GB Energy: can Labour’s plan to become a ‘superpower’ pay off?

Labour has put energy at the heart of its general election campaign, promising to turn Britain into an “energy superpower” by scaling up renewables which it says will create thousands of green jobs. It has also said it would not grant any new oil and gas exploration licences.

Crucial to this is Great British Energy, a state-owned energy company to invest in renewables that will be based in Scotland.

The proposed company is a central plank of Labour’s £5bn annual “green prosperity plan”, partly funded by toughening the windfall tax on oil and gas drillers. But Claire Coutinho, the energy secretary, has called it a “gimmick”.

Why does Labour think we need GB Energy?  

The UK needs to rapidly develop renewable energy to meet its legally binding goal of net zero carbon emissions by 2050, as well as interim targets to decarbonise the electricity system. Labour wants to do this by 2030, compared with the Conservatives’ target of 2035.

Plenty of private groups invest in the sector, ranging from listed companies such as SSE to France’s state-owned EDF. But Labour argues the UK should have its own state-owned player to boost areas that need a push and give taxpayers a stake in the energy system.

The idea polls well, with 66 per cent of voters supporting the creation of GB Energy, according to a YouGov survey. Labour is also hoping to soothe workers nervous about its plans to stop licensing new oil and gasfields.

What will GB Energy do? 

Plans are light on detail. But the party has said it wants to co-invest alongside the private sector to kick-start less mature technologies, such as floating offshore wind, tidal power and low-carbon hydrogen, and “help scale up” more mature ones such as wind, solar and nuclear power.

The terms at which it will invest are unclear, but could include majority stakes in some cases. It will absorb Great British Nuclear, the company set up by Prime Minister Rishi Sunak’s government to help revive Britain’s nuclear power fleet.

Meanwhile, £3.3bn of its planned £8.3bn funding over the first parliament will be used to fund local authorities and provide “low-interest loans” to communities for projects such as solar panels on roofs and shared-ownership wind projects.

“Britain will be an energy superpower once again, exporting clean power to the world and controlling our economic destiny,” Ed Miliband, Labour’s shadow energy secretary, has said.

Is £8.3bn enough money? 

Recent modelling by Aurora Energy Research found Labour’s 2030 goal would require £116bn in renewables investment over the next 11 years, compared with £104.6bn under the slower Conservative plan.

But the aim is to use the state funding to draw in more private investment. Mathew Lawrence, founder of the Commonwealth think-tank, which originally proposed a state energy company, said £8.3bn was a “solid number” that would rank GB Energy in the same league as companies such as SSE when it came to investment.

The risk would be investing in dud projects, pork barrel politics, or replacing or deterring, rather than adding to, private investment.

The party insists funding for its green prosperity plan will not be scaled back further after cutting it from £28bn annually to £5bn annually in February. But it will be under pressure not to jeopardise shadow chancellor Rachel Reeves’ fiscal rule that debt must be falling as a share of national income after five years. 

What does the energy sector think? 

Energy executives are fairly relaxed about the prospect of a state-owned company, as long as it does not get special treatment in state auctions for things such as subsidy contracts or seabed leases.

But they are also keen for it not to distract from other measures. “The parts of Labour’s programme that are really going to deliver the jobs and the gigawatts — it’s things like the British jobs bonus [to support new jobs in clean energy], the money they have outlined for ports, planning reforms, grid,” said Nathan Bennett at trade group RenewableUK.

Tom Glover, UK country chair for Frankfurt-listed energy group RWE, has said it “sees a role” for GB Energy in unlocking investment that “cannot be taken forward by the private sector”. 

Will it bring bills down? 

Building out more renewables should help bring bills down in the long run as, once built, they have low running costs. The investment needs to be paid for, however, with network costs and subsidies currently added to bills on top of wholesale energy costs.

Aurora noted that increased investment “could lead to lower total system costs once the long-term savings from lower gas consumption are included”. When that will happen is uncertain. Moreover, the price of electricity produced from renewables is still tied to the price of electricity produced in gas-fired power stations.

Ofgem’s chair, Mark McAllister, told the Financial Times before the general election was called that he was expecting bills to remain relatively flat this decade.

Josh Buckland, partner at consultancy Flint Global and a former government energy adviser, said: “[GB Energy] will clearly have a role in creating jobs and economic growth. The ability for it to substantially lower bills by 2030 I think is more debatable.”