Still Stuck on Grants: Why the UK's solar strategy reveals net zero finance gaps

In 2025, with solar PV a mature, profitable technology, the UK's reliance on public grants for public sector installations feels outdated. GB Energy's March announcement (£200 million for rooftop solar on ~200 schools and ~200 NHS sites (covering a third of trusts)) promises bill savings of up to £400 million over 30 years. Framed as "empowering" local green action, it instead perpetuates dependency on central funding, highlighting a decade's failure to foster self-sustaining finance.

A Decade of Low Rates, High Missed Opportunities

From 2015–2022, UK base rates lingered at 0.1–1%, with public borrowing costs near zero, prime conditions for a national low-interest loan program to fund renewables and retrofits in schools, hospitals, and councils. Instead, governments favored grant lotteries: apply, compete, or miss out. This bred bureaucracy and uncertainty, stalling scale.

Labour's GB Energy grants continue the pattern, politically savvy but fiscally shortsighted. While recent fiscal rules (2024) now prioritize borrowing for investment like net zero assets (unlocking ~£50bn/year by 2030), local authorities still navigate Prudential Code hurdles, treating green borrowing as risky debt.

Solar: Profitable, Yet Subsidized Like a Start-Up

Solar PV costs have plummeted 80% since 2015, with public sector paybacks of 5-10 years via energy savings - often shorter for high-use sites like hospitals (e.g., Hull's 11,000 panels saved £250k/month in summer 2024). Yet grants persist because frameworks block easy access to cheap capital, despite panels' 25–30-year lifespans.

The Hidden Costs of Grants

This approach falters in three ways:

Flaw	Impact	Example
Limited Scale	Funds silos of projects, not mass rollout	Only ~20% of schools have solar; grants cover <1% annually
Added Overhead	Applications/consultants eat 10–20% of budgets	PSDS bids divert time from delivery
Eroded Confidence	No funding certainty hampers planning	Councils delay retrofits awaiting bids

Crowding Out Private Capital: How Grants Stifle Market Solutions

Worse still, grants actively block private finance from entering the market. Public bodies have learned a dangerous lesson: why borrow or partner when a grant might come? Even when solar projects offer guaranteed, inflation-linked returns (via 25-year energy savings), schools and NHS trusts pause action until the next funding round opens. If the bid fails, the project dies - not because it’s unviable, but because free money was expected and the risk of delivering grants is far less risky.

This creates a vicious cycle of inaction:

1. Institutions delay procurement for 6–18 months awaiting grant windows.

2. Private developers and financiers disengage — why bid on a project that might be cancelled if a grant appears?

3. Market signals distort: viable, revenue-generating assets are treated as charity cases.

The result? Private capital sits on the sidelines. Pension funds, infrastructure investors, and green banks, holding trillions in deployable capital, cannot find bankable pipelines of public sector solar or retrofit projects. The UK Infrastructure Bank (UKIB), now National Wealth Fund has only £1.6bn deployed since 2021, a fraction of its £27.8bn capitalisation, because local authorities lack the confidence or framework to co-invest.

The fix: a large-scale, low-interest public finance facility (not grants)

A £5-10 billion National Decarbonisation Investment Fund (NDIF), capitalised by GB Energy and the National Wealth Fund, could offer:

• Long-term loans at 1-2% (below market rates but not zero)

• Standardised contracts with revenue from energy savings ring-fenced for repayment

• Portfolio guarantees to de-risk private co-investment

This would catalyse, not crowd out, private finance. For every £1 of public loan, £3–5 in private capital could follow, as seen in German KfW’s municipal programmes. Public bodies would act proactively, not reactively. And crucially, projects would proceed even without grants, because the economics already work.

Until such a facility exists, grants will continue to distort the market, delay delivery, and keep Britain’s public estate trapped in a never ended circle of subsidy-dependency. Solar PV offers very clear financial returns on investment, delivery should not be dependent upon securing a grant.

Learning from Europe: Finance over Handouts

Germany's KfW model shows the way: green bonds and low-interest loans (up to 100% financing at <1%) pool municipal solar/energy projects, leveraging private capital without debt caps. Returns from savings attract pension funds, scaling nationwide.

The UK could mirror this via a GB Energy-backed Regional Sustainability Bond Program: issue bonds for solar/retrofit portfolios, backed by energy savings. Each £1 in public seed could unlock £3–5 in private investment. Surely it is a no brainer.

GB Energy's Pivot Point

GB Energy needn't just dispense grants. Its Local Power Plan and the 2024 Blended Finance Toolkit offer tools for co-investment and bonds, enabling equitable scale (e.g., targeting deprived regions). Shifting here would modernise fiscal rules further, building trust in local delivery. Things could ultimately change, just as long as there aren't further repeats of the solar PV grants distributed to schools and NHS Trusts, unless they are heavily linked to commercial paybacks on less return-delivering technologies or interventions, like windows, heating improvements etc.

Conclusion: From Begging to Investing

Net zero isn't charity, it's economics. Grants save bills today (e.g., Leeds NHS: £75k/year), but sustainable finance unlocks tomorrow's self-sufficiency. End the grant economy; empower public bodies to borrow, invest, and thrive. Until then, even GB Energy's sunny plans risk eclipsing real progress.