Great British Energy Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Tuesday 3rd December 2024 Lords Chamber

I am pleased to be able to open this group and look forward to the corresponding debate over the course of today. The designation of a company as Great British Energy and the ownership of the company are central to the Bill and, as such, they should be central to the deliberations of our debate in this place. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I rise to speak to Amendments 4, 6 and 7 in my name. I start by reminding the Committee of my interests as a micro-generator of hydroelectricity.

Amendments 4, 6 and 7 are designed to probe—a bit like Amendment 3 in the name of the noble Lord, Lord Offord—whether it might be desirable to allow Great British Energy to accept minority equity finance. I thank the noble Lord, Lord Cameron of Dillington, for his support on this. As these are simply probing amendments, I will try to be brief.

As the Bill is currently drafted, Great British Energy can be designated as such only if it is wholly owned by the Crown and will lose its designation automatically if that changes. It follows, therefore, that none of its shares can be owned by another party, and therefore no equity finance could be raised, at least at the Great British Energy level, from parties other than the Crown.

I can imagine situations where being able to introduce external capital into GBE could be a good thing. Clearly, I can understand why the Government would wish to retain control, which is why in my amendments I have set a required level of ownership of at least 75% of the issued share capital. Shareholders with more than 25% have the right to block special resolutions; so as long as the Crown controls 75% or more, it would still have full control of the company.

In that aspect, Amendments 4, 6 and 7 are more restrictive than Amendment 3 tabled by the noble Lord, Lord Offord of Garvel, although they are probing the same question. Can the Minister explain why the Government feel that they need GBE to be wholly owned and why they would not want the flexibility to raise external equity finance in future, while retaining control?

I am also interested to hear the answers to the questions raised by the noble Lord, Lord Offord, on his Amendment 1 on the relationship with the former UK Infrastructure Bank, now called the National Wealth Fund. I see from the letter that the Minister kindly sent us after Second Reading that the activities of GBE will in fact be carried out, at least initially, by the National Wealth Fund,

“in line with the NWF’s investment and operating principles”.

The letter goes on to say:

“This will enable GBE to invest quickly and draw on the NWF’s experience and existing pipeline of projects”.


That raises a serious question as to why we really need GBE at all. If the National Wealth Fund’s investment and operating principles and its existing experience already cover what GBE is being set up for, as the Minister’s letter confirms, and if it already has an existing pipeline of projects, would it not make more sense simply to provide the National Wealth Fund with the additional finance and resources to carry out the activities that are envisaged for Great British Energy—whatever those are, given the lack of detail in the Bill—and to leverage the experience and scale already built up in the National Wealth Fund? Are we in danger of duplicating responsibilities and adding another unnecessary layer of cost and bureaucracy with the Bill?

We could go further. The Bill carves out an area of activity that is currently already covered by the National Wealth Fund’s objectives and activities—again, as confirmed by the Minister’s letter—and puts that into a vehicle that has substantially less clarity on the way it will behave and substantially less accountability for what it does, as both your Lordships’ Constitution Committee and the noble Lord, Lord Offord of Garvel, have pointed out. One wonders what the Minister would have said if the previous Government had tried to do that—I suspect we know.

While Amendment 1 is a probing amendment, the noble Lord, Lord Offord, might have hit on a very neat solution in proposing to make GBE a subsidiary of the National Wealth Fund, where it would be subject to the accountability regime that already exists, which has already been accepted by Parliament. It would not in any way prevent Great British Energy meeting its objectives, but it would solve a lot of the issues that will come up later around accountability and transparency, as well as reducing the possibilities of cost duplication and ensuring that the expertise already built up in the National Wealth Fund is fully utilised. It would streamline the way the two organisations work together, removing the potential for future conflicts. There is no reason why the subsidiary could not still be separately located in Aberdeen as planned. In fact, ownership by the National Wealth Fund would not stand in the way of any of the plans that the Government say they have for Great British Energy.

The more I think about it, the more it seems that a simple change of ownership from direct to indirect would solve a lot of the issues that we will debate as this Committee goes forward, with no obvious downside for the Government or their plans for Great British Energy. I strongly encourage the Minister to give Amendment 1 serious consideration.

