Quantifying the investment needed for cheaper bills under GB Energy

In this year’s general election, one of Labour’s key missions was the commitment to transform Britain into a clean energy superpower by 2030. Within days of securing their majority, the ban on onshore wind farms was lifted and within weeks, a bill was published for GB Energy.

A pledge to reduce energy bills by £300 per year is central to this multi £bn project – it’s welcome news. But many hurdles stand between Britain and the clean energy revolution that can help to realise this, including a need for substantial private investment.

Using a very high-level business case, we’ve broadly assessed the potential for savings under GB Energy below, and quantified the scale of investment that may be required.

GB Energy’s mission for cheaper bills and a ‘clean energy superpower’

GB Energy will be a publicly owned energy company, with its purpose to deliver clean power that benefits communities across the country. It aims to:

• Lower Energy Bills: Reducing energy bills by an average of £300 per year
• Increase Energy Security: Enabling less reliance on fossil fuels by increasing energy security through local generation
• Job Creation: Creating 650,000 jobs by 2030
• Clean Electricity: Committing to deliver 100% clean electricity by 2030

£8.3bn is planned to be invested into GB Energy. When combined with private investment, Labour say this could lead to substantial savings of up to £93bn for UK households through sun, wind and wave energy.

A broad assessment of the potential savings under GB Energy

We decided to test these numbers in a simple way, to see if the projected savings could be realised using a very high-level business case.

Using the average cost per industrial wind turbine and the £8.3bn investment, we determined ~22 GWh of energy will be generated from these new wind farms.

We then compared the cost of generating this power, in conjunction with the repayment of the investment, against the current Combined Cycle Gas Turbine (CCGT) systems. From this, we anticipate a total cost saving of approximately £25-30 billion by 2040, translating to an annual saving of £100-150 on energy bills per household from the displacement of energy generated by fossil fuels.

Labour’s original plan to cut bills by £300 p/y by 2030 requires an additional ~£29.1bn of private investment to generate ~98 TWh of energy. This is 4.5x the initial public investment, highlighting Labour’s reliance on private investment to realise these savings. However, using the National Grid’s Future Energy Scenarios, if this energy is solely replacing fossil fuels, then an additional 285TWh of clean energy is required to meet the annual demand in 2030.

Therefore, energy bills are expected to decrease, however the actual savings may fall short of the originally anticipated figures on this approach alone, without additional savings being assumed from more uncertain investments in nascent technologies and commercial approaches.

Note: the exact savings will depend heavily on the assumptions used in these calculations. As this is the initial stage of investment, cost optimisations are likely, which have not been factored into these estimates.

The hurdles to 100% clean energy

Alongside realising the potential savings above, GB Energy face several significant challenges:

• Grid Connection Delays: In 2024, 55.3% of the UK’s energy was supplied through clean sources. However, achieving full clean energy will require overcoming substantial delays in grid connections, with waiting periods of up to decade in some regions. Despite the efforts of the Electricity Networks Commissioner, who set out recommendations to halve wait time from 15 years to 7, this remains a critical bottleneck.
• Project Timelines: The time taken to set up renewable energy projects is another concern. For example, a single 1MW wind turbine project takes a minimum of 2 years, with time lags due to turbine access and planning approvals. Trydan Gwyrdd Cymru, a Welsh Government-owned company, is on track to produce 1GW of clean energy by 2040, further highlighting the long timelines associated with these projects and the potential for time lags for GB Energy.
• Intermittent Energy Supply: Wind power is dependent on weather patterns, time of day and geographical location, making it unpredictable and not consistently available. To address this, investing in large-scale battery storage is essential. These systems can store excess energy during windy periods and release it during times of low wind, ensuring a more reliable power supply.
• Private Investment Requirements: Realising the anticipated savings will require substantial private investment. While there is significant interest – evidenced by deals like CK Infrastructure’s acquisition of 32 onshore wind farms for £350 million – ensuring consumer protection from high energy bills, whilst delivering satisfactory returns to investors, will be crucial.

Is the Government’s focus in the right place?

These challenges beg the question, should the government’s focus be on the end product, or would it be better to invest in unlocking barriers that slow down renewable energy reaching the grid. Should investments instead be directed toward speeding up planning processes, improving grid flexibility through energy storage, optimising turbine efficiency, and enhancing customer engagement to reduce overall energy usage?

As the £8.3 billion investment is made, GB Energy is likely to encounter bottlenecks that need addressing. Tackling these issues will undoubtedly be costly, but it could pave the way for faster adoption of renewable energy in the future. The government will need to make critical decisions on whether to address these delays head-on or accept them as an inherent part of the transition to clean energy.

What’s next?

The vision for a green Britain is possible but the journey will be complex. Various obstacles could impact the projected savings, particularly the reliance on private investment, which demands competitive returns. Whilst public investment is the catalyst to kickstart this clean energy revolution, private investment will be crucial for its success. The government will need to carefully weigh its priorities: are they prepared to accept a smaller reduction in energy bills in exchange for a fully green Britain?

For more on the impact of GB Energy, or how to navigate challenges in the energy transition, contact Tom Bromwich.