Innovation and the power grid: where does energy finance need to flow?

In this week’s Power Playbook: what does the latest data on innovation and funding tell us about where Europe’s energy transition is really heading — and whether we are backing the right parts of the system?

Let’s start with the UK.

According to the Gridunlocked report by Arup, an additional £194 billion ($260.8 billion) in economic value could be unlocked through increased investment in the UK’s National Grid. Arup modelled two pathways: maintaining current spending levels, or a ‘supercharged’ scenario aligned with net zero requiring an additional £34 billion ($45.7 billion).

Under the supercharged pathway, bottlenecks around offshore wind, long-duration storage, EV charging, heat pumps, data centres and new industrial loads would be removed. According to the report, this would improve uptake of green infrastructure, strengthen energy security and stabilise long-term prices by reducing reliance on volatile gas markets.

Arup estimates a 4:1 return on grid investment. The services sector could grow by £95 billion ($127.7 billion), supporting 68,000 jobs each year. Property could grow by £33 billion ($44.4 billion) and construction by £20 billion ($26.9 billion).

But the report is clear: grid investment alone is not enough. It calls for a joined-up approach across generation, storage, transmission, distribution and demand-side flexibility, with digitalisation supporting flexibility and stability.

Zooming out, the IEA’s latest State of Energy Innovation report shows how large the stakes are. Global markets for energy technologies are worth trillions of dollars. Energy spending represents up to 10% of global GDP, and one in 10 patents globally relates to energy.

Yet funding is shifting. Public energy R&D spending fell 2% in 2025 to $55 billion. Venture capital investment in energy start-ups declined for the third year in a row, while the share of global VC flowing to AI rose to almost 30%.

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According to the IEA, 80% of surveyed experts now rank energy security among the top drivers of innovation. The agency also notes that cost-benefit evaluations show public energy R&D can deliver returns several times — even hundreds of times — greater than its cost.

Back in the UK, the Innovation in the UK’s Energy Sector white paper by Marks & Clerk shows £15.3 billion ($20.6 billion) has been raised by innovative energy companies since 2015. But a divide is emerging.

Patent-filing companies raised £8.09 billion ($10.9 billion), £840 million ($1.1 billion) more than firms without patents. 

They also raised more per round and accounted for 63% of job creation in the past two years. According to the report, this reflects a ‘flight to quality’ in a tighter funding environment.

AI is a significant part of this shift.

Energy AI companies increased their share of sector deals from 2.4% in 2015 to 13.7% in 2025. Their share of equity investment also rose steadily. At the same time, the IEA notes that AI is attracting a growing share of global VC.

I would argue though that the risk is not AI itself. Rather, it is an imbalance.

According to Arup, grid modernisation underpins energy security, electrification and economic growth. According to the IEA, sustained public support for innovation delivers long-term economic and security benefits.

The conclusion is straightforward. Innovation funding needs to align more with system needs.

That means backing grids as well as generation, storage as well as software, and IP strategy alongside capital flows.

The next phase of the transition will depend less on headline investment totals and more on whether Europe funds the infrastructure and innovation base that turns ambition into durable economic value.

But what do you think?

Reach out and let me know so that I can feature your thoughts in the Power Playbook.

Cheers,
Yusuf Latief