[Baroness Noakes (Con)]

My Lords, I support what both my noble friend Lord Offord of Garvel and the noble Lord, Lord Vaux, have said about the confusing overlap between what is now the National Fund Wealth and Great British Energy. I am one of those sad people who look at annual reports and accounts, and I was anxiously waiting for the UK Infrastructure Bank’s reports and accounts, which finally dropped last Monday. Through that, I discovered that it had legally changed its name to the National Wealth Fund two or three weeks ago, although no announcement seems to have been made about that at the time.

I agree that Amendment 1 is a very neat way of tucking Great British Energy into a more satisfactory set of governance and oversight arrangements, which we wrestled with when the UK Infrastructure Bank was set up. But my main reason for speaking today is in connection with Amendment 3 in the name of my noble friend Lord Offord of Garvel and Amendments 4, 6 and 7 in the name of the noble Lord, Lord Vaux.

I do not support these amendments, because I think the concept of minority stakes in government-controlled companies is a complete nonsense. Over the whole history of nationalised industries and publicly owned corporations and companies, there are relatively few examples of entities in which minorities held equity stakes. The exceptions are normally accidents of history—such as in the case of RBS/NatWest—rather than acts of conscious design.

I cannot think of a single good reason to encourage the Government to seek private capital in Great British Energy, as opposed to seeking to leverage private capital alongside public investment in projects that need public involvement to help to de-risk them. Equity is always more expensive than debt, and minority holdings in illiquid shares are even more expensive. The Government do not need to pay that premium. They can borrow money, to the extent that GBE needs it, by issuing government debt. That will be much cheaper than raising equity for GBE, even after the post-Budget bond yield increases.

Equity costs more to raise than debt because it carries more risk than debt. It is the first bit of the capital stack to be wiped out in liquidation—at least, that is what happens in the private sector. But does anybody believe that minority holders would be wiped out if the state decided to liquidate an insolvent Great British Energy? The Secretary of State has so many powers over Great British Energy that in practical terms the Government will find it very difficult, if not impossible, to escape underwriting all the liabilities of Great British Energy, and that includes its minority holdings. If the Government did try to wipe out the minority holdings in a liquidation, I predict a decade or more of shareholder litigation.

Having minority holdings can also engage a lot of unnecessary legal problems around protections for minorities that are built into our company law to prevent minorities being treated unfairly. It can raise issues about dividends, which are not normally part of the regime for state-owned enterprises since retained earnings, if there are any—and history tells us that there are not usually any—are generally kept within the public corporation. I am not a fan of state-owned activity, but we should accept it for what it is, which is taxpayer or debt-funded activity, and not try to mimic the real world where equity investors genuinely do take on risk.

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[Lord Hunt of Kings Heath (Lab)]

My Lords, it was more than two. I can quote Prime Minister May, and I acknowledge her leadership in this country being the first to enshrine the 2050 net-zero carbon target. Prime Minister Johnson only recently addressed COP 26 in Glasgow; I think we all acknowledge the leadership the noble Lord, Lord Sharma, showed there. The noble Lord, Lord Ahmad, announced to the UN the £11.6 billion in international climate finance for the period 2021-22. Although we are having this friendly discussion about future energy policy, there is still some consensus on the need to decarbonise our energy supply, and Great British Energy is part of the way we are going to do it.

The key thing in the structure of the Bill is the objectives set in Clause 3. They will be informed by the statement of strategic priorities that Great British Energy will operate in, making sure that it will be aligned with the Government’s priorities. We have been clear that the first statement, which will be published in 2025—after due consultation and discussion with the devolved Governments and with Jürgen Maier, the chair of Great British Energy—will ensure that GBE is focused on driving clean energy deployment to boost energy independence, create jobs and ensure that UK taxpayers, bill payers and communities reap the benefits of clean, secure, home-grown energy.

Of course, the issue of energy bills is very important. We are relying strongly on the advice of the Climate Change Committee, of which the noble Lord, Lord Hamilton, is probably not a great fan—but none the less, over 14 years his party listened to it. The committee said that a clean energy future is the best way to make Britain energy independent, protecting bill payers, creating good jobs and tackling the climate crisis.

The independent National Energy System Operator confirmed a few weeks ago that our 2030 clean power goal is achievable and can create a cheaper, more secure energy system. More broadly, the OBR—another body to which the previous Government paid great attention; they ran into trouble when they did not—highlighted that delayed action on reaching net zero will have significant negative fiscal and economic impacts. The Committee on Climate Change has said that the net costs of the transition, including upfront investment, ongoing running costs and costs of financing, will be less than 1% of GDP over the entirety of 2020 to 2050—lower, it said, than it concluded in its 2019 Net Zero report.

