Great British Energy Bill (Second sitting)

Harriet Cross Excerpts

Committee stage
Tuesday 8th October 2024 Public Bill Committees

[The Chair]

This will be the final question.

[Harriet Cross (Gordon and Buchan) (Con)]

Q The aim of GB Energy, among other things, is to decarbonise the grid. The 2030 date has been thrown around. Practically, in terms of timescales, no matter what happens with GB Energy, the Crown Estate and land leases, it would not impact the Crown Estate’s ability to bring more wind farms online by 2030. What is in the Bill at the moment that can bring on the transition and help to decarbonise?

Dan Labbad: If you look at where we are today, we have just under 12 GW generating. The Crown Estate in England, Wales and Northern Ireland has about 42 GW in the pipeline. The first thing is: how can we bring as much of that to generating as possible? That is really important. Where and how do we remove immediate encumbrances? That is something we can work on immediately. From there, even to bring 20 GW to 30 GW to market by 2030 needs a lot of work and co-ordination.

To put it another way, we have delivered 12 GW of generating capacity in 25 years and if, as informed by the Climate Change Committee, we are to move up to 125 GW of generating capacity by 2050, that means we need a five to tenfold increase in the next 25 years. What we do in the next few years is incredibly important to ensure that we are laying the foundations for that to be a successful deployment.

[The Chair]

I said that that would be the final question, but we have a couple of minutes left, so, very briefly, I call Torcuil Crichton.

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[Olivia Blake]

Q Is there anything that you feel is missing from the Bill that would provide clarity, or do you think it will be covered in subsequent documentation?

Josh Buckland: My personal view on financial assistance is that it is fine to keep it relatively broad. Having been a civil servant in government for a long time, I know that primary legislation, if it is relatively broad, gives you the ability to think commercially, and clearly the energy transition will be set out with a range of different technologies. Innovation will come through, and the ability for the Bill to be flexible will assist that.

There are other questions about things that are referenced less in the Bill—let’s put it that way. In some of the previous legislation—for example, the Enterprise and Regulatory Reform Act 2013, which set out the Green Investment Bank—the Government talked about the need for operational independence undertakings and gave more clarity on the importance of creating an independent institution that can act in a way that ensures it can partner with the private sector and can take investment decisions that mobilise private investment and do not distort the market. Although that is not necessarily linked to clause 4, there are some interesting questions around whether the independence framework set out goes far enough to give that reassurance to the private market.

[Harriet Cross]

Q The Bill, as we have discussed, is pretty light on detail at the moment, which means it could be all things to all people or not offer enough answers to give any reassurance to anyone. From your clients’ point of view, is there a different mechanism that they would prefer? How could this public investment be used in a different manner to actually help drive and retain the private investment coming in at the moment? In other words, is this the best mechanism for keeping and driving investment?

Josh Buckland: On the surface, a range of different countries have publicly owned energy companies of different sizes and scales. Therefore, I do not agree with the concept that private investors are either unfamiliar or concerned at a general level. It will all come down to your point around the design of the actual institution and how it operates with the private market.

I think you are right to say that the Bill is relatively high-level. Looking back at some of the precedents that exist, I would mention the Green Investment Bank again. That was operational for a number of years and was established and grown while the legislation was then taken later down the line. It was easier, if you were a private investor, to understand the role that the Green Investment Bank would play and then have the legislation to effectively inform and solidify that.

The challenge in this context is that the Government have obviously proceeded with the legislation early on, as the institution is being established. That does not mean to say that it cannot be created as an institution that is independent and galvanises private investment but, clearly, the current level of uncertainty around the design and the mechanisms that it will deploy will add to that challenge.

Therefore, the Government have said that alongside the Bill they will look to publish more detail on a framework agreement with Government, and how they will set that out and consult with private industry. That, in tandem with the Bill, is critical at this formation stage. That is not to say that it necessarily leads to all that detail being in the Bill itself, but it is critical that it goes alongside it.

[Josh MacAlister (Whitehaven and Workington) (Lab)]

Q It is good to hear you say that the Bill has the full range of mechanisms within it to mobilise capital. There has been a recurring theme today that the Bill should provide flexibility for future eventualities as the energy system changes dynamically. Do you have any reflections on the past 10 years, and looking ahead to the next 10 years, as to how the mechanisms that get chosen by the executive at GB Energy might have changed had it been in existence 10 years ago? Looking ahead as well, how might the mechanisms that it chooses change over time?

