Mathew Lawrence is the founder and director of Common Wealth
The private sector wants to make money, but a public power company can invest more strategically
The new UK government has set itself an immensely ambitious task: delivering a clean power system by 2030. Central to its plan for the rapid, comprehensive decarbonisation of electricity generation is Great British Energy. Yet there remains confusion among some about what its role should be and the benefits of a public power company.
Clarifying the case is important: it is not nostalgia but a hard-headed assessment of the challenges and opportunities presented by the energy transition that make GB Energy — and the strategic tools of public ownership and co-ordination — so vital.
During the election campaign, the Labour party stressed the distributional benefits of public ownership. Income from energy bills going overseas, often to foreign state-owned companies, would instead be retained and reinvested in Britain.
However, it is the functional argument that public ownership and co-ordination can reduce costs, bring greater coherence, and enhance certainty — both to the investment pipeline and to ongoing operation of the power system — that better underpins the case for GB Energy.
Projects with highest profits
The UK faces challenges in decarbonising its electricity system, which GB Energy can do a great deal to address.
One critical issue is that private sector-led investment in electricity is spatially uncoordinated. Understandably, private developers look to build projects in locations that produce the highest profits, but these tend to be located far from demand centres and the wires needed to connect the new supply to demand have simply not been built fast enough.
This approach has led to decade-long grid connection delays, and high and rising “constraint payments”, which involve the system operator, responsible for matching supply and demand in real time, paying wind farms not to generate in periods when the network cannot handle their output.
In contrast, GB Energy could locate projects based on their strategic value to the system — as determined by the upcoming strategic spatial energy plan — rather than for their profitability.
The much-celebrated contracts for difference scheme has also faced issues, including a failed auction for offshore wind in 2023. This mishap occurred because of an information asymmetry on project costs between the government and renewable developers, which led to the maximum allowed bid price for offshore wind, known as the administrative strike price, being set too low by the Department for Energy Security and Net Zero. The result was that no wind developers bid.
There are indeed chronic issues with underfunded auctions, including the ongoing sixth allocation round. The underfunding is a feature not a bug, intended to ensure a degree of competitive tension between developers.
If relying exclusively on the CFD mechanism, this deliberate lack of funding comes at the cost of delivering the scale of investment needed. GB Energy would be well placed to accelerate investment in renewable capacity without the need to compete in auctions. Instead, it can manage price risk ex post through signing bespoke power purchase agreements with suppliers.
In the long term, GB Energy should be the main driver of investment in renewables, but given its limited capitalisation, to begin with it will need to complement the CFD scheme, rather than replace it.
Focus on expensive projects
Common Wealth has suggested that GB Energy could focus its initial investments on building projects that are in effect deliberately excluded from CFD auctions through the setting of the ASP.
These are the more expensive projects to build and, everything else being equal, the least profitable. Nonetheless such projects — which are typically in areas where land or seabed leasing is most expensive or where there are engineering challenges that lead to high construction costs — must be delivered if the government is to achieve its ambitions of decarbonising the electricity system, reducing consumer bills and delivering energy security. These projects are perfectly suited for an entity like GB Energy, whose decisions need not be constrained by the profit motive.
To achieve these outcomes, it is critical that GB Energy is not a weaker institution focused on de-risking private-led investment with minimal public ownership or co-ordination. If this becomes the case, there is the risk of GB Energy being left with little to no control of projects, a thin and non-strategic portfolio, and potentially replicating functions better undertaken by the National Wealth Fund.
Instead, to maximally unlock the benefits of cost, coherence and certainty, GB Energy must build, co-ordinate and own a portfolio of renewable generation projects based on a mandate to accelerate the sprint to clean power by 2030 and the economy-wide 2050 net zero target.
Labour governments have historically built institutions that have changed the fabric of the nation: the NHS, the Open University, the Low Pay Commission. Whether GB Energy can join that list will hinge on its design and operation.
If backed with ambition, capital and a genuine commitment to public ownership, it can contribute decisively to power decarbonisation this decade — and a fundamental role in the building out of Britain’s post-carbon future.