The Labour Party has returned to power in the UK in a landslide that reflects widespread voter dissatisfaction with the management of the country by the Conservatives over the past 14 years. But, following a campaign marked by its caution and a lack of detailed policy prescription, Labour is entering government facing a laundry list of questions over what it will do with the power it has won.
Climate and energy policy is a case in point. One of its five commitments is to “Make Britain a clean energy superpower”, and Labour has sought to put some blue water between its commitment to climate action and that of the outgoing government, which had been moving away from the net-zero consensus.
Labour’s climate and energy commitments include an aggressive target of entirely decarbonising the UK’s electricity supply by 2030 – although that is only five years sooner than the previous government’s 2035 goal.
Labour has also pledged to reform the energy system, create 650,000 jobs in the energy sector, and spend £6.6bn over the next Parliament (which will run to 2028 or 2029) on improving the energy efficiency of Britain’s homes.
Great British Energy
But perhaps of most interest to energy market participants are Labour’s plans to create Great British Energy, a state-owned organisation capitalised with £8.3bn over the next Parliament.
In its manifesto, Labour has said that GB Energy, which will be based in Scotland, will: “partner with industry and trade unions to deliver clean power by co-investing in leading technologies; will help support capital-intensive projects; and will deploy local energy production to benefit communities across the country.”
Of its overall funding, £3.3bn is earmarked for that last mission, to promote community energy schemes.
But, beyond these broad objectives, there is little detail about how it will work and, crucially, how it will interact with the existing ecosystem of utilities, developers, investors, and consumers of energy around the country.
A national energy champion?
There are calls from the left of the Labour movement for GB Energy to become a ‘national energy champion’, akin to state-owned energy giants such as EDF in France or Norway’s Equinor. This would see GB Energy act as a developer of energy projects, developing, financing, constructing and operating clean energy capacity. This could include developing nuclear reactors.
But creating an organisation that would build and own large volumes of capacity would be prohibitively expensive and would reverse decades of minimal state ownership of UK generating assets. Nuclear power plants, in particular, are enormously capital intensive, prone to massive cost overruns, and the government has a poor record of delivery in the sector.
In our view, developing large volumes of capacity – of whichever technology – is also unnecessary. There is no shortage of private capital ready and willing to invest in the energy system of a (broadly) well-managed advanced economy such as that of the UK.
State energy investment vehicle
A more sensible use of limited public funding would be for GB Energy to co-invest alongside private sector companies and investors. By carefully selecting projects or technologies on the cusp of commercial viability, GB Energy could leverage small amounts of capital into relatively large volumes of clean energy technology.
The UK’s Green Investment Bank (GIB) played a similar role. Set up by the coalition government in 2012, GIB was able to ‘crowd-in’ private investment into projects that were not otherwise viable. and played an important role in developing the UK’s offshore wind sector, before it was sold off by the Conservative government in 2017.
However, even working alongside private investors, GB Energy’s limited financial firepower means it would be unlikely to make a big splash in the UK’s energy system.
Promoting marginal technologies
Others see a role for GB Energy in bringing forward technologies that are not currently commercially viable or are too risky for private sector investors, such as floating wind. Starmer explicitly identified the technology as a priority for GB Energy.
However, deployment of new technologies at scale is also capital intensive: £1bn/year is unlikely to be sufficient to commercialise tidal or floating wind.
Early-stage tech investor?
The one point in the technology deployment curve where GB Energy would be a well-capitalised actor is in venture capital. £1bn/year could help promote a wide portfolio of technologies – particularly if GB Energy developed expertise in the capital-light information and systems technologies that are needed to run modern, decentralised grids. There is a wide range of innovation needed in grid enhancing technologies that are set to revolutionise the efficiency and functionality of power distribution and transmission.
Labour has stated that GB Energy will “co-invest in leading technologies”. A government run agency would have convening power that could help bring in universities and research institutions, while potentially partnering with existing investors in the space to increase its capacity and financial heft.
All to play for
This election was fought between a government that had run out of ideas and an opposition that sought to avoid missteps by making itself as small a target as possible. This involved extreme caution on policy and a reluctance to provide much detail for its plan in government.
We can only assume that Ed Miliband, as Shadow Secretary of State for Climate Change and Net Zero, has a clearer and more elaborated plan for GB Energy than the Labour party has chosen to share with the electorate, and with the UK’s energy sector. We will soon find out.