I have already said that we will publish the statement of priorities in 2025. How will GBE be judged? It will be judged on its performance against the statement of priorities within the context of the objectives set by Clause 3.

[Lord Vaux of Harrowden (CB)]

The Minister has said again that the objectives of the company are set out in Clause 3. I am afraid that is not correct. The objects of the company are set out in Clause 3. As the noble Baroness, Lady Noakes, said, those objects restrict the activities—they do not set out the objectives. Nowhere in the Bill are the objectives of the company—what it is trying to achieve—laid out. I have not yet heard an argument from the Minister as to why that is.

[Lord Hunt of Kings Heath (Lab)]

I really do not read Clause 3 in that way. Subsection (2) says:

“The statement must provide that Great British Energy’s objects are restricted to facilitating, encouraging and participating in”.


One way to read that is that Great British Energy’s objects are around the following four paragraphs, informed by the strategic priorities and plans that the Secretary of State will prepare over the next few months.

[Lord Vaux of Harrowden (CB)]

There is only one way to read the words the “objects are restricted to”. That is what the clause says.

[Baroness Noakes (Con)]

My Lords, the noble Lord, Lord Hunt, may not be as familiar with company law as the noble Lord, Lord Vaux. The object of a company, which is what the clause refers to, is a constitution document, and it restricts what a company can do. That is what company law sets up for it. The Minister is trying to read “objects” in a broader sense. It is very clear that the clause refers to the legal documentation that will surround the full legal implementation of Great British Energy as a company. It does not have any other meaning.

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Moved by

[Lord Vaux of Harrowden]

10: Clause 3, page 2, line 14, after “storage” insert “, trading”
Member’s explanatory statement
This amendment would add energy trading to the allowed objects of Great British Energy.

[Lord Vaux of Harrowden (CB)]

My Lords, given the relevance of this amendment, I remind the Committee of my interests as a generator of small-scale hydro.

Before I get on to the specifics of the amendment, I will try to clear up a confusion that crept into the debate on the previous group, at the risk of reopening the mini debate we had at the end of the second group. There is still confusion between “objective” and “object”, and the Minister is still guilty of falling into that trap. The objectives are what the company has to try to achieve. The “objects” in Clause 3 are what the company is restricted to being able to do. If it is not in the objects, the company cannot do it—it is not allowed to. If it is in the objects, the company is allowed to do it but does not have to. Therefore, putting something into Clause 3 does not mean, as the Minister has suggested, that we specify what GBE should be doing or making, or in any way restrict its ability to make its own decisions. That is a really important difference. I suspect that a number of noble Lords who tabled amendments to Clause 3 think that they are adding an objective. They are not.

That said, my Amendment 10 is designed to allow GBE to do something, not to tell it to do it. Since the removal of the feed-in tariff system, of which I am a recipient, there has been only a very limited incentive for people to install greater domestic renewable generation capacity than the amount that covers their own usage. Own usage brings quite a substantial return because it replaces the cost of buying electricity from a main supplier plus the VAT, but the only way to be paid anything for any excess you send into the grid is the smart export guarantee, and the rules around that are simply that the amount has to be positive. That can be, and in many cases is, as low as a penny per kilowatt hour. That is not much of an incentive to add an extra couple of panels on to your roof, or whatever it might be beyond your own needs.

There are now some higher smart export guarantee rates but they can be reduced at will by the electricity companies. There is no guarantee of them, so when you consider installing solar panels or any other renewable generation there is no incentive to install more than you want to use yourself. The cheapest and easiest way of increasing renewable generation—because you already have the scaffolding up and the builders—is to add two or three more panels, but you will do that only if there is a return from doing so.

So would it not be a great thing if you were able to sell your excess to your neighbours, at a discount from the full retail price but at more than the smart export guarantee? That way, both the generator and the consumer would win. At the moment, the only way to achieve that is to hardwire your neighbours into your system, and that is an extremely expensive and not very practical thing to have to do.

