Kelly Bueno Martinez
Project Coordinator & London Hub responsible
+44 (0) 20 7258 4087
+44 (0) 77 6968 2826
Being the world's 5th largest economy and home to one of the major financial hubs, the United Kingdom and London constitute attractive investment destinations. The UK currently hold the position as the world's the ninth-largest exporter and it has the second-largest stocks of inward foreign direct investment as well as outward investments. Furthermore, with its thriving start-up scene, high degree of innovation and large number of company HQs, the UK constitutes an attractive destination for cleantech investments.
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The United Kingdom, the UK, is the world’s fifth largest economy by nominal gross domestic product, GDP, comprising a total of 4 per cent of world GDP. It is also the second largest economy in the European Union.
It is also the worlds the ninth-largest exporter and it had the second-largest stocks of inward foreign direct investment, FDI as well as outward investments. All in all, makes the UK to one of the most globalised economies.
The UK is a service dominated economy, and services constitute about 78 per cent of GDP. The financial industry centered around London is particularly important. Other key industries are in manufacturing, including the automotive industry in the Midlands, petrochemicals and pharmaceuticals in the North-East and the oil and gas industry focused in the northern and eastern parts of the UK.
London is the strongest economic hub in the UK and growth of the entire UK economy is increasingly reliant on the growth within London. The economy of London is dominated by service industries, particularly financial services and associated professional services, which have strong links with the economy in other parts of the United Kingdom and internationally. By way of comparison, London’s economy is roughly the same size as that of Sweden. London is also a global financial center and it also hosts 40 per cent of headquarters of the largest European companies, 60 per cent of the largest non-European companies with a European headquarter have chosen London as their base, and 26 per cent of the top European cleantech companies have their base in London.
Pharma, oil & gas, Automotive and Financial services are the largest industries in the UK.
London is a truly global financial centre. London competes with New York City for the status of the world’s major financial centre. Much of London’s finance industry is located in the City the long standing business hub of London. The other major financial district is the Canary Wharf area. London is home to more than 250 international banks, 80% of hedge fund assets under management in Europe, 90 per cent of European prime brokerage, and is the leading centre for management of European private equity funds. It also has a leading global share of trading in many international markets, including cross-border bank lending, international insurance, foreign-exchange trading and OTC derivatives trading. The financial services industry directly and indirectly employ about 800,000 people and contribute with £80bn value added to the UK economy.
Petrochemicals and pharmaceuticals are one of the UK’s largest industries contributing with £15.2bn to the UK economy and directly employ 160,000 people and indirectly more than 500,000 people. A majority of both the petrochemicals such as ABIC, Huntsman, Lotte Chemical UK, Ensus, Biffa, Invista, Yara, and International Power GDF Suez and pharmaceuticals including Aesica, AstraZeneca and GSK located in the North East of England. UK had the third-highest share of global pharmaceutical Research and development, R&D, expenditure of any nation after the U.S and Japan,
The automotive industry is a vital part of the UK economy accounting for more than £71.6bn turnover and contributes with £18.9bn billion value added. With some 169,000 people employed directly in manufacturing and in excess of 814,000 across the wider automotive industry, it accounts for 12 per cet of total UK export of goods and invests £4bn each year in R&D. More than 30 manufacturers build in excess of 70 models of vehicle in the UK with companies such as Nissan, JaguarLandrover, Bentley, McLaren, Dennis Eagle, Alexander Dennis, BMW, Aston Martin and supported by more than 2,000 suppliers.
The UK is the second largest oil and gas producer in Europe after Norway, and despite the drop in oil and gas prices since 2014, it still remains an important industry to the UK economy. The oil and gas industry is concentrated to the northern and eastern regions of the UK and directly employ just over 330,000 people and another 200,000 indirectly through its supply chain. It is also the UK’s largest industrial investor, with thousands of companies in its supply chain that support the industry with technology, skills and services developed domestically and exported to more than 100 countries around the world. Only in 2016, capital investment in the UK offshore oil and gas industry was £8.3 billion and the industry spent £7 billion operating its assets.
