GB Energy: Disruptor or distraction?

Labour continues to entice the public with the promise of a state-owned energy company, as the general election draws closer. Despite much fanfare the last week’s announcements haven't provided much more detail than a new logo and website. David Blackman analyses what shape GB Energy could take once unveiled in its entirety.

Labour’s dance of the seven energy veils continued to much fanfare last week with a high-profile “launch” of its proposed state-owned Great British Energy (GBE) company.

Then the party’s leader Sir Keir Starmer highlighted GBE in his public comments ahead of the first election debate with prime minister Rishi Sunak, highlighting the new company’s role in safeguarding the UK’s security.

For close watchers of Labour’s energy plans, the last week’s announcements haven’t provided much more detail than a new logo and website, notes Chris Rumfitt, founder and chief executive of public affairs firm Field Consulting.

But while there’s “still a lot of up for grabs” in terms of GBE, the company’s “broad shape” is “pretty clear now”, says Adam Bell, head of head of policy at consultancy Stonehaven.

The company, which has been allocated £8.3 billion over the lifetime of the next Parliament if Labour wins power, looks set to have three key remits.

The first will be to co-invest alongside other partners in energy projects using mature technologies, principally expected to be fixed bottom offshore wind. The second will be seedcorn investments in projects deploying less commercially proven technologies, like tidal power and floating offshore wind. And the third will be direct investment into community projects championed by local authorities.

The reason why Labour is showing so much love to GBE is that opinion polls show that it is very popular with voters.

That’s not a good enough reason to set it up though, warns Hugo Lidbetter, head of sustainable infrastructure at solicitors Osborne Clarke. GBE could create a distraction that impedes efforts to accelerate Labour’s decarbonisation goals, he says: “Establishing a new, high profile delivery body on top of existing policies runs the risk of diverting attention from the real time-critical issue,” he says, naming these as grid constraints; planning reform; market reform uncertainty; and supply chain capability.”

Pointing out that teams already exist within government and National Grid looking “very closely” at these issues, Lidbetter says: “The distraction potential of GBE should be carefully considered.”

As a recent example of how this could be a problem, he recalls how the establishment of Great British Nuclear (GBN) by the current government led to a temporary hiatus in activity amongst small modular reactor developers. “Things went on ice as soon as GBN was announced because we had to wait and see what it was doing, how it was going to do it and how it was going to be staffed and funded.”

Expressing concern that Labour has yet to “adequately articulate” how GBE will be a “catalyst” for driving forward its energy plans, Lidbetter says he is “not convinced” that just setting up a new company will do so.

Josh Buckland, a former Downing Street special advisor on energy and climate change, acknowledges that any government – and especially a new one – will have issues around bandwidth.
Labour has clarified that GBE will not “crowd out private sector investment,” says Rumfitt.

But Bell, who was head of energy policy at the now defunct BEIS (business, energy and industrial strategy) department, sees particular scope for tensions around how GBE balances its investment between mature and less advanced technologies. Early-stage technologies will be “obviously riskier”, he says, while adding that if GBE is going to fulfil shadow energy secretary of state Ed Miliband’s stated ambition for it to become a UK version of European state owned power giants, like EDF and Vattenfall, it will have to be “really disciplined” about where it puts its money.

However co-investing in the kind of solar and offshore wind projects that the market is already willing to back, leads Buckland to question whether the new company will be providing something ‘truly additional’. “Clearly there is a lot of money already going into those and potentially less value to add beyond that with public capital,” he says.

Lidbetter agrees: “It’s got to be about making things happen that wouldn’t otherwise happen. Just co investing in projects that are already going to happen doesn’t really change the dial.”

And the need to prioritise is made more acute by the relatively small sums that GBE will have at its disposal following Labour’s decision earlier this year to slash its much-vaunted Green Prosperity Plan from £28 billion per annum to £23 billion over a whole Parliament, including the £8.3 billion earmarked for the new company.

Rumfitt says: “It needs to be sufficiently resourced in order to make a real difference.”

One public affairs expert expresses concern that GBE’s budget looks like it will be “too small to make a difference. “It needs to be bigger and better funded and then it could be really good,” he says.

Rumfitt adds: “If it’s going to have limited resources, the only way to get value out of those limited resources is to focus.” Buckland agrees: “There’s a limit to the amount of public capital that can be deployed so if they are to deploy £8.3 billion of capital, they’re going to have to think very carefully about how they allocate and prioritise that.”

The need to prioritise may increase the logic for investing in more innovative technologies, he says. The public affairs expert questions GBE’s mooted focus on local projects, which he suspects is tailored to appeal to the party’s own activists, noting that “it’s the sort of thing which people have been talking about for 20 years at Labour Party conference fringe events.”

However, even if GBE is investing in the kind of projects which could commend support from the private sector, it could be useful in the context of the huge challenge Labour faces decarbonising the grid by 2030, says Bell. Co-investment by a public-owned company could help de-risk projects for other investors with knock on consequences for capital costs even in mature technologies, he says: “Investment from GBE will be treated like a golden share and will reduce capital costs because the government will not want to see projects that’s it invested in fail. It will help deliver 2030 even if only by proxy by lowering capital costs, attracting more cash.”

And GBE will have to make money in order to be sustainable over a period of time, warns Bell, because the company will have to generate cash if want to expand its activities or refinance projects.

It will be important for GBE, if it set up, to focus on projects, that will make a difference to Labour’s pledge to decarbonise the grid by 2030, says Buckland, who is now a director of public affairs firm Flint Global.

Ed Matthew, campaigns director at the climate policy think tank E3G, suggests concerns about whether GBE can supply something truly additional have to be viewed against the sheer scale of the increased levels of infrastructure required to deliver Labour’s goal to decarbonise the grid by 2030.

“Unfortunately, we’re in the position where everything needs to get done,” he says. “That probably means building every single possible wind farm that industry is willing to build by 2030. It’s not about making a choice about which ones to build but everything you possibly can.”