One potential solution to that problem is peer-to-peer trading, which would allow neighbours to buy your excess electricity over a trading platform. With trading via peer-to-peer networks, neighbourhoods, districts or entire towns can join forces and trade their self-produced electricity. This is not just a theoretical concept; there are projects all over the world investigating the possibilities of this approach in field trials. There are working examples as far afield as Spain, Switzerland, Bangladesh, the Netherlands and many more. There are also studies in the UK, such as the one by Repowering London, UK Power Networks and EDF in Brixton. The technology is available now.

The huge advantage of peer-to-peer trading is that it can incentivise greater installation of solar and other technologies at no cost to the Government or to the consumer. GBE can take a role in this process as a trading hub, or it could support local trading hubs. The trading operations themselves could be financed by taking a fee for using the trading platform. It is also a great way to create community energy networks. There are wider advantages than the purely financial. Peer-to-peer networks can improve resilience, improve energy access and reduce losses from long-distance transmission.

That links quite nicely, I think, to the Amendments 11 and 15, tabled by the noble Earl, Lord Russell, which would add community energy to the objects, and to Amendment 20, tabled by the noble Lord, Lord Ravensdale, which looks at local energy planning. I would support both of those amendments, alongside Amendment 10, as I believe they are highly complementary.

All that Amendment 10 does is add the trading of electricity to the allowed objects of GBE. This would allow it to create, manage or support peer-to-peer trading arrangements, for all the reasons that I have given. I hope, therefore, that the Minister will look favourably on it. It would be odd and rather sad if this interesting and relatively new technological way of incentivising small-scale generation was not allowed under GBE’s objectives.

I shall not comment on the other amendments in this group as the tablers have not yet spoken to them, but a number certainly appear to be very sensible and constructive suggestions. I look forward to hearing more detail. I beg to move.

[Earl Russell (LD)]

My Lords, I will speak to two amendments in this group: Amendments 11 and 15. Before I do so, I want to thank the noble Lord, Lord Naseby, for his amendments. They fit well with the amendments on community energy. I was thinking about this subject myself. It is an essential system that needs to be put into place as part of that broader community energy scheme so that people can trade their energy; that would be better for all of us.

Amendments 11 and 15 both seek to include community energy in the objects of the Great British Energy company. It would be

“restricted to facilitating, encouraging, and participating”.

One of our key aims in debating this Bill is to work to ensure that community energy is both in the objectives for GB Energy and on the face of the Bill. The development of community energy has ground to a halt since the end of the feed-in tariff here in the UK. In Europe, by contrast, it is a very different story, where these systems are far wider, better understood and embedded in local societies. They are championed by their Governments and they are bringing great local benefits.

Community energy accounts for only around 0.5% of the UK’s electricity, but it has been estimated by the Environmental Audit Committee and others that it has scope for exceptional growth and could generate up to 8 gigawatts in combination with local power networks. Power for People, which has been supporting these amendments, estimates that community energy could power 2.2 million homes, save 2.5 million tonnes of CO₂ and help to create some 30,000 jobs. Community energy programmes are good ways of providing local jobs and are a useful means of addressing local fuel poverty. This is a continuation of the work that was started by Pippa Heylings in the other place; I have promised her that I will continue that work here as the Bill progresses.

Our view is quite simply that there is no Great British Energy without Great British community energy. Our vision for this Bill is that there should be an “out of the box” system, whereby every hamlet, local parish, town council and small village can pick up the phone and find an end-to-end system for creating a small-scale community energy programme.

GB Energy is perfectly placed to provide this tailored service. It is a one-stop shop turning ideas into reality, helping with systems choices, design, planning, building, local grid connections, finance arrangements, shared part ownership, et cetera. GB Energy should crowd in finance and not crowd out private investment, and this is one area where development is well suited to that. The big players and big companies are not investing in community energy; this stuff will not get off the ground unless GB Energy does it. There is no other market here; there is no competition.

Local community energy should be included in the energy transition, and communities should benefit from the local energy that they host or generate. We have tabled a forthcoming amendment on community benefit, which will be published shortly and debated in January when we come back for the second day of Committee. It seeks proposals for ensuring that local communities benefit from the renewable energy projects undertaken by Great British Energy.

We can make the national grid more resilient; it saves wasting energy in unnecessary transmission. We are currently transmitting energy from far up north to down south, losing a third of it on the way. As has been said, a trading system should be established so that local communities can sell excess energy. These systems make the grid more resilient, more robust and more stable. They help our communities to prosper and to benefit from that which they host.

