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Up nextNet zero has been high on the EU and UK’s policy agenda for some years. But as we creep towards 2050 (and close in on the nearer-term targets set by the EU and UK), we are seeing a ramp up in the transition from carbon-intensive activities/assets to low or zero carbon technologies. Inevitably, such a major shift may not be delivered simply by legislating and expecting the private sector to deliver the rest. In this blog post, we explore why and how the EU and UK are seeking to supercharge that transition, and what it could mean for investment in green energy and clean power.
Why has the move to clean energy ramped up?
Competition authorities and regulators have increased their attention towards energy in recent years amid rising energy prices and security of supply concerns – an issue caused in part by what the European Commission and others have labelled Russia’s “energy blackmail”. In the EU, energy prices have risen significantly since 2021, with many European companies seeing energy costs as a “major impediment” to investment and energy-intensive industries being hit the hardest (with industrial production falling 10-15% since 2021).
The landmark Draghi Report called for an overhaul of EU competition rules by the next European Commission (‘EC’) – and put decarbonisation and energy sovereignty at the heart of strengthening EU competition, given high energy costs are a key driver for the gap in EU competitiveness vis-à-vis other world economies.
One of EC President Ursula von der Leyen’s instructions to Teresa Ribera (the EC’s Executive Vice-President for a Clean, Just and Competitive Transition) in the Mission Letter is to “bring down energy prices” and rid the EU of its dependency on fossil fuels in order to address the competitiveness gap identified by Draghi.
The UK has similarly maintained its focus on clean energy, recently publishing its Clean Power 2030 Action Plan and relaunching the Net Zero Council to drive the green transition, which is a key part of the UK’s economic growth plan. Its goal is to accelerate the net zero transition, supporting jobs and maximising economic opportunities for UK businesses.
Energy and clean tech a top priority: What we have seen so far
The new EC has stepped into power and – under the leadership of Teresa Ribera – begun striding towards clean energy goals at an unprecedented pace. Of particular note are the EC’s recent Competitive Compass and Clean Industrial Deal, which give shape to some of the energy goals articulated by the Draghi Report.
EU Competitive Compass: setting the course to decarbonisation and simplification
Earlier this year, the EC published its Competitiveness Compass, which is intended to guide its work in the coming five years and provides a roadmap to how the EC will take forward Draghi’s recommendations.
The Competitiveness Compass sets out three core areas to boost competitiveness: innovation, decarbonisation and security. These areas for action are complemented by five ‘horizontal enablers’, namely:
- Simplification
- Lowering barriers to the Single Market
- Financing competitiveness
- Promoting skills and quality jobs
- Better coordination of policies at EU and national level
Of these enablers, simplification and financing competitiveness are of particular relevance when it comes to promoting decarbonisation, with the EC noting that a “flexible and supportive” State aid framework is needed to help companies switch to clean technologies and shift the economy towards clean production and circularity. Alongside this, the Competitive Compass outlines a number of plans to encourage investment in clean production and renewable energy, echoing the Draghi Report’s calls for an “unprecedented” amount of private and public investment in green energy.
EU’s Clean Industrial Deal (‘CID’): mobilisation of (green) investment and simplification of State aid rules
Published on 26 February 2025, the CID sets out the EC’s ‘business plan’ to enhance competitiveness and accelerate the decarbonisation of industry in Europe, building on the Draghi Report’s findings. It focuses on two closely linked sectors: energy-intensive industries (which require urgent support to decarbonise, electrify and confront high energy costs, global competition and complex regulations) and the clean tech sector (which is at the heart of future competitiveness and necessary for industrial transformation, circularity and decarbonisation). Circularity is also at the centre of the CID with the aim of maximising the EU’s limited resources and reducing overdependencies on third country suppliers for raw materials. (See our earlier blog outlining the key aspects of the CID.)
The CID outlines how the EC plans to incentivise industry decarbonisation. Among these is the goal of mobilising significant public and private investment in the clean transition. The EC will do this by strengthening EU level funding, leveraging private investment and enhancing the effectiveness of the State aid regime.
In respect of State aid more specifically, the EC put forward a draft Clean Industrial Deal State Aid Framework on 11 March 2025 with the aim of enabling “necessary and proportionate” State aid that crowds in private investment. This includes schemes to incentivise investments by reducing risks associated with investment in certain projects, alongside simplified and flexible State aid rules to allow quick approval of aid measures for decarbonisation. The Draft Framework is open for consultation until 25 April 2025. Of course, this follows in the wake of the EC having already approved very significant State aid for clean power in recent years. This includes, for example, various substantial schemes to support the production and transmission of hydrogen (such as a EUR 3 billion German scheme supporting the development of a hydrogen network). A significant portion of funding under the EU’s Recovery and Resilience Facility has also been dedicated to the green transition, with EUR 184 billion committed to support energy-related measures. While State support for these types of projects is nothing new, the scale of support is being supercharged.
