PURSPOSE: The allocation of risk among project participants is an important determinant of innovation success in construction projects. This study sought to examine the capacity of risk allocation to encourage the implementation of environmental innovation, particularly Sustainable Energy Innovation (SEI), within the Private Finance Initiative (PFI) project delivery model. DESIGN: A four-case qualitative research methodology is adopted within the context of the UK government’s Building Schools for the Future (BSF) programme. FIDNINGS: The findings identify that SEIs are encouraged on the innovative projects by the perceived clarity, appropriateness and manageability of the risks associated with the project’s energy performance on the PFI contract. The main SEIs were largely developed as strategies to manage long-term energy performance risks allocated to private sector actors and safeguard their long-term commitment to the project. However, the findings indicate that excessive perceived innovation-related risks, particularly capital cost risk, may restrict further SEIs to be implemented. RESEARCH LIMITATIONS: The qualitative case study approach adopted may limit the generalizability of the findings. IMPLICATIONS The study and provides practical guidance to policymakers and project managers in developing strategies to support the implementation of sustainable energy innovation in PFI projects. ORIGINALITY/VALUE The study attends to a significant gap in knowledge as there is a lack of conceptual and empirical work on managing innovative processes for sustainable energy in PFI projects.