The energy transition affects us all, in much the same ways that the Industrial Revolution did. We all need to make changes to the way we heat our homes, the way we travel and many other aspects of our daily lives. Such societal-level changes require broad and continuing levels of community engagement, participation and support if they are to be successfully enacted and carried through to completion, especially when the changes needed must take place at the speed and scale that is required here.

My personal view is that too much of what has been done to date is overly centrally controlled; it is much more “done to” than “done with”. We need community buy-in. We need to provide ways and means for our local communities to both participate in and benefit locally from the changes that we require them to make. Without this sustained local support, the whole net-zero project is in danger of being derailed by a lack of common purpose and want of determination to be part of the change that is required. Community public support is the key factor for the success of the whole project.

In some ways, this has been a strange task. There is broad cross-party support for the need for community energy. This was shown quite clearly in the other place, with many MPs supporting a Motion on this issue. There have been reassuring words of support in the other place, particularly from the right honourable Ed Miliband, the Energy Secretary, who said:

“I know that many Members of the House are passionate about the issue of local power, so let me reassure them that the Government are committed to delivering the biggest expansion of support for community-owned energy in history”.—[Official Report, Commons, 29/10/24; col. 776.]


Equally, here in your Lordships’ House, the Minister responded positively at Second Reading to the issue of local community energy. He has already spoken about his involvement in Birmingham and I know that he is passionate about the work that he did. He knows the difference that this makes.

The founding statement for GB Energy itself also has strong words of support for the principle and objectives of community energy, saying that

“we will be investing in community-owned energy generation, reducing the pressures on the transmission grid while giving local people a stake in their transition to net zero”.

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[Lord Hamilton of Epsom (Con)]

My Lords, I have always been a great supporter of small nuclear reactors, because it strikes me that they have the enormous advantage of supplying a locality and not getting involved, as the noble Earl, Lord Russell, said, with massive transmission costs. That would be all cut down, which has enormous advantage. Of course, Rolls-Royce is making small nuclear reactors to go into submarines, so we are probably better on the technology than most other people might be.

I have always had a worry that local people would react adversely to a planning application for a small nuclear reactor, because they would see it as devaluing their houses. Despite all-party support in Parliament, this will not stop local concerns raising their heads. I refer back to what the noble Earl, Lord Russell, said on that. I thought the answer was quite simply to offer people in the locality free electricity, and so immediately they would have an advantage. But from what the noble Lord, Lord Vaux, said when speaking to his amendment, that would not actually work. That is why I want to be absolutely clear about this. He seemed to say that wiring up all the local houses to the nuclear reactor—oh, he is shaking his head. Now I am confused. Could the noble Lord intervene and explain what he meant?

[Lord Vaux of Harrowden (CB)]

The nuclear reactor would just pump into the grid, which will be attached to everybody’s houses. The network I was talking about was one with the ability for house A, which has solar panels, to sell its excess electricity to house B, which does not. But a nuclear reactor would pump electricity into the grid and be available to all the houses.

[Lord Hamilton of Epsom (Con)]

That is enormously reassuring. I will support his amendment, even though that was a concern I had.

I think the answer to getting small nuclear reactors planning permission is to offer free electricity to people in the locality. When they come to sell their houses, they will find that any depreciation in the price from being near to a nuclear reactor will be off-set by the fact that they have free electricity written into the sale of the house. That would balance things out. That is very reassuring, and I am glad we cleared it up. I am grateful to the noble Lord and thank him. I very much support his amendment.

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[Lord Hunt of Kings Heath (Lab)]

My Lords, I cannot give the noble Lord chapter and verse today but will certainly write to him with what we can say in public.

[Lord Vaux of Harrowden (CB)]

My Lords, I thank all noble Lords who took part in this interesting debate and the Minister for his fairly fulsome answer. On Amendment 10, I am not totally convinced that trading is covered by the objects as they stand but I will read his answer in Hansard to see whether I can convince myself that he is right. As he says, the issue is that if it is not in the objects, it is not allowed. I want to make sure that it is allowed—not that it has to happen—in the same way that he argued the other way around on the security definition. That said, I beg leave to withdraw my amendment.

Amendment 10 withdrawn.