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31 May 2024

The UK doesn’t need to invest in wind farms

For Keir Starmer’s state-owned company Great British Energy to be successful it may need to make unpopular decisions.

By Will Dunn

There are two ways to fix Britain, if you’re a politician. You can do years of work following a plan that will turn things around in the future, when your opponents can either take the credit or trash the whole thing. Or, you can whack a Union Jack on it and take the credit now. Trains don’t work? Great British Railways! Chronic under-investment in the private sector? British Business Bank! Widespread fuel poverty and terrifying environmental collapse? Great British Energy!

Keir Starmer has just re-announced the last of these in Greenock in Scotland. Labour intends to base Great British Energy (GBE), its planned state-owned energy company, in Scotland, where much of the UK’s energy industry is already based. GBE would raise £8.3bn through windfall taxes on oil and gas over the next parliament and deploy this as “early investments” in renewables. This is either too much (if you’re a Tory) or too little (if you’re a Green). In reality it is a decent chunk of change. SSE, which is currently building the world’s largest offshore wind farm at Dogger Bank, is investing £20.5bn in renewables by 2027. If GBE invests £8.3bn it will become one of the bigger investors in renewables in the UK.

There are good reasons to do this as a state, the main one being that the government can always borrow more cheaply than anyone else. Starmer has said that energy independence would remove “Putin’s boot from our throat”, but the boot is not only Putin’s. Another belongs to energy companies such as British Gas, which increased its profits ten-fold in 2023, and to the banks that lend to energy companies. Renewables are typically funded by debt, and those finance costs translate directly into higher bills.

Almost half of the UK’s offshore wind is already publicly owned, just not by the British public: state-owned companies such as Denmark’s Ørsted and France’s EDF. Governments are good at investing in renewables because they are less concerned by the risks (volatile prices, less reliable supply) and more concerned by externalities (all the other costs caused by the climate crisis) than a fossil fuel company. Mathew Lawrence, director of the Common Wealth think tank, says companies such as BP and Shell have “pivoted away” from renewables in favour of the higher profits to be had from more oil and gas extraction, and that markets need more than a “nudge” for the systemic change that’s needed. A national energy company could, he says, be “the NHS of the 21st century, in that it is a national institution that has both a moral imperative – but also a material offer”.

However, other energy analysts say the market is already doing the job of building energy generation – the UK was the world’s largest recipient of foreign direct investment in renewables in 2022 – and that the really significant challenges, which only the government can take on, are a harder problem.

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It won’t really matter if Britain becomes, as Boris Johnson once put it, “the Saudi Arabia of wind” if it isn’t also a very successful builder of electricity pylons, interconnectors, electric cars, insulation and new homes. Decarbonising Britain’s electricity is much more than a question of supply. We have some of the oldest and least energy-efficient houses in Europe and 80 per cent of homes are heated by gas: it will not matter if we change the mix of electricity generation if we don’t also all switch to using electricity for cooking and heating, and save energy through insulation.

However, these are difficult to achieve politically: you have to decide who gets free state-funded insulation (and who doesn’t), who can put a heat pump on the wall of their block of flats, who has their view ruined by pylons. The Conservatives effectively banned onshore wind generation in 2015 by tightening planning rules, and they did so because their voters wanted them to. A genuinely decarbonised grid involves a lot more local strife. There’s also a fight to be had about the high cost of electricity – which is pushed up because the policy costs of transition are loaded on to electricity bills, not gas bills – but again this is hard work. It’s a lot easier to build a Union Jack wind farm a few miles offshore, even if the market is already doing that.

The job of the state should be to do the bits for which the market has no appetite. For example, one issue with a mostly renewable grid is that you need an option for when there’s a high-pressure weather system during the winter, and most of Europe has little sun or wind to keep the lights on. You might actually need some state-owned gas power stations to provide an intermittent power service, but of course the optics of a government building or buying fossil fuel plants are not going to allow that to happen.

With a big enough majority, Labour could spend a lot of political capital dramatically increasing our stock of new housing, insulating millions of old homes, providing new incentives to buy electric cars, and investing in the grid. This will take a lot more than a logo and a website.

This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here.

[See also: The net zero transition is not a silver bullet]

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