By Edel Wyse, Board Member, Carbon and Energy Fund
When I reflect on where the public sector energy market is heading, I always come back to one word: collaboration.
This is not a market that succeeds in isolation. It requires public bodies, contractors, funders and advisers to work together with transparency and discipline. From my perspective, working across both the UK and Ireland, the objectives and challenges are shared. We are dealing with ageing infrastructure, constrained capital, rising expectations around resilience and a legal obligation to deliver net zero. The scale of what needs to be done demands experienced thinking and shared learnings.
It is also, in many ways, a very young market in its current form. Energy has always existed, but the way we are now structuring decarbonisation programmes, funding infrastructure and allocating risk is evolving at pace. That makes it both challenging and exciting.
Capital Discipline and Risk Transfer
The most significant shift over the past year has been in the funding conversation. The UK Government’s recognition of the critical role of third party capital announced alongside the budget was an important step forward. For some time there had been understandable caution around external funding models in the public sector. Questions around exchequer value for money, long term affordability, control and balance sheet treatment created hesitation.
There is no change to the framework per se. The requirement to comply with accounting standards (acknowledging the change in IFRS16), value for money demonstrations and balance sheet tests remain firmly in place. Nor should they disappear. They exist to protect public funds.
What has changed is the recognition that we must work intelligently within those frameworks.
At the heart of demonstrating value for money is risk management. If risk can be genuinely transferred from the public sector to the private sector or those best placed to manage it, and that transfer can be clearly demonstrated, then third party funding can represent better value for money than traditional capital routes. The Gov’s balance sheet framework suggests that
“Where use of a private finance model creates a significant taxpayer obligation, decisions on its use must always be driven by value for money. This should be underpinned by a key principle: private financing might deliver higher value for money than a public sector option (or public sector comparator in PPP models) if benefits of risk transfer and efficiencies in delivery outweigh the higher cost of private capital. This should consider costs and benefits over the whole life of a project.”
It must be evaluated and evidenced in accordance with Treasury’s Green Book and is therefore disciplined work. It may involve understanding not just the Trust’s balance sheet, but the market’s and the funder’s attitude to taking on asset ownership. It involves careful structuring. It is rarely quick or simple. However, it is necessary if we are to unlock sustainable investment at scale.
Learning from PSDS
The Public Sector Decarbonisation Scheme showed what is possible when funding is mobilised at pace. It ignited the market and drove employment. It accelerated delivery. It proved that appetite and capability exist. It also highlighted the importance of governance and project discipline. Programme led timelines do not always align neatly with project led delivery. As a sector, we learned quickly. We saw where poor behaviours crept in and where standards needed to be strengthened.
That experience reinforced something important for me. This market is still maturing. We must be thoughtful about how we evolve it. Simply injecting more funding without structure is not the answer. The right structures, supported by appropriate capital, are what create long term stability in terms of retention and growth.
Inside and Outside the Estate Boundary
There is often a clear distinction between projects that can be structured as services and those that cannot.
District heat networks and shared infrastructure can lend themselves to successful off balance sheet treatment where risk transfer and multiuser models are robust. However, much of what NHS estates need today sits firmly “within the fence”. Investment in upgrading plant rooms, replacing pipework, modernising controls or converting steam systems are what maintains required resilience to keeping the show on the road. This is core enabling works and may not always fit neatly into service based models.
That does not diminish their relevance in achieving net zero. In many cases they are prerequisites for decarbonisation.
Net zero is a legal obligation. Infrastructure resilience underpins patient safety, improving our health environment (the air that we breath!) and operational continuity. Where estates are in poor condition, the risk is real and quantifiable. The business case for these investments must therefore articulate not just carbon savings, but risk mitigation, health benefits and resilience improvement. In some instances, that will require capital allocation from the centre. In others, it may require hybrid funding structures. What matters is clarity around value and risk, which may need consideration outside a single funding mechanism.
Energy Security and Strategic Infrastructure
Alongside the funding discussion sits a broader issue: energy security. Deep geothermal is a compelling example. It has delivered long term baseload energy in other countries for many years. In the UK and Ireland, momentum is building, but the barrier remains early stage risk. Proving the resource requires upfront investment.
In my view, there is a constructive role for government here. Targeted early stage support to de-risk projects can unlock private capital for delivery. That is a focused intervention rather than wholesale subsidy. Another area that deserves greater strategic attention is the role of hospitals as anchor infrastructure. Hospitals operate continuously. They have predictable thermal demand. They are natural anchor loads for district heating networks. Yet too often networks are designed first and hospitals are approached later.
If we reverse that logic and design networks around hospitals from the outset, the economics and resilience of the system improve significantly. That requires early engagement and joined up planning.
A Market in Transition
Successful market transition is cyclical. The market today is on a precipice of required change. Structuring projects can feel like pushing through treacle. Accounting treatment requires patience. Capital is constrained and financing models are becoming more sophisticated. None of this is easy. And yet, I remain optimistic. There is demonstrable appetite by the market to meet these challenges. Battery storage has advanced significantly. Fuel cells are progressing. Geothermal is gaining credibility. Conversations that were once considered niche are now mainstream. It’s exciting!
We are moving from a grant driven phase toward a more disciplined, structured investment environment. That transition can feel slow, but it is necessary if we want lasting resilience and credible net zero delivery.
For me, the future of this market will not be defined solely by technological innovation. It will be defined by how intelligently we allocate capital, how carefully we manage risk and how effectively we collaborate across the public and private sectors.
That is where the real transformation lies.
