This article was originally published as an edition of the Green Transition, New Statesman Spotlight’s weekly newsletter on the economics of net zero. To see more editions and subscribe, click here.
With the introduction of the GB Energy Bill in July, the opening skirmishes over the design and scope of Labour’s new clean-power company are over. Before parliament returns and battle resumes, now is the time to assess the landscape to see what has been gained, lost, and what is needed for GB Energy to become a national energy champion capable of driving rapid and secure decarbonisation.
The bill makes clear that GB Energy will be a publicly owned company, not just a private financing vehicle, and one that will invest in, own and operate clean-power assets. This is an important and welcome commitment. Absent the possibility of genuine public ownership and investment coordination, GB Energy’s functions would be limited to some mix of debt financing and minority equity stakes of private sector-led investments. Taking minority equity stakes for renewable projects risks leaving GB Energy with little to no control of projects, a thin and non-strategic portfolio, and with it a potential replication of functions better undertaken by the new National Wealth Fund (NWF). By committing to public stakes, and making the political case for common ownership, the legislation opens up a path for GB Energy to become a decisive strategic actor in the electricity sector. Realising that ambition is a question of scale.
If delivered at scale, GB Energy can employ the singular benefits of public investment and coordination to reduce costs, bring greater coherence, and enhanced certainty both to the investment pipeline and to ongoing operation of the power system. To do this it needs ambition, capital and a genuine commitment to public ownership. It must be positioned as a tool in achieving the clean-energy mission through bringing greater coherence to the power system and coordinating investment. The ingredients are there in the bill, but three further sequential steps are required for it to properly maximise its potential.
Borrowing and scale
First, the final legislation should ensure GB Energy is equipped with the powers to be self-sufficient and effectively deliver on its mandate. This includes, crucially, giving the company appropriate borrowing powers to undertake large-scale investment in new renewables and exempting it from public-sector net borrowing accounting. This is the way in which successful public energy companies in Europe and elsewhere typically operate. Failure to do so risks constraining GB Energy’s investment ambition and operational autonomy. At the same time, if Labour is serious about creating a clean energy champion – and the centrality of GB Energy to their messaging suggests a genuine commitment – it should require the company to develop a clear plan for it to grow to match the size of peers such as Vattenfall and Ørsted by 2040. The TUC, for example, has set out a timeline and investment pathway that is robust but ambitious, which would grow the company from a fledgling actor to a national energy champion.
Capitalisation
Second, the political weight currently placed on GB Energy is substantial – that it will cut bills, deliver energy security and accelerate the green transition. It absolutely can help deliver these outcomes, but to do so effectively, it will require greater capitalisation. The initial £8.3bn endowment will help stand the company up and ensure it can invest in a range of projects. But against the investment requirements of rapid power sector decarbonisation and the mass electrification of society, it is not enough. While it makes sense to initially focus on establishing the company and proof of concept, to grow further – and to a larger-scale – public capitalisation will be needed to ensure a faster, fairer and cheaper transition.
A publicly owned retail supplier?
Third, a critical challenge for the clean-power mission in general and GB Energy in particular is how to translate low-carbon generation into lower bills for consumers – both as an end in itself and as the means for building a coalition of deep support for the policy. As Common Wealth has argued, alongside owning and operating renewable generation assets, GB Energy should introduce by the end of the parliament a consumer-facing supply arm to help overcome inefficiencies and redundancies in the retail and wholesale electricity markets. A “public option” retail arm of GB Energy would open up a progressive policy space to translate low-cost, clean-energy generation into durably lower bills and could backstop a national energy guarantee. Taking a wider perspective, the case for rationalising the network by returning transmission and distribution to public ownership will become ever-more obvious as the creaking condition of the privatised grid increasingly holds back economic growth and climate ambition.
The argument for public ownership is not principally a distributional claim – that a privatised electricity system is a mechanism for upward redistribution from billpayers to shareholders – though that is true and important. Instead, it is a functional argument: that the hybrid regime we have today, a complex mix of market and state coordination, is ill-equipped to deliver a rapid, secure, and cost-effective transition. Instead of relying on de-risking mechanisms and investment based on the profit imperative, a public power system would be based on a new mode of investment decision-making and operation, determined not by expected profitability but by a systematic assessment of what the energy transition and a just society requires. That should be the horizon of our collective ambition. GB Energy is not that. But the GB Energy Bill provides the nucleus for an institution based around genuine, if incremental, public ownership. How it develops from there is an open, contested and deeply political question. We should answer it with maximum ambition.
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