UK’s Clean Power 2030 Action Plan and revival of the UK’s Net Zero Council
The UK is also taking decisive steps towards its net zero ambitions. Earlier this month, the UK Government published its Clean Power 2030 Action Plan, heralding a “programme of clean power investment estimated to be around £40 billion per year for the next 6 years”. The Plan outlines a pathway to the UK’s ambition to deliver a clean power system by 2030. It acknowledges the need for substantial legislative reform to achieve this, including to planning/consents for new energy infrastructure, and the importance of the Government working closely with industry and financial institutions to “unlock barriers and take an innovative approach”. The Plan also highlights the role of the National Wealth Fund in investing in clean energy (including renewable generation, nuclear, storage etc.) where there is a financing gap, to help encourage private investment, as well as in other sectors relevant to clean power including green hydrogen, carbon capture, green steel etc. The Government has also already implemented various subsidy schemes to support energy-intensive industries, designed to make them more competitive with their European counterparts, and attract investment in the UK.
Another prime example is the recent revival of the Net Zero Council – now with a broader representation of major corporations and financial institutions as well as local government. It provides a springboard for deeper collaboration between industry and the UK Government, connecting policy-making with investment and innovation, and is steered by a new delivery group that aims to ensure this is effective in practice. Describing clean power as the “economic opportunity of the 21st century”, Ed Miliband – the UK Energy Secretary and co-chair of the Council – emphasised a focus on securing investment to support its delivery and make Britain a “clean energy superpower”.
Takeaway: We will continue to see more EU and UK support for green projects, and expect to see some further flexibility in the approach to State aid/subsidy control to help deliver that support, in order to incentivise private investment and ultimately deliver on the net zero transition. As such, there may be increased opportunity for private investment in companies involved in decarbonisation goals, including those developing and producing clean technologies and those involved in the circular economy. This will be a space to watch in the coming months, with more insights (i) following the EC’s consultation on the Draft Framework, when they set out the plan to deal with aid for green energy and (ii) coming from the UK’s Net Zero Council on the development and delivery of sector roadmaps for transition, which will identify investment opportunities.
What about foreign investors? Navigating investment screening and the Foreign Subsidies Regulation
While the policy position in the EU and UK presents opportunities to participate in the clean transition and there are several initiatives to encourage private investment, it is not entirely clear what role foreign investment is expected to play in promoting the EC’s goals.
EU and UK FDI: Energy likely to remain in the spotlight
Energy has emerged as a higher risk area for FDI review, accounting for 6% of EU notifications in 2023 and over 10% of UK notifications in 2023-24. (See our earlier blog outlining key trends in EU foreign investment). This trend is likely to continue in both jurisdictions:
- EU: Energy security was flagged as one of the EU’s main vulnerabilities in its Economic Security Strategy, with promoting clean energy noted as one of the top priorities of the EU. The EC reiterates these concerns in the Competitive Compass, noting that screening of foreign direct investment is one of the measures to respond to this risk area. The CID states that the EC will propose “measures to ensure that foreign investments in the EU better contribute to the long-term competitiveness of EU industry” but later reiterates that “it is crucial to ensure that foreign investments do not undermine Europe’s security and public order”. It refers to the ongoing review of the EU FDI Regulation, noting the importance of strengthening and aligning national screening mechanisms to introduce resilience requirements and minimise the risk of ‘forum shopping’. In the EU’s proposal for a new FDI screening regulation, green power is a focus – with net zero technologies, hydrogen and new fuels included on the list of technologies/activities of particular importance for the EU.
- UK: We have already seen the UK use its powers under the National Security and Investment Act 2021 to intervene in the energy sector, for example, in a transaction involving technologies relating to renewable energy, where the Secretary of State imposed conditions on information sharing and offtake arrangements. The UK Government has shown a willingness to take a pragmatic approach to mitigating potential national security risks, whilst continuing to enable investment. We expect the level of scrutiny afforded to transactions in the sector to continue for the foreseeable future.
EU Foreign Subsidies Regulation (‘FSR’): Energy a focal point, but environmental considerations (potentially) mitigating factors
The FSR, which became effective just under two years ago, represented a significant expansion of the EU’s powers, enabling the EC to tackle foreign subsidies that distort the internal market. (Read more about the FSR in our earlier blog post here).
Since October 2024, manufacturing and financial services accounted for the bulk of FSR notifications, followed by energy and tech. The number of FSR notifications have also increased, with most notifications made by US and EU acquirers.
Source: Linklaters Rhino data
While energy is likely to remain a focus point of the FSR, the regime implements a balancing test which allows the distortive effects of a foreign subsidy to be mitigated by the positive effects of the development of the relevant subsidies’ economic activity.
The EC is currently consulting on FSR Guidelines to provide guidance on the application of the balancing test (among other things) with the plan of finalising the Guidelines in January 2026, though Draft FSR Guidelines are expected in the next couple months. These Guidelines may provide more insight on what types of considerations would be treated as mitigating factors when it comes to investment in green energy.
Takeaway: Energy is likely to remain a focus point for both EU and UK FDI and the FSR going forward, despite increased opportunity for investment in green energy. Incoming FSR Guidelines may shed light on how environmental (and other positive) factors associated with green energy could be treated as mitigating factors under the FSR. Reforms to the EU FDI Regulation may see the introduction of additional requirements – though what those are, and what their impact could be on businesses seeking to invest in green energy, remains to be seen.
This is an area to watch, with more insight expected in the coming months.