So what will Great British Energy actually do?

A nation-wide Swiss Army Knife

Labour has finally, finally opted to end months of speculation by dropping its commitment to investing twenty eight billion pounds in the great green transition.

This may be politically wise. If the Conservatives are to maximise their vote share at the next election, they need to be able to paint Labour as a risk to their potential supporters who might otherwise stay at home. After all, they’ve been alive during the last fourteen years and might not unreasonably think that another four years of the kind of administration Britain has endured during that period might lead to our island sinking under the waves. But if they can paint Labour as the tax and spend party again, one loathe to conform with fiscal rules, then those supporters might come out to vote in the hope that when they’re clustering on Scafell as the nation sinks at least they won’t be excessively taxed.

However, it is manifestly not pragmatic. The UK still needs a route to attract investment in the face of the US and the EU ploughing trillions of their currency units into capturing shares of the low carbon market. The biggest risk of not delivering this level of investment is that the economy continues in the doldrums and by the end of the next Parliament voters not unreasonably ask why.

And so, our attention must turn to Great British Energy. This is Labour’s proposal for a state-owned energy company that consistently tests extremely well whenever we (Stonehaven) undertake electoral research. Unlike the £28bn commitment, we can be confident that this is locked into their manifesto. However, public statements about what it is and what it will do can be frustratingly vague. See the below from Labour’s Missions document:

We will create a new publicly owned champion – Great British Energy, to give us real energy independence from foreign dictators. It will be owned by the British people, built by the British people and benefit the British people. It will invest in clean energy across our country- for example by making the UK a world leader in floating offshore wind.

From this, you might think that GBE is going to be a generation company - something like the Danish national champion Orsted. But if you listened to the Shadow Chancellor’s speech at Labour Conference last year, you’d hear this:

So today, working closely with Ed Miliband, I can announce Labour’s plans to rewire Britain. Securing the supply chain we need for lower bills. And to build faster and cheaper, opening up new grid construction to competitive tendering. And because the British people should own a stake in their energy system, the publicly owned Great British Energy will look to bid into that competition.

So GBE will also be a network company, building connections out to assets it might also own. But Labour’s ambitions don’t seem to stop at simply having GBE play in two of the great divisions of our energy market. Labour’s plan for GBE also involves:

We will harness Britain’s sun, wind and wave energy to:

• Save £93 billion for UK households.

• Deliver one hundred percent clean power by 2030.

• Cut energy bills for good.

• Create thousands of good local jobs.

• Deliver energy security.

• Make the UK energy independent.

Labour will build an energy system for the future, run for the British people.

So quite apart from being a generation and network company, GBE will also have an industrial strategy role. This is, to say the least, a highly ambitious plan.

How to make sense of such an expansive role? Taken at face value, the commitments above would seem to imply that Labour wants to built a multi-billion company in a few short years while at the same time seeking to undertake the similarly Herculean task of decarbonising our power system. The British State has suffered through over a decade of events that have degraded its capacity to do pretty much anything; regardless of what Labour want, it’s difficult to see such a vision being deliverable.

But if you’re to engage with this kind of proposition in good faith - and if your initial interpretation appears to be unachievable or in some way impossible - you should think about whether your interpretation is in fact correct. After all, it’s not like any of the above wouldn’t be obvious to Labour. How, then, can we better think of GBE as an entity that forms an integral part of Labour’s plans?

The starting point for an alternative analysis is Labour’s 2030 power decarbonisation commitment. I’ve previously described this as a moonshot, but I would remind you that we got to the Moon. You can chart a plausible pathway to it by considering the kinds of policy instruments you’d need to make it happen.

To deliver 2030, you need to build a great deal of low carbon generation. The instruments to do this largely already exist. You have mechanisms that can deliver as much low carbon variable power as you can eat. You have routes to deliver dispatchable low carbon power to balance the system. You have multiple revenue streams for short-term storage, although these are not without their challenges. You even have a tool to ensure you’ve got enough plant on the system.

The only thing really missing is a tool to ensure you can pay for standby plant, and the Capacity Market, suitably reconfigured, is almost certainly the right vehicle for this. An incoming Labour government could therefore raise ambition across all of these instruments to match their commitment.

But this is not enough by itself. The Government can hold a party but it can’t guarantee that anyone will come or not charge a steep fee for their attendance. You need to be able to ensure that you can connect all this new generation and ensure that in a world of tight low carbon supply chains you can get your hands on the physical kit at a reasonable price.

For the challenge of connections, the current Government has handed Labour an absolute gift in the form of the Centralised Strategic Network Plan. This instrument will greatly aid the pace of the connection build-out by doing the planning equivalent of pointing at a stretch of countryside and saying, “The wires have to go here, no takesies backsies.” While this will create political problems of its own, many of these will be in constituencies that vote Conservative almost regardless of what Labour do.

But it’s the supply chain challenge where I see GBE as the solution. Securing all the turbines, the wires, the transformers and the switchgear while other nations scramble to do the same would under current frameworks be left to the private sector. The alternative to this is emulating the approach taken by the state-owned Dutch network operator TenneT, who orchestrated Europe’s single largest contracting package to buy all the components it needs to deliver its offshore wind ambitions. The contracts included provisions for European construction of many of the high value components.

This principle - achieving lower prices by leveraging your market power to buy everything you need at once - is extremely attractive for anyone who would want to deliver something of the scale of Labour’s 2030 ambition. And it applies across the sector; it can apply to grid components, to CCS components, and to wind turbine components. GBE doesn’t actually need to build or own any of these assets, just provide framework for successful bidders in, say, a CFD auction to buy them cheaply.

And, because of the scale of the buy, you can imitate TenneT and mandate that components are constructed in the UK. Our agreement with the EU includes provision for us to subsidise industry in areas of deprivation such as, say, most of the areas around our existing industrial clusters. Because this is not about actively investing - or indeed holding anything on the Government’s books for too long - dropping the £28bn doesn’t actually matter.

This approach would deliver on the objectives Labour set for GBE as laid out above, but it’s fraught with challenges. The first is ensuring that you buy the right kit in the right amounts to avoid GBE having to warehouse things no-one actually needs. This is where the stronger advisory role of the National Energy System Operator may become relevant. The second is ensuring that you can get value for money; the right way to manage this is to leverage GBE not being part of the Civil Service to poach expensive people from the private sector who have a track record in getting this right. The third remains time; even if you found GBE this year post an election, you have to scale up a contracting team and a bidding structure very quickly. And manufacturers will be wise to this; there is a enduring risk that the pace of delivery pushes up prices by itself.

Fundamentally, however, these are challenges that can be overcome. If GBE is established to deliver this kind of function, it won’t be like the kind of quasi-utility of the interpretation I outlined at the start of this post, but rather more like a multi-purpose policy delivery vehicle. It will therefore be rather unique in British politics, and a clear break with how we currently do things in energy. If I’m right, this promises to be a fascinating year.