Britain’s new state-owned energy firm

The UK’s new energy secretary Ed Miliband, a former Labour leader who has long championed the net zero agenda, has just set up a state-owned energy firm – reversing privatisation’s 45-year march through Britain’s public sector. Matt Ross explores the role of GB Energy

Ever since the days of Margaret Thatcher, the UK has been seen – for better or worse – as a global leader in privatisation. Thatcher and John Major’s governments sold off swathes of the UK’s utilities and infrastructure, and Labour’s 1997-2010 administrations made no attempt to turn the tide: indeed, chancellor Gordon Brown’s Private Finance Initiative pulled more private money into public services. After 2010, the Tories picked the agenda up again – privatising Royal Mail and, briefly and controversially, contracting out probation services.

Under Keir Starmer, though, that direction of travel has been reversed. The government is legislating to nationalise rail, while energy secretary Ed Miliband is setting up a new public company to operate in energy markets.

“We already have public ownership of energy in this country, by foreign governments,” he said in July, announcing the establishment of Great British Energy. “The policy of this government is that it is time for the British people to also own things again and build things again.”

GB Energy will, he said, be “a new national champion allowing us to reap the benefits of Britain’s abundant natural resources, with clean power projects in communities across our country, to create the next generation of good jobs, reindustrialising Britain”.

With £8.3bn to spend over five years, Miliband explained, the organisation will “show how 21st century modern public ownership can help deliver a dynamic state working in partnership with industry, workers and unions”.

Read more: How Whitehall Works: How Labour is changing the way government works to focus on mission delivery

Meeting GB Energy’s objectives

The Aberdeen-based company – which was handed its first £100m for capital projects in chancellor Rachel Reeves’ first Budget, plus £25m for set-up costs – has a broad set of objectives: accelerating UK renewables investment, fostering energy independence, boosting job creation, keeping energy bills down, and generating returns for taxpayers and communities. So how can Miliband’s new body best go about realising its ambitious goals?

Asked this question, expert commentators first seek to dampen expectations – pointing to GB Energy’s relatively modest capitalisation. Decarbonising the UK’s energy supply by 2050 will demand investment of £25-50bn every single year, comments Malcolm Keay, a senior research fellow at the Oxford Institute for Energy Studies. The new company “hasn’t been set up on an ambitious enough scale to make an awful lot of difference”, he said.

GB Energy’s £8.3bn is “a drop in the ocean as far as the cost of decarbonisation is concerned”, agrees Professor Michael Pollitt, assistant director of the Energy Policy Research Group at Cambridge Judge Business School. “It’s not a game-changing amount.” And while Frank Gordon, head of policy at renewable energy and clean tech association the REA, is keen to sound positive – noting that GB Energy will use project funding to attract other investors – he too suggests that its budget “could be a lot more”, adding that “we would like to see that increase”.

There are also questions over the new governance infrastructure being established to hasten progress on decarbonisation. Miliband has set up a ‘Mission Control’ centre to help drive the agenda, and a new Electricity System Operator to control the grid. These bodies will have to work with GB Energy to clearly demarcate their individual responsibilities, says Keay. “It’s possible that all these various bodies will start talking to each other and come up with a coherent solution,” he says with evident scepticism, noting that “they’re all doing slightly different things but in overlapping areas”.

Investment decisions

Still, there is support for GB Energy’s status as an autonomous business, able to make commercial public investment decisions at one remove from the political pressures that so often distort decision-making within government. One of Keay’s worries, he says, is that during the journey to net zero “the government will decide which technology to push, rather than finding an appropriate market mechanism to identify the best technology”.

In the autumn Budget, Miliband’s Department for Energy Security and Net Zero (DESNZ) secured average annual real terms growth of 25.2% in capital spending – by far the biggest rise in Whitehall – and in other areas of its remit, it clearly is deciding which technologies to push. DESNZ will plough some £3.9bn into carbon capture and storage in 2025-26 alone, and spend £1bn over three years on local energy schemes to decarbonise the public estate. It will also be taking a £2.7bn stake in the Sizewell C nuclear power plant (it is not yet clear whether this will come out of GB Energy’s capital allocation) and spending £3.4bn over two years on providing poorer households with insulation and renewables.