An (uncertain) future of renewables
The UK has one of the lowest rates of renewable energy consumption in Europe with a rank 24 out of 28 member countries. The UK only has 8.2 per cent of renewable energy for electricity, heat and transport, compared to Sweden’s 54 per cent. The UK is committed to meeting 15% of overall energy from renewables by 2020. Concerns have been raised that the UK is unlikely to meet its renewable target and, few large reforms has been launched to boost the sector.
While electricity is going green, more than 20 per cent of the UK’s electricity now comes from renewable energy, some argue that the big challenges lie in the heat and transport sector. In heat, the Government carried out a reform of the so called Renewable Heat Incentive, RHI, a tariff framework for renewable heat production, that e.g fuelled the growth of much of the biomass sector. The government has also launched project to accelerate the expansion of heat networks across the UK as part of the overall goal to reduce carbon emissions. Yet some estimates suggest that the UK would need another 60 TWh renewable heat and 25 TWh renewable transport to meet its target.
Growing competition for traditional utilities
The UK’s energy and utility companies are increasingly facing a changing marketplace.
The pressure to integrate alternative and renewable energy sources is growing in a market that traditionally is dominated by gas. They also need to strengthen and deepen their relationships with their customers as they have an increasing appetite for switching energy supplier, with around 3.8 million people switching in 2015-2016.
Competition is also increasing. Since 1997 when the market was privatised, many smaller independent suppliers have entered the UK energy market, with the aim of providing real competition for the six largest energy providers. Today there are more than 43 independent suppliers. Furthermore, a vast range of global electrical equipment manufacturers, information and communication technology specialists, construction companies, and consumer product companies are also all heading for a share of the global utility technology market. In addition, digitisation and innovation is entering the energy and utility industry a fast pace. As a result of all above, UK utilities need to innovate to remain relevant in the changing marketplace.
Roll-out of smart meters underway
Around 53 million smart meters will be fitted in more than 30 million premises (households and businesses) across Wales, Scotland and England the coming years. There are already 4.9 million meters operating across Britain and complete roll-out is planned for 2020. Total investment reach almost £11 billion over 4 years. The roll-out is lead by gas and electricity suppliers, who are required by their licence to take all reasonable steps to install smart meters to all of their domestic and small business customers by the end of 2020. The leading suppliers are the so called big six, including British Gas, EDF Energy, E.ON, NPower, Scottish Power and SSE.
The Climate Change Act – commits the government to reducing greenhouse gas emissions by at least 80% of 1990 levels by 2050. The act was signed in 2008 to ensure that UK governments are to comply with the Kyoto agreement.
Feed-in Tariffs for green electricity generation – The FIT scheme is a government programme designed to promote the uptake of small-scale renewable and low-carbon electricity generation technologies. Introduced on 1 April 2010, the scheme requires participating licensed electricity suppliers (FIT Licensees) to make payments on both generation and export from eligible installations. Costs for the programme are borne by all British electricity consumers.
The Renewable Heat Incentive – The Renewable Heat Incentive, the RHI, is a payment system for the generation of heat from renewable energy sources. Introduced on 28 November 2011,the systems operates in a similar manner to the feed-in tariff system.
Venture investment tax relief – the income tax and capital gain tax reliefs provide an incentive for private investors to put their money into venture capital funds. The Income Tax relief is 30% on a maximum investment of £200,000 per tax year when a private investor buy newly-issued shares in a VC fund. Furthermore, dividends from investments in VC’s do not attract income tax provided the original investment was made within the permitted maximum of £200,000 per year.
The UK and London in particular is home to a thriving start-up scene, backed by a well-functioning and strong investor landscape as well as several incentive schemes driving investments. From 2009-2013, venture capital and private equity investments in UK cleantech companies amounted to $2 billion, equivalent to 31% of the total cleantech investments in Europe. In 2015, BVCA members alone invested £316 million in cleantech, mostly venture capital and growth capital.
