From nuclear engineers to heat pump installers, the UK must urgently address workforce gaps through integrated education and training pathways — or risk delaying deployment across all technologies. Similarly, planning reform and permitting simplification must not be approached piecemeal, but with a whole-system lens that enables co-located, low-carbon infrastructure.

By aligning digitalisation, infrastructure, workforce development, and planning with sectoral goals, the strategy can unlock compound returns and create a more resilient, connected energy ecosystem.

Delivering at Scale: Risks and Realities

Turning strategic vision into deployed infrastructure will require urgent resolution of longstanding barriers — from grid connection delays and planning bottlenecks to workforce shortages across retrofit, nuclear, and offshore construction. The success of flagship investments like hydrogen hubs and SMRs will depend on coordinated regulation, local authority capacity, and investor clarity. The Industrial Strategy’s credibility will ultimately rest not on targets, but on execution.

In summary, the UK’s Modern Industrial Strategy outlines critical building blocks for a competitive, low-carbon economy. But success will depend on how well we connect capital with innovation, regulation with delivery, and national ambition with local action. At Innovation Zero, we see this as a generational opportunity to align public and private forces to deliver infrastructure, unlock investment, and scale solutions that work. The path to net zero runs through ecosystems — not just strategies.

For investors and business leaders, the message is clear: the UK is not just open for clean energy investment — it’s actively defining the frontier. But capturing this opportunity requires navigating regulatory reform, engaging with emerging supply chains, and shaping policy from the ground up.

References

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UK Spending Review - 12 June 2025 - Key Takeaways for Low Carbon Innovation

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