Within its limited remit, then, GB Energy will need to spend its money wisely – and that, notes Pollitt, means ensuring that its interventions don’t displace private sector investment. “Where does this fit, relative to the generally privately funded energy transition that we’ve got going?” he asks. “If it takes shareholdings in solar farms or wind parks, that doesn’t make any sense because those things can already be done on a commercial basis and financing costs are already low.”

GB Energy could find a useful role funding projects that are going to “run at a loss for a period before they turn a profit”, Pollitt adds – reducing the risks involved for private investors. Gordon agrees, warning against interventions that “crowd out commercial investment. We want to crowd investment into emerging technologies like wave and tidal, geothermal, advanced conversion technologies. There’s a range of nascent technologies in the renewable space which would really benefit from this.”

The UK is, Gordon says, famously brilliant at inventing new technologies, but lacks the “patient, long-term capital” required to commercialise its innovations, resulting in a “valley of death” in which small, innovative British businesses fail before reaching maturity. Such investments are, by definition, riskier than backing more established technologies, raising questions over GB Energy’s ability to fulfil its mandate of generating returns. But as Gordon points out: “There’s a gap in the market for that kind of investment, and there’s no one investing in this space – so it’s not going to crowd anyone out.”

Read more: AI and digital technology can help treble renewable energy by 2030, says UN report

Fixing the fundamentals

There’s also potential in GB Energy’s partnership with the Crown Estate, which owns the coastal shelf where offshore wind turbines are located. In other countries, Pollitt points out, public bodies do more surveying and preparatory work before inviting bids from turbine operators – reducing the costs to business, and thus ultimately restraining power prices.

Keay notes that the UK’s last attempt to let offshore wind contracts failed, in part, because operators worry that “there will be an excess of wind power before too long”, which would add risk for financiers, leading them to demand higher returns. “The involvement of GB Energy might help reduce the perceived risks, which in turn would affect the price,” he says. For Gordon, the involvement of the Crown Estate creates new opportunities around emerging technologies such as tidal and wave power. “That is potentially quite exciting,” he comments.

There is also strong interest in GB Energy’s mandate to develop community energy schemes. But all three experts keep coming back to the wider issues constraining the energy decarbonisation agenda. “GB Energy will hit the problems the rest of the developers face, grid connections and planning delays being the two main ones,” says Gordon. “We need to fix those underlying problems across our whole energy infrastructure in order to really deliver.”

Taking a broader view still, Keay argues that the UK’s energy markets need fundamental reform if we’re to realise the potential of renewable technologies. Under the current system, prices are “based on short-turn marginal costs: that’s normally the gas price – so when gas prices go up, consumers suffer”, he explains. But the cost of renewables almost all lies in the capital required to build them: the wind, sun and water that fuels them is free.

Given these changes in the nature of power generation, Keay believes we should “change the whole framework in which investment takes place” – rebuilding markets to identify and promote the best low-carbon technologies, rather than tinkering with an unsuitable system to “get any renewables built as fast as possible”. However, he says, “the government doesn’t want to consider big issues like that – because when you get a very ambitious target, like decarbonising energy by 2030, you simply haven’t got time to sit down and think about the best way of doing that”.

A welcome shift

So Keir Starmer’s administration is sticking with today’s market structures, and pushing down on the accelerator – sinking money into a handful of low-carbon technologies, while setting up new bodies to hasten progress on the transition. For GB Energy, one immediate task is that of resolving the risks and tensions within its mandate. The obvious ways to reduce energy bills and generate returns, for example, involve investing in established technologies – a course that would bring the firm into direct competition with private businesses and displace private investment.

If GB Energy can help UK innovators to survive the “valley of death” and bring new technologies into production, however, it could play a useful role in building zero-carbon industries.

“If it invests in the right areas, that will be really, really beneficial,” says Gordon. “And setting up GB Energy shows the wider investment community that this is something that government cares about and they’re going to commit to. We’ve had the opposite signals in recent years, so that shift is very welcome.”

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