In terms of geographical distribution, the majority of the investment activity in the UK is centred around London and the South East region of the country. However, recently the discrepancy between regions has shown trends of diminishing with 90% of the UK’s total growth originating from other regions around the country. Areas such as the North West, the East of England, the Midlands and Yorkshire and The Humber have seen an increase in investment activity and projects.
Looking at the most active cities within venture capital (excluding London), Cambridge, Edinburgh, Brighton, Oxford and Liverpool top the list with a total of 95 deals made between mid-2014 and mid-2015.
In 2016, private equity and venture capital firms invested more than £6.7 billion in UK based companies, a rise of £1.1 billion compared to 2015. This is partly explained by the depreciation of the pound following the EU referendum. Furthermore, 2016 also marked a record year for M&A in the UK with tech deals amounting to >£70 billion. UK has the highest rate of PE investments as % of GDP in Europe (0,799%)
Looking at the UK’s position in terms of FDI flows, the OECD and ONS estimate that it holds a strong international investment position in value terms with inward and outward FDI positions equivalent to 55% of the UK GDP in 2015. Considering the outward investments, the UK has become a disinvestor in the world, showing negative investment flows.However, the UK has traditionally held a strong position in terms of inwards investments and was ranked the tenth largest destination for inward flows in 2015. Today, more than 100 of Europe’s 500 largest companies and 75% of the Fortune 500 companies have offices in London.
The UK has an exciting start-up scene with many new startups choosing the country as their base, and in particular London. Given London’s position as a world-leading innovation and tech-hub, the capital has become home to a thriving startup ecosystem with several clusters, incubators, accelerators and programs.
London startup hubs and cluster are spread out throughout the city offering a wide range of options; from the most famous Silicon Roundabout tech hub, occupying the area between Old Street and Shoreditch to Here East in the Olympic Village focusing on tech and innovation, as well as Croydon (digital focus), Camden & Kentish Town, Kings Cross & Euston (IoT and data) and Canary Wharf (FinTech).
London is also home to more than 70 co-working spaces as well as to a large number of incubators, accelerators and programs including Entrepreneur First, Startupbootcamp, Level 39 and Ignite 100. Another example is the London Cleantech Cluster (LCC) that helps promote and encourage initiatives and engagement in new and existing programs undertaken in the Greater London region with the aim of identifying, developing and spreading cleantech solutions and innovations.
A vital part in the development of a well-functioning start-up ecosystem and in making the UK an attractive investment destination is innovation and talent. The UK is home to a large number of research and higher education institutions recognised worldwide and contributing to increasing the attractiveness. Below are a few highlighted examples:
Cambridge and Greater Cambridge region are home to a significant cluster of organisations, universities and entrepreneurs such as the University of Cambridge, Anglia Ruskin and Cambridge Cleantech, contributing to establish Cambridge as one of the leading cleantech cities in Europe. Particular focus in the region is set on building technologies, recovery and recycling, alternative vehicles, ICT in Cleantech as well as Biomass and Renewables.
With a 127% growth in the past two years and a boost in FDI projects that increased by 24% in 2015 to 2016, the Northern Powerhouse is a major player in the energy sector, in particular low carbon generation, technology and processes as well as smart energy technologies, e.g. storage. The region has a strong history of nuclear energy and offshore wind, being home to some of the UK’s largest wind farms (e.g. Dogger Bank, Hornsea and East Anglia) as well as Siemens’ UK Wind Power Research Centre at the University of Sheffield.
Also located in the Northern Powerhouse region, it’s the UK’s flagship technology innovation and research centre for offshore wind, wave and tidal energy. It accelerates the development, testing, commercialisation and deployment of offshore renewable energy technologies, enabling a vibrant sector driven by research and innovation.
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Kelly Bueno Martinez
Project Coordinator & London Hub responsible
+44 (0) 20 7258 4087
+44 (0) 77 6968 2826
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