Great British Energy – why now is the time

How to make sure that it works well,
and quickly

Steve Wardlaw, January 2024

Funny how things change over time. My first job (30 years ago) was at the law firm Slaughter and May, working on the privatisation of the power sector. Then we did gas. Then rail. Then water. Even then, we could not understand the commercial benefit of privatising rail and water, but we were 100% behind privatisation of other major industries. Anyone merely suggesting that the government might establish a new utility company in public ownership would have been laughed out of the meeting. 

Even 10 years ago, any idea of ‘nationalisation’ presented by the Labour party was challenged by the Tories.

But times change. The idea of a national energy company has even been embraced by the conservative government, although with some significant flaws (see my last piece on GB Nuclear). The Labour party has, rightly, put big store in the concept of a national energy company – GB Energy (GBE) – as a method to accelerate the clean tech sector in the UK.

This piece looks at 3 areas:

• How to develop GBE’s existing stated scope

• What else could/should GBE do?

• How to get GBE up and running rapidly and effectively, within one electoral cycle

 
What is the stated scope of GB Energy?

So this comes from a number of sources, mainly the Labour paper “Make Britain A Clean Energy Superpower”. However, note the ‘number of sources’. In the discussion since Labour announced GBE a year or so ago, lots of reports have given it slightly different mission statements. That is something I discuss later in terms of potential bear traps.

• Become a clean energy superpower

• Be an investor to encourage UK development

• Invest in portfolio of energy projects worldwide

The issue for all policies at this stage of an election cycle is that they tend to be just high-level principles. This isn’t terrible, and is very normal, but you need to make sure that you have a team that can develop the detail quickly once in power. Where do we need to build detail quickly? Here are a few ideas.

Become a clean energy superpower. Superpower means may things, not all of which GBE can do. For GBE, it means development funding to bring energy companies onshore to the UK and to develop our own national champions. That takes money but this can still be directly and indirectly profitable, indirectly through job creation and extra GDP but also directly by the government/GBE taking a stake in the venture in exchange for funding.  It should be policy that in the event of the government giving grants or loans to clean energy development projects, the government (in the form of GBE) should have a stake in any profit stream. This will also help Labour’s stated aim that GBE should become self-sustaining as soon as possible. Note the contrast with the Government’s GB Nuclear plan, which is a grant program where the government does not seem to get a share of the spoils. This looks like an unforced error – to be a lender but not take any long-tail profit upside. GBE should avoid that.

Note that in order to create centres of excellence for clean tech here in the UK, the government will also need to look at tax breaks, freezones etc. This is beyond the scope of GBE but must be complementary.

Be an investor to encourage UK development. Here, we presume that GBE would have funding to be an anchor investor to UK based clean generation projects. The question is why does this matter? If the project is bankable, then it can be financed and developers will get on with it, surely? The reality is not that simple. We want to encourage energy companies to come here over and above competing projects in Europe and elsewhere. Our first step is to create a favourable lending framework. Think of this part of GBE like the EBRD in the early 90s. That bank encouraged investment in eastern Europe by being lender of last resort, effective taking government and some commercial risk. This is something to consider for GBE – perhaps being a 5% investor and covering off those risks for the other lenders and stakeholders? It can also then be much more directive of the government’s aims by having some rights in the projects.

Invest in portfolio of energy projects worldwide. This is vital in an era where borrowing is going to be tight. The aim is to leverage GBE’s position to develop a portfolio of income-generating energy stakes in order to acquire reputation and knowledge as a global energy company but also to reduce the need for funding from the state. This is definitely more time consuming and GBE will need genuine industry experience as to how portfolios can be purchased and developed.

What else should GBE be doing?

Before some suggestions, a warning. There will be pressure on GBE and the government for GBE to do more and more. There is a danger if GBE tries to do too much, even within its existing aims, that it misses its goals. A warning sign here is a lack of clarity as to each of the aims of GBE – each one phrased slightly differently depending on the audience. This is to be a successful standalone investment and development behemoth. Whatever its final scope, it needs to be clear and beyond continued negotiation, especially political pressure.

There are two clear additional areas where GBE could add value – one a quick win, and one strategically vital. The first is to put Labour’s Warm Homes policy under GBE and use the profits generated to roll out and expand that. It’s not headline grabbing but as discussed in previous pieces, there are huge benefits for households to get this done. Secondly if GBE wants to become a global clean tech champion then it (with the government) needs to have a procurement strategy for the materials, metals and minerals needed for tech production. There is mention in the Labour document of ‘supply chains’ but this is too vague. There needs to be state direction (perhaps lined up with other states) or else we will not be able to compete in that race with China or any other command economy for mineral reserves. This is to be considered – if this is too big for GBE there may need to be a separate procurement company.

How to get GBE up and running rapidly and effectively

In the end, this is the bottom line of all government ideas – how quickly they can get off the ground. Given that the UK is arguably behind on green measures and tech development, and the need to save money for households, this is vital. And there are ways to minimise any delays:

• The warm homes scheme can be started immediately. It will need initial government support but can be folded into GBE later if this becomes part if its remit.

• Using GBE as an anchor investor in projects? This could be done almost immediately as this will overlap with some of the work of the UK Infrastructure Bank – one division of that could be moved to GBE or simply rebadged before a fuller transition.

• GB Nuclear should be folded in and retooled to follow the lines described above. This is implicit in the Labour proposal but we need to be more explicit. Nuclear will be a vital part of our energy mix and GBN’s current remit and poor resources point to a headline rather than a policy of substance. A more general question is whether development should be done for nuclear with a beauty pageant (as currently) or by a longer term partnership, given the few players in the market.

• As far as creating the UK as a centre for clean tech excellence this will be a medium term plan but clear commitment from the government with a detailed plan for longer term benefits, and GBE investment, will send the right signals. It is up to GBE to have a senior team who can then get those deals across the line.

• On a related point, it is admirable that GBE should build up a national/international portfolio of investments. This will take time. There is a quicker way. Use the leverage of having some attractive projects here in the UK and offer a stake to other energy companies - BUT as part of that look at purchasing some small stakes in their existing projects. This was common in the big inward investments in Russia and similar a few years ago, where Russian oil and gas companies would offer stakes in projects in Russia but look at buying small stakes in non-Russian assets. Within a year or so of establishment, GBE could be looking at a small but successful global green energy portfolio. Again, that will take skilled negotiators at GBE with government support.

 No man is an island, and no state company thrives without government support. The government will need to look at, among other things:

• liberalising planning so that projects can get off the ground,

• tax breaks for suitable inward investment,

• a minerals procurement strategy to avoid supply delays.

In addition (and for a future piece) we need a more muscular OFGEM – acting to hold the government to account for its energy pronouncements as well as marking its strategy to achieve agreed goals. In effect, energy security is so important that OFGEM needs to be like an OBR+, driving the sector forward and publishing government and GBE failures in that regard.

In summary, even the best manifesto pledges merit one or two bullet points. The mark of success is the detail around any proposal. GBE has the potential to be a great idea, and a legacy of this administration. If focussed, resourced and led wisely, it can make a real mark within one election cycle, with significant future potential. However it will be complex and so the detail needs to be worked on now.

January 2024

Cover: stock