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The key tests for Labour's GB Energy

Ed Miliband, Keir Starmer and Scottish Labour leader Anas Sarwar campaigning (PA Images / Alamy Stock Photo)

4 min read

How exactly will Great British Energy “take back control of the country's energy”?

Will it be another public financing vehicle for private investment? Or will it directly invest in, own, and operate clean energy assets? Since Great British Energy emerged as a key plank of Labour’s electoral offer and green industrial strategy programme, this question has loomed large in policy circles.

The UK has a globally celebrated regime for de-risking private renewable development. Yet, as the background notes accompanying the King’s Speech acknowledge, when it comes to meeting power sector decarbonisation targets, "It is highly unlikely that this scale and pace of investment could be delivered by the private sector alone.” This acknowledgement and the clarity that GB Energy will in fact be a public energy developer – not a duplicate public green bank akin to the Coalition government's Green Investment Bank – charts a path towards aligning UK energy policy and system structure with what the energy transition actually needs.

From the announcements so far, a few key questions remain on GB Energy’s next steps.

First, which technologies will GB Energy invest in? Some would have GB Energy focus exclusively on first-of-a-kind or emerging technologies, such as floating offshore wind, hydrogen, carbon capture and tidal energy. Its founding statement confirms that it will “focus on energy projects where the market is less mature... [investing] particularly in less developed technologies”. Overemphasis on unproven ventures, coupled with the limited capitalisation, would result in an undiversified portfolio that is vulnerable to technology failure risk. The extremely high levels of rapid and well-coordinated new deployments required from established technologies belies claims that GBE would crowd out the private sector if it focuses on developing fixed offshore wind and solar projects.

Second, how will GB Energy relate to private developers as it gets off the ground? During the election campaign, some Labour figures suggested GB Energy would not itself produce energy and instead be focused on derisking private sector investment. That would be a mistake. Public control over clean energy investment decisions is critical to reducing costs, bringing greater coherence, and enhanced certainty both to the investment pipeline and to ongoing operation of the power system through the transition.

In contrast to even highly subsidised private renewable development, a well-funded and ambitious GB Energy can directly invest in, own, and operate strategically valuable projects that align with broader economic and industrial strategy goals. As a state-backed and organised entity, GB Energy is better positioned than private developers to manage and coordinate key players across the supply chain, the seabed leasing and planning systems, and grid connections. Its cost of debt would be lower, and its investment appetite less susceptible to fluctuations in interest rates and inflation shocks.

The founding statement clarifies that GB Energy “is not simply an investment vehicle – it is a publicly-owned energy company that will take stakes in the projects it owns, manages and operates”. This is welcome, but it is also important that 'investing in partnership with private sector' doesn't mean relinquishing control about what gets built and where.

Third, what will GB Energy’s ongoing capitalisation look like? £8.3bn over the Parliament is valuable, but truly providing the 'financial backing it needs to meet its aims and ambitions' would mean more than that is required. Relatedly, how will HM Treasury consider GB Energy's assets in its fiscal rules accounting? A prudent but ambitious approach is needed here, allowing room to borrow to invest whilst respecting the wider fiscal position. 

And finally, will households and businesses ever be able to buy electricity from GB Energy through a retail arm? Neither the King’s Speech announcement nor the founding statement made any mention of this, but there is a strong case that only a publicly owned retail company can make good on the promise to cut consumers’ bills in time for the next election via already existing low-cost renewables, rather than just projects in the pipeline.

Questions thus remain regarding the design and function of Great British Energy, but the scale of ambition for it is clear. Answering these questions will be a key test of the extent of this government’s commitment to a new approach for economic and climate policy.

Adam Khan is principal analyst and Melanie Brusseler is senior research fellow at Common Wealth.

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