Totting up the prospects for GB Energy

The Labour Party is widely expected to win the election and launch its own solution to the country’s energy challenges, in part via GB Energy.

These plans have been in discussion for some time, although widely lacking in clarity. Now, with the election season under way, more details are emerging.

Leader of the opposition Keir Starmer, speaking in the debate this week with Prime Minister Rishi Sunak set out some his thoughts.

GB Energy would be publicly owned, he said. It will “generate energy [and] will have investment alongside it. It will be owned by the taxpayer and drive us towards renewables so that we can have lower bills, secure energy and the jobs of the future”.

At the heart of the company is Labour’s drive to reach decarbonised power by 2030. This is five years ahead of the Conservatives.

Starmer said “clean power by 2030” would be in Labour’s manifesto, which is expected to be published next week. “It’ll be in our manifesto, it’ll be fully costed and fully funded. But the prime minster is slowing down on climate change, the problem with that is not only is it inconsistent with our obligations, it will cost more in the long run.”

GB Energy was initially a more ambitious plan. At first, Labour planned to provide £28 billion for its green energy ambitions. It has scaled this back to around £24bn over the five years of the new parliament, directing £8.3bn to GB Energy.

Renewables

Labour aims to reach 55 GW of offshore wind by 2030 along with 50 GW of solar. The current targets are 50 GW of offshore wind by 2030 and 70 GW of solar by 2035.

Labour has stuck with the aim of 5 GW of floating offshore wind. It also intends to more than double onshore wind capacity to 35 GW. It also aims to reach 10 GW of green hydrogen by 2030, from 6 GW under the current plans.

GB Energy may be able to have its most impact in innovative areas, such as floating offshore wind, tidal power and hydrogen.

Even so, it will have its work cut out. Considering the green hydrogen target. The UK government has been working to advance its aims in this area through Hydrogen Allocation Rounds (HARs).

It picked 11 projects in HAR1, giving a grand total of 125 MW. Bids were entered in April for HAR2, covering 875 MW. The next two rounds, due in 2025 and 2026, are aiming to deliver a total of 1.5 GW.

Aiming to scale up green hydrogen in this way will be challenging, both for industry and government. The winners of HAR1 agreed an average strike price of £241 per MWh, or £175 in 2012 prices.

Balancing the numbers

Starmer and Sunak’s debate saw the two leaders clashing over tax, not least with accusations that Labour would put up taxes by £2,000 for everyone. The accusation seemed ill-founded – but in other areas Labour will aim to secure more cash, not least from the oil industry.

Labour has stated that its energy plans will see household bills fall by £300 per year. This statement appears to reference a report from Ember in October 2023.

At the time, Ember said the plan – which would meet clean power targets by 2030 – would cut wholesale power prices by two thirds. It would also reduce gas imports by around 4 billion cubic metres per year.

Falling short in 2030, which the group defined as 89% clean power, would drive power bills up by £40. Since Ember’s study, electricity prices have come down, with Ofgem recently reducing power prices over the summer. As such, much of that saving has already been achieved, although largely as a result of lower gas prices.

Starmer linked GB Energy to the windfall tax, which Labour intends to increase, while also removing capital allowances. Given the impact on investment in the North Sea, which will decrease, this may be a challenge.

The Institute for Fiscal Studies has assessed Labour’s overall plans for the energy sector will cost an additional £23.7bn over five years.

This will come primarily from additional borrowing. Labour has committed to keeping the current government’s debt target. This calls for debt to fall as a share of GDP within five years. The IFS said whatever the merit of borrowing for the energy sector may be, this “will make the debt rule harder to meet”. 

Job creation

The party has also set out plans for a National Wealth Fund. This has the aim of creating new jobs by investing alongside the private sector in areas such as gigafactories, clean steel, ports, green hydrogen and energy storage.

In the debate, Starmer said the energy transition was not just a challenge. “It’s a huge opportunity. Renewables are cheaper. It gives us energy security so [Russian President Vladimir] Putin can’t put his boot on our throat – but it also gives us the next generation of jobs.”

The question of jobs is a core part of Labour’s pitch. To deliver the transition in the way Starmer has set out will see the UK grow new industries and manufacturing capacities, with the aim of creating 650,000 jobs.

As part of Labour’s plans, it has said it would base GB Energy in Scotland.

Going nuclear

The party has already been talking up the potential impact of its energy plans, where locally appropriate. Ed Miliband, likely to be the next Secretary of State for Energy Security and Net Zero, visited Hartlepool this week. Visiting the EDF Hartlepool nuclear power station, Miliband talked of extending its lifespan and building new projects.

“Hartlepool has an incredible future in clean energy with Great British Energy, our new publicly owned energy company,” he said to local papers. “I think Hartlepool can be a powerhouse for the clean energy revolution to bring good jobs, lower bills and energy security to our country.”

GB Energy is set to absorb GB Nuclear, which the current government launched in April 2023. The nuclear company is working on plans for new projects in Wylfa, in north Wales, and Oldbury-on-Severn in Gloucestershire.

The party has also set out plans to get new nuclear at Hinkley and Sizewell over the line, while also pushing development of small modular reactors (SMRs).

Falling short

Currently, the UK is not on track to achieve its goals. The IFS noted that Labour’s plans for its Green Prosperity Plan were “less than half” the amount the Office for Budget Responsibility (OBR) said the country would need.

Aurora Energy published its analysis this week, ahead of the debate. On the current trajectory, it said, Great Britain is “not set to reach net zero until 2051”.

Achieving net zero power by 2030 is “likely to be infeasible”, Aurora said. This would require “unrealistic acceleration of renewables deployment and direct intervention to restrict unabated gas”.

“Coherent policy action, market design and financial support if enacted at a large scale and high speed could potentially enable a net zero 2035 target to be reached if legislative action is taken imminently,” it said.

While achieving net zero by 2030 may be unrealistic, Aurora did not that such a scenario would see costs 4% lower than the base case. Reaching this target by 2035, would cut costs by 2%.

There are particular problems that GB Energy can solve. The challenge of what happens to the gas grid is one area that could be solved by such a state-backed company. Another is development of local community energy schemes, with the company expected to spend £3.3bn of its reserves on this.

Political levers

As important as Labour’s plan is, so too is how the new administration would implement its vision. The party has set out plans for “cross-departmental mission boards”, which will focus on Starmer’s five missions, of which GB Energy is one.

Linking up the disparate elements of the government’s energy factors will pose a first challenge. The interplay of, for instance, the National Wealth Fund and the UK Infrastructure Bank – which appear to work in similar areas – sets the stage for a potential fief war.

Furthermore, the launch of the National Energy System Operator (NESO) throws in more interested parties.

While Labour’s plans do appear unrealistic, there are clearly ways in which government could provide a better way of doing business.

Changing planning laws and supporting the grid would have perhaps the most impact on securing the UK’s energy future. These are also perhaps the most challenging, given the interplay with local politics. In some areas, jobs and cash may paper over the cracks, but different communities will have different priorities – and political sway.  

GB Energy will have a part to play, but Labour’s plans face a much greater challenge than can be solved through the application of money alone.

Research by Lauren Sutherland.