A lot is expected of the new Great British Energy company. TERRY MURDEN asks if we are expecting too much
Few initiatives, about which so little is certain, have been greeted with so much enthusiasm and on the back of so much expectation. Labour’s plan to create Great British Energy, a publicly-owned company, has prompted a public relations scrap between the Highlands and Aberdeen to secure its head office, a campaign battle bus visit to London, and optimistic comment on social media welcoming GBE as the solution to all our energy prayers.
While Labour may have discovered the direct route to a green future, there is a need for some careful reflection. We’ve known for months that it will be based in Scotland and that it will invest £8.3 billion, largely through a windfall tax on oil and gas company profits, to help speed up the switch to clean power sources and cut electricity bills.
There has also been a big dose of muddled messaging about GBE and exactly how it will work. During the election campaign Scottish Labour leader Anas Sarwar stated twice that it would be a generator. In the same week, he was contradicted by his boss Sir Keir Starmer who said it would be an investment vehicle, working alongside the private sector.
The King’s Speech was an opportunity to finally reveal who was behind the mask. Instead it added more confusion by saying that GBE will be an energy “production” company that will own, manage and operate clean power projects.
Further reading of background papers reveals that it won’t actually produce or operate anything by itself but will “facilitate, encourage and participate in the production, distribution, storage and supply of clean energy”. So we’re back to it having a supporting, rather than a direct, role in the transition of the sector that will still depend on energy companies extracting oil and gas in order to provide GBE with a budget.
This is where it gets even messier and somewhat contradictory, as Labour is committed to halting new exploration licences, which puts a lot of investment plans – including green ones – at risk.
It’s important to note that we’ve been here before. In 2012, the Conservative government created the Green Investment Bank (GIB), also based in Scotland, to invest in projects alongside the private sector, notably in those that private operators considered too risky to shoulder by themselves. In 2015, the UK Business Secretary at the time, Sajid Javid, described GIB as “the most active investor in the UK’s renewable energy and energy efficiency industries”.
Two years later it was acquired by Macquarie, the Australia-based private equity firm, for £2.3bn including the transfer of outstanding commitments. It made a £183m profit for the taxpayer and fulfilled the government’s intention to offload it to a private owner which “would free it from the constraints of public sector ownership”. That’s an interesting observation, given the clamour for GBE to be state-owned.
Critics said GIB had been sold cheaply, while Macquarie said the renamed Green Investment Group would target £3bn of investment in green energy projects over the following three years. That’s about the same as the “upfront costs” now being provided for GBE by Labour, but with a challenge that has grown in scale over that time.
Edinburgh had been chosen as GIB’s head office, though most of the jobs were in London, prompting claims that announcing the Scottish capital as the “winner” was a headline designed to placate nationalists. Don’t for a second think that putting GBE’s head office in Aberdeen or the Highlands will see this repeated. Not a chance.
As for the promise that GBE will cut electricity bills, Labour says this will be achieved via “additional electricity market reforms”, principally by taking gas out of the pricing equation. However, cuts in electricity bills won’t happen until 2030, which conveniently pushes delivery into the next parliament. Furthermore, sceptics say the decarbonisation process will build in added costs that energy companies will want to pass on to the consumer.
In the meantime, Ofgem’s next announcement is likely to be that the energy price cap is going up, not down. House of Commons Library papers state that following the 7% price cap fall in the third quarter of this year, it is expected to increase by 12% in the fourth quarter and remain at around this level in early 2025.
According to research group Cornwall Insight, a full return to pre-crisis energy bills is not on the horizon. It states that shifts in where and how Europe sources its gas and power, alongside continued market jitters over geopolitical events, mean we are still facing costs hundreds of pounds above historical averages for a while, potentially the new normal for household energy budgets. Don’t expect cheaper bills any time soon.
Terry Murden was Scotland editor and Business Editor at The Sunday Times, Business Editor at The Scotsman, and Business and City Editor at Scotland on Sunday. He is now Editor of Daily Business
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