Tick tock: GB Energy’s clock is
counting down
The one word the government must embrace – and quickly - is delivery.
Steve Wardlaw, September 2024
Everyone loves a good idea – you know, a punchy headline, a slick bullet point, a three word slogan.
But here’s a number that should worry the government in relation to its energy aims – 81.
That’s the number of days Labour will have been in power by the time their conference starts. 19 days away from the plethora of press pieces on ‘Labour’s first 100 days’.
The phrase about campaigning in poetry and governing in prose is trite and hackneyed. That doesn’t make it wrong. Any new administration has a hundred priorities, with a thousand advocates. From all policy areas. Everyone gets that it is tough.
This piece expresses concern about the Government’s energy policy – and how we can still create a champion of this administration, if the Government acts now. The reference to a ticking clock was not made lightly. This is not just about enabling legislation and then sitting back and watching the results. From its inception, GB Energy needs to have the mentality of racing against the clock. Otherwise, rather than being a legacy of the Starmer growth agenda, it risks being seen as a failure that will be gently deprioritised by the next government at the first opportunity.
Where we are
The problem with any incoming administration is that, in opposition, it will have had a fraction of the resources needed to detail an execution plan for any big project, and GB Energy is no exception. It is not a surprise that the Government is still considering some of the structuring (for example how GB Energy and GB Nuclear will fit together) but it will rapidly become a concern if GB Energy and the Government are not answering those questions on an accelerated basis.
It seems that some initial concerns are now justified. The Government issued the Founding Statement for GB Energy on 25 July 2024. In there the scope of GB Energy is set out clearly, although ministers still seem to struggle with the question of whether GB Energy is an energy supplier. (Answer – it isn’t.)
There is more detail set out in the Founding Statement and that is to be welcomed. However, as noted above there are still structural issues on GB Energy that need to be worked out. This must be a priority before GB Energy will be able to take on a material role – for example, any investment agreement on a new project.
Then there is still the question of staffing. Juergen Maier, ex-Siemens, will make an admirable chair, but he will need time to even think about recruiting a CEO and management team. It is unlikely that this was underway before the election, so there needs to be interviewing, selection and then notice periods to deal with before a full-time CEO can be available. In the meantime, two months in, it would be good to have the name of an interim CEO appointed on a temporary fast-track basis to deal with initial foundation steps.
As with staffing, there are other ‘boring but important’ issues to deal with. GB Energy is wholly owned by the Government, so it can fast-track making sure that the Articles of GB Energy and mission statements that are adopted by the Board, if there is one, are aligned with the Government. This process can be quick, but the question of agreement of the detailed wording has still not been published.
We have to hope that Mr Maier has the authority to push the Government on this. His role is therefore tricky, as it needs to face both ways. He needs to create an organisation that is the size of a substantial energy investment company, that meets the Government’s pre -agreed objectives, while at the same time pushing the Government to agree how press releases are converted into a strategic plan.
And remember, this all has to be done before any transactions are even considered. I will come back to that.
Before we progress, I wanted to give an example of the partnership between GB Energy and the Crown Estate. This is the Government’s summary of the partnership agreement:
Under the terms of the agreement, The Crown Estate will establish a new division ‘Great British Energy: The Crown Estate’. This partnership will:
Bring forward new offshore wind developments, with the potential to deliver up to 20-30 GW of extra offshore wind seabed leases to the market by 2030, to develop the future energy our country needs. DESNZ estimates that this could support the leveraging of up to £30-60 billion of private investment.
Stimulate new technology in areas such as floating wind, hydrogen, carbon capture and tidal energy, to keep Britain at the cutting edge of the energy transition.
Invest in ports and clean energy supply chains, unlocking strategic bottlenecks to speed up the delivery of existing projects.
Ensure that future development, including the next round of leases, has lower risk for developers, enabling faster buildout from leasing. We will work closely with the sector to ensure that the competitiveness of existing projects is not impacted, and that these changes to future development are successful.
This has the scope to be a great partnership. But again we return to the question of the detail of implementation. For example, if we look at the last bullet point, to ensure “lower risk for developers”, that would usually mean the Crown Estate/GB Energy taking more of the risk. This could be taking planning risk, so that the Crown Estate/GB Energy is financially liable for certain Government actions. It could also mean taking technology risk in the case of new technology, such that if the technology does not perform exactly as forecast, GB Energy will bear 100% of that first loss, up to an agreed percentage.
What is important to note here is that none of that is unusual for a project. There are often cases where governments or multi-lateral lenders will sweeten the pot. In fact, it is to be expected from GB Energy and the Government as it tries to crowd in investment. However, the questions remain as to how this fits with the Treasury and the Green Book (the rules on how Government spending and liabilities are accounted for) – if those liabilities have to be recorded at 100%, then this will need further discussion.
To reiterate, this is not a criticism of the concept. Far from it. A directed blend of an active Government, a wealth fund and a publicly-owned utility is to be welcomed. The concern is that, maybe, there may be a failure to appreciate the work that goes into the journey from plan, to breaking ground, to generation.
For example, the only current legislation on this, although an essential precursor, is the Great British Energy Bill, due to have its second reading on 5 September 2024. This bill does nothing more than establish Great British Energy as a company, with the Secretary of State having the ability to direct the company’s priorities. These still need to be agreed and implemented. To give an idea of balance, to establish a private limited company and register it with Companies House takes about 30 minutes.
From then on in, GB Energy will also need further Government assistance. Without rapid planning reform, and the removal of bottlenecks in grid access, there is a strong likelihood that nothing gets to a generation stage before the end of the first administration. And while the Government’s own plan, and GB Energy’s Founding Statement, refer to the company becoming financially independent in the longer term, that may be seen by the country as a failure of ambition, as well as a vehicle that still requires further Government funding.
It will come as no surprise to anyone in the energy sector that the average timing for a greenfield renewables project is likely more than one administration.
How do we fix it?
There will need to be some clear message management here. For those outside the sector, an understanding of the steps and timing, even with planning reform (which has not yet been timetabled) is essential. Politics is harder without short term wins – and an act naming Great British Energy is not that.
There are some other more radical ideas. Could GB Energy take stakes in existing European or UK projects to start generating income to accelerate its growth? This could be paid for by selling a minority stake in GB Energy to a similar company, such as Equinor in Norway or Ørsted in Denmark. One issue here is that the current Great British Energy Bill only allows GB Energy to exist if it is wholly owned by the Crown. That seems an inflexible steo in a sector that is known for innovation in its structuring as well as its technology. It should be reviewed.
Having a European state-owned partner also cements GB Energy within the UK energy sector, which will give confidence to private investors that GB Energy is now hard-wired into government plans, and so a longer-term prospect.
But…
What is my concern here? There is a danger of falling into a common Government bear trap, where the Government is dealing with the political issues (other state partnerships) and not the transactional details (the intricacies of getting an energy project firstly to final investment decision and then to operation).
GB Energy is not a charity or a fund. It is designed to run as an energy company within the UK, alongside private sector players. To do that, it has to function as a machine for facilitating transactions of several sorts. It needs to be empowered and staffed to do this rapidly for it to achieve any of the Government’s goals.
I am not sure that the Government is approaching it this way, or appreciative of the time that this will take.
Tick tock.
September 2024.
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