Great British Energy – avoiding the traps

The independent Climate Change Committee's report to parliament makes for sober reading. One response to the challenge we face in achieving net zero is a new state-owned energy company, Great British Energy (GBE). It forms an integral part of Labour’s energy agenda.

GBE is a ‘Mighty Mouse’ policy intervention. Mighty Mouse is the small-but-powerful cartoon character living in the stars who hurtles down to planet Earth to save the day. Mighty Mouse is to be distinguished from Mickey Mouse, whose impulsive quest for grandeur leads to predictably disastrous results.

A proposed total capital injection of £8.3bn over the five-year life of this parliament is modest, explaining the mouse metaphor. GBE will need to ‘crowd in’ significant private investment to have effect. A recent policy paper* from a respected academic institution estimates an additional net investment requirement to 2030 of £18-25bn per year (from private and public sectors) to keep the UK on a net-zero path.

To achieve this, Labour's election manifesto states that GBE will “help support capital-intensive projects… and partner with energy companies, local authorities, and co-operatives to install thousands of clean power projects.”

What should we make of it? Government influence on UK energy outcomes has been growing for over a decade, and there is little point dwelling on ideological issues.

Empirically, even confining attention to Europe, there is a vast spectrum of ownership structures of energy assets: state and private, local and national, and many hybrid forms. They all work in the sense that the lamps are not going out all over Europe, at least not for ownership reasons.

Yet that is no excuse for an ‘anything goes’ approach. The key signal embedded in the empirical record is ‘context’. In the UK case, this has involved an identity change from monopoly state ownership after the Second World War to today’s predominantly private ownership, with environmental laws, competition, and regulatory oversight setting the constraints on private capital owners within the overall system.

Over this evolution, we can point to some howlers in policy. The recent tortured rollout of smart meters or the ‘too cheap to meter’ promise of nuclear power from the pre-privatisation era, to name just two. That said, our energy system is far from disastrous. It has consistently attracted deep pools of international financial capital, and significant investment from international corporate titans, like energy company Iberdrola (owner of ScottishPower).

Moreover, we already have several ‘Great British Energies’. National Grid, SSE and Centrica might all aspire to the title as leaders in aspects of energy infrastructure. New energy suppliers OVO and Octopus Energy have grown from start-ups to become large energy supply companies in their own right. We consistently spawn world-class start-ups in energy from our universities, allowing continuous innovation. And much more, besides.

Looked at holistically, the UK remains an enviable leader in the energy transition. With this heritage, I would humbly advise the new Labour Government as follows:

• Above all, ‘do no harm’ – do not let ‘failings’ blind us to the benefits of the industry we have. Instead, put learning to good effect. The main immediate area where government may help is to iron out well-aired issues around permitting, planning and system coordination, not to re-invent the electron. That is Priority 1.
• Further, whatever final shape GBE takes, there is little point focussing its capital in areas where we already have vibrant national and international competition. Poorly conceived intervention will crowd out, not crowd in, private capital. Or, indeed, worse – it risks the law of unintended consequences across the wider energy system.

On a positive note, there are three areas where GBE might integrate well into our evolving energy system with minimal danger of unseen negative consequences.

1. Any energy system driven by solar flows (directly, and/or indirectly by wind and hydro) will be vulnerable to very long-term (inter-annual) energy shortages, when nature ‘under-delivers’ several years in succession. Strategic storage collaboration between state and private sector is a possible answer to that.
   
2. There are conceivable future worlds of dimmed light on earth, so some government support for diversification beyond solar (broadly defined) is sensible. My own favourite is tidal (the moon’s gravity), but there are also cases for geothermal and nuclear, depending on cost discovery and context, not lobbying or hype.
3. Restore and enhance nature – an important division of GBE should be 'Great British Nature'. This would have multiple benefits and lower system risks. It is an area where a strong case for state intervention can be articulated at very low cost.

So, let’s hope GBE does not end up a Mickey Mouse. But it need not strive to be a Mighty Mouse either. I propose it learns from Jerry Mouse of Tom and Jerry fame. In the words of their creator, William Hanna, they were "the best of enemies, whose rivalry hid an unspoken amount of mutual caring and respect for one another”.

Respect as a corporate mantra, with private sector collaboration and a little rivalry to keep us all on our toes. Now that is a GBE that could enhance our national wealth, not dilute it.

* Further reading: Getting a Good Deal on Net Zero, Oxford Smith School Policy Paper (May 2024). Additional net investment figure is calculated after expected running cost savings from new technologies in power, transport and homes.