Ofgem’s £450m innovation fund wants closer partnerships with corporates as it aims to decarbonise the UK’s energy network.

Ministry of Information Photo Division Photographer
The British Grid System – the work of the Central Electricity Board in Wartime, c March 1945

“We want the UK to be the best place to be an energy entrepreneur,” says Matt Hastings, deputy director of Ofgem’s Strategic Innovation Fund.

The UK gas and electricity regulator, which normally focuses on monitoring energy prices and ensuring fair competition, took the unusual step of launching an investment fund in 2021. Part of the regulator’s mission is to help decarbonise the UK electricity system by 2035, and investing in startups is likely to play a large part in that.

The Strategic Innovation Fund is an incubator, accelerator and investment vehicle rolled into one. It gathers information on what challenges exist in decarbonising the electricity network, then it incubates solutions and accelerates the best ideas through a competitive application-for-funds process. It aims to invest £450m over five years, with an option to increase this if necessary.

The fund partners with Innovate UK, the governmental innovation agency, which drives its mission to finance startups and small- and medium-sized businesses. A large part of its aim is to create a pipeline of high-value deal flow for investors.

Money for the fund is drawn from the bills energy consumers pay, and so all the projects it funds are required to bring a net benefit to consumers. The latest tranche of ten startup received a total of £95.3m of investment, with about half of that going to hydrogen-related projects.

Hastings says he wants to tap more into corporate investors’ network of startups to give the fund greater access to new companies.

“We want to see how we can incorporate them within the SIF [Strategic Innovation Fund] and help them and their investors scale through the programme,” says Hastings.

The fund’s investment team are also seeking closer relationships with corporate VC funds.  “We do talk to various CVCs. What we haven’t managed to get is alignment with their community and our community,” says Hastings.

The challenges of decarbonising the UK’s electricity network are immense. The UK’s heavy reliance on natural gas to generate electricity mean consumers face higher energy prices than many of their European neighbours. The country also faces long lead times for renewable energy to be connected to the grid.

The fund consults with utilities, suppliers, OEMs, network users and generators to come up with decarbonisation solutions. It also partners with global organisations, such as the US’s Electric Power Research Institute and Free Electrons, a global open innovation programme, to boost the number of startups in its initiative.

“We are working in a conservative industry where the networks are good at partnering – but often partner with the same partners. We are working to incorporate more startups and SMEs [small or medium-sized enterprises] in the process,” says Hastings.

Each year the fund takes between five and 10 projects valued between £1m and $30m through to the final stages of its selection process. The fund hasn’t yet reached the stage where it can say “here is our Silicon Valley of energy type project,” says Hastings. But he estimates that since its founding, it has invested £20m in projects that have the potential to reduce 2m tonnes of greenhouse gas emissions and achieve £3bn in consumer savings.

Kim Moore

Kim Moore is the deputy editor of Global Venturing and produces video for the website.