On Monday, Labour leader Keir Starmer doubled down on his commitment to establish a new, publicly owned clean energy company by announcing that Labour will boost investment in state-backed wind farms via GB Energy should the party come into power.
GB Energy is the sole remaining element of Labour’s green strategy, which suffered its biggest blow when the party rolled back its £28bn ($35.36bn) green investment pledge earlier this year, sparking concern that the party will struggle to meet its target of delivering 100% clean power by 2030, five years ahead of the current government’s plans.
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Speaking on Monday at a port in North Wales, Starmer cited the need to shore up “national energy security” as the primary reason for boosting investment in UK offshore wind. Although Starmer refused to specify how much he would commit to this new plan, Labour previously committed an initial £8.3bn towards GB Energy over the course of the next five-year Parliament if the party wins the next general election.
Further details on GB Energy remain scarce. In response to Monday’s news, co-leader of the Green Party Adrian Ramsay noted that the money committed is “a drop in the ocean”, adding that Labour seems to be “all at sea” when it comes to exactly “what sort of venture” GB Energy is likely to be.
Mathew Lawrence, director of Common Wealth – a left-wing think tank that has influenced Labour’s climate policy – told Energy Monitor that although Labour’s fresh announcement that it will invest in floating wind is “welcome”, in order to be “truly transformative, GB Energy must invest at scale not just in frontier technologies like floating wind but proven ways to cut bills and deliver genuine energy security, like onshore wind and solar.”
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He added: “Only public investment at scale can deliver the certainty, cost benefits and coherence needed to deliver a rapid, efficient and secure energy transition”.
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By GlobalDataA comprehensive vision for GB Energy
In a report published by Common Wealth in February, the think tank outlines its vision for a new public green energy generating company that “should be the vehicle for the just transformation of the UK’s electricity system”.
Common Wealth argues that the need for a new national energy champion to drive the transition is “urgent” as “the vast majority of investment needed to decarbonise the power sector has not yet been undertaken”.
In order to meet the Climate Change Committee’s recommendation for what is needed in its “balanced net zero pathway”, the UK will have to increase its wind power by more than 300% between now and 2050, 30GW operational to 125GW, while solar will have to increase by 467% in the same time period, from 15GW of solar to 85GW, Common Wealth notes.
Yet as it currently stands, while the UK is rich in renewable resources, it remains one of the few countries in Europe lacking a national green energy champion like Denmark’s Ørsted, Sweden’s Vattenfall or Norway’s Equinor. As a result, as noted in an earlier briefing paper, almost half of the UK’s offshore wind capacity is already owned by other countries’ national governments.
While a miniscule 0.07% of its offshore wind capacity is owned by the British Government, Danish government entities own 20%, Common Wealth found, bolstering the argument that Britain is failing to capitalise on its own natural resources.
Based on socialised ownership, investment and planning, Common Wealth claims that its vision for GB Energy would bring “significant savings” to the public purse, because public enterprise has “no mandate to pay dividends in excess of initial equity injection” and benefits from “structurally lower cost of borrowing”,
Specifically, the think tank claims that renewable investment financed out of Labour’s announced £8.3bn initial capitalisation of GB Energy would save between £125m and £208m per year on interest alone for every year that the debt was being serviced, relative to if that investment was financed by corporate borrowing (based on the average corporate bond rating for offshore projects).
Crucially, Common Wealth argues for investing in clean power based on “system-level need” rather than isolated project-level returns. This is because, it argues, “public enterprise can divorce investment decisions from the profit imperative”.
Fundamentally, the think tank believes that the current approach to green investment in the UK, based on “market coordination, premised on private investment, market-based governance and private profitability”, will be “slower, more unequal, costlier, and therefore less secure” than public coordination of the transition, driven by public enterprise.
Speaking to Energy Monitor, Melanie Brusseler, senior researcher at Common Wealth and report co-author, summarises the thrust of its argument. “The fundamental issue is that trying to rely on private investment, project by project, to do this really massive task of rolling out a clean energy system over the next ten years, which will be difficult no matter who does it, [will be] even more difficult if relying on private actors," she says.
That is because, Common Wealth argues, private capital is “ill-suited to delivering investment of this scale on its own”, because renewables are highly capital intensive, and therefore “struggle in wholesale markets such as the UK’s”.
As a result, renewables are “structurally vulnerable to both merchant price risk… and the effect of revenue cannibalisation”, meaning periods where high output and low demand produce very low marginal prices for variable renewable electricity, which can cause extremely low or negative market prices that pose debt servicing and solvency issues for developers and operators.
As it currently stands, private investment in “even proven, mature technologies” like offshore wind and solar require ongoing public support to overcome merchant price risk in wholesale markets, typically through tools that provide a guaranteed price or “otherwise employ public funds to furnish stable profitability”.
The UK’s existing approach to de-risking renewables is via the contracts for difference (CfD) scheme. As Common Wealth notes, the scheme aims to induce private investment by guaranteeing a stable and certain revenue stream through a predetermined fixed “strike price” per unit of electricity, backstopped by a public guarantee, which is in turn financed by a levy on retailers.
While this method of procurement has generally been successful, in September 2023, at the UK’s fifth CfD auction (AR5), it suffered a colossal failure, with not a single bid being made for contracts that would have delivered up to 5GW of offshore wind.
The blame for this failure has largely been placed on the UK Government, which set a maximum allowed strike price for offshore wind that was much too low to secure any interest. However, Common Wealth argues we should also understand the failure of CfD AR5 as “reflecting fundamental tensions and flaws in the architecture of both the CfD scheme and the broader structural reliance on private investment that can’t be neatly reconciled with a higher cap on strike price”.
Speaking to Energy Monitor, Chris Hayes, economist at Common Wealth and report co-author, argues that: “If you are going to insist on relying on private investment, [the CfD scheme] has probably been the most elegant way of doing it” so far. However, he adds the fact it is still “full of snags that could be solved by public investment” as making a strong case for doing the latter.
Indeed, Common Wealth’s report argues that the state has always been “essential at every turn to facilitating the construction of the UK’s existing renewable generation capacity” – either through the CfD scheme or, before that, the Renewables Obligation, which was the primary support mechanism for renewable electricity projects in the UK up until 2017.
“Ultimately, the buildout of renewable energy will be paid for by the public, whether through public subsidy, higher consumer energy bills to for-profit companies, or direct investment undertaken by the state itself,” the think tank argues, which raises the question: “How do we want to use the state, its singular risk-bearing capacity and public money, and to whose benefit”?
Common Wealth’s report concedes that there are a number of options for reforming the current system; however, it concludes that rather than engage in “ever more institutional acrobatics” to push an existing industry structure that is fundamentally “private, fragmented, unbundled, with investment organised by the profit imperative and deploying higher costs of capital” towards delivering a comprehensive and equitable energy transition, “we should do it ourselves as a project of national renewal: directly, consciously, by and for the public interest”.