Josh Buckland: It is a fair and good question. I think your substantive point is absolutely right; the mechanisms set out under clause 4 give Great British Energy the opportunity to take different approaches as technology shifts and changes. We have definitely seen, over the past decade, a shift towards different mechanisms deployed by Government. At the early stage, they were largely bilateral, non-competitive and largely done on a kind of long-term contract basis. It is very instructive to look at what the UK Infrastructure Bank is now doing; it is now looking at different mechanisms—earlier stage investment, development capital at risk, and equity investments. Those are the sorts of things that Governments have not traditionally done at the scale that is necessarily required for the energy transition but that obviously Great British Energy could play a role in extending.

There is an interesting question around where you draw the line between Great British Energy and the role of other existing institutions. The Government have already talked about the fact that they are going to evolve the UK Infrastructure Bank to be the national wealth fund, and obviously that will have some crossover with the operations and focus areas of Great British Energy. For me—this may be an issue that is separate from the Bill—how the Government set out how the governance will work between the Department, the Government, Great British Energy, the national wealth fund and other institutions will be critical to making that a success over time, as the executive of Great British Energy looks at new issues and technologies as they come through.

I would stress—I imagine that this point may be made by other witnesses—that the fact that clause 3 is relatively broad, in terms of the sectors and areas that the entity can invest in, is really beneficial, because that also allows some level of independence for the executive to take choices as the energy sector evolves. Clearly, we know the many technologies that we have now, but there will be a range of different issues that come through. I therefore think that that flexibility under clause 3 is quite important.

--- Later in debate ---

[Stephen Flynn]

Q In terms of the opportunities that exist in the Bill and GB Energy, would the appetite of your members for projects related to production or the generation of net zero energy be increased by the quantum that is available as part of GB Energy, which is relatively small in real terms—£1.3 billion per year, less the money that is already likely to be allocated to local plans and community projects—or by the ability to de-risk? If it is the latter, could you expand on your earlier answer?

David Whitehouse: I think we all recognise that on the journey to net zero a huge amount of investment is required to get us there—the Climate Change Committee says that £1.4 trillion is required. The lion’s share will come from the private sector, so GB Energy will help, but actually we need to create the conditions more broadly where we have investment in the energy sector that turns into enduring value. That is what we need to deliver, and we can talk about that.

Where GB Energy can play a role is in those opportunities that would not otherwise have happened, such as through the opportunity to de-risk projects. If we look at things such as carbon storage, de-risking and understanding the nature of the carbon stores and using that as an opportunity to buy into future investments is a role that GB Energy can and should play.

We have spoken about connectivity with Europe. Scotland and the UK’s future will be hydrogen pipelines to Europe, and there is a role for a state player to crowd in private sector money make those projects happen. We often talk about GB Energy as an investment vehicle but, if we work in partnership with industry, it should be much more than that. Getting money is difficult, but it is not always the most difficult thing that we have to do, so it is about unblocking the other issues. There are 13 years from consent to the delivery of the first electrons. It is in those areas where we can have a state player sitting with industry that understands our challenges and what we need to do. We often talk about GB Energy as an investment vehicle, but it should have a bigger vision than that.

[Harriet Cross]

Q The statement of strategic priorities set out in clause 5 does not have a timescale on it. I wonder how important it is from your members’ points of view that that timescale is narrowed down, particularly given that a lot of your members will be international companies. Obviously investment and personnel—that is, skills—flow abroad, and we cannot guarantee that they will wait for a strategic priorities document to come forward.

David Whitehouse: There is no doubt that the UK and Scotland are in a global race for investment, and we need to create an environment where we are attracting investment. I sit in a sector that has been battered to some degree by public perception and by tax changes. There are things that are happening outwith GB Energy that, as a country, we need to look at. We need to make a great environment for investment.

Time does matter; GB Energy will start to come to life when the Secretary of State puts forward priorities. The thing that we would ask—I think you have heard it from others—is about bringing forward the strategic priorities for GB Energy. The statement should be something that we are engaged in and are bringing forward now. It should come forward in a timely manner, but it must make sure that it has taken on board the necessary engagement with industry, Governments and other key stakeholders. Time is always of the essence.

[Perran Moon]

Q In relation to clause 4, “Financial assistance”, you mentioned unlocking capital investment. Can you elaborate on specific areas where the de-risking of unlocking capital investment could be particularly relevant to GB Energy?

David Whitehouse: For me, there are areas—I have touched on them slightly—where you look at the projects and their timelines, and if you have more data and more information up front, it massively shrinks the time from taking on a licence, or whatever it is, to turning that into carbon stored or electricity generated. There is an opportunity for an entity like GB Energy to invest in some of that up-front data gathering to de-risk those projects. GB Energy would then have the opportunity to trade that for a share in the future projects that come from that. We will see how that shows in the priorities, but that is a clear area where GB Energy can invest now to get data and use it to leverage equity stakes in projects moving forward, which I think is very much consistent with the founding principles of GB Energy.

We also touched on the infrastructure that is required in the UK, much of which is now being dealt with through the National Energy System Operator, and people will have spoken at length about the issues around the grid. There is so much more that we need to deliver a net zero future for the UK and for Europe. Again, a state investor with a long-term investment horizon can now be in the position where we start talking about what networks we need across the North sea to be successful. Having an entity like GB Energy crowding in private sector money is a great opportunity to unlock some of that.

--- Later in debate ---

[Perran Moon]

Q I would like to declare that I am the secretary of the all-party parliamentary group for critical minerals. That will be relevant in my question.

I can safely say that the people of Cornwall are really excited about GB Energy. Expectations are very high. We are a post-industrial community that has suffered for decades from lack of investment. More recently, however, we have discovered that investment is now going into our tin industry; we have the third highest-grade tin deposits in the world. We also have lithium. We face the Celtic sea, so we have a huge opportunity with offshore wind and onshore wind. We have companies setting up in geothermal, solar and tidal, and we have the country’s largest ground source heat pump.

Can you elaborate on the potential benefits for communities such as Cornwall, where we have such a wide array of opportunity, and say how GB Energy will support those opportunities? And if I may be a little bit cheeky, we have heard quite a lot today about the head office being set up in Aberdeen with satellite offices being set up in Edinburgh and Glasgow, but I will just point out that there is another corner of the United Kingdom that would be delighted to have a satellite office.

Michael Shanks: May I thank you for the question? I think that, in asking it, you have successfully elaborated on all the potentials of Cornwall, which I am sure your constituents will be delighted about.

However, you make a really important point on two fronts. The aim of GB Energy is to crowd in investment in projects right across the United Kingdom. Yes, we are very proud to say that the headquarters will be in Scotland and—importantly—specifically in Aberdeen, as the Prime Minister announced. That is partly to recognise the energy story in the north-east of Scotland for the last 60 years in oil and gas, and the importance of the transition. However, it is also important to say that on the renewables journey Scotland has also been leading the way and will continue to do so in so many ways. It is right that the headquarters is in Aberdeen, building on the talent, experience and skills that are already there.

On the broader point, though, there are real opportunities for investments in every corner of the UK. To go back to some of the earlier points that witnesses made, this is a combination of policies; it is not just GB Energy in isolation. We have been really clear that we are a Government that are not agnostic about industrial strategy, and that we want to see manufacturing in the UK, and the thousands of jobs that could have been created by some of our offshore wind projects, for example, but actually went to other countries before we towed the projects into British waters. We want to see those jobs in this country and that will create opportunities across the country in the supply chains, in skill developments and in lots of other opportunities, including in Cornwall.

Although I absolutely cannot commit to opening an office in Cornwall and I would like the record to reflect that, I think there will be opportunities for your part of the world and indeed for the whole of the UK.

[Harriet Cross]

Q We have heard from various witnesses, particularly Ravi Gurumurthy, about the risk management of private investment and how that will sort of coincide within GB Energy. I am just wondering how the Bill is expected to ensure that GB Energy does not just effectively end up as a sink for risky investments, or is that okay? Is the prospect for GB Energy that it provides that full buffer? If not, how will we prevent that situation? Otherwise, we are effectively just making taxpayers’ money the risk management for private investment. I do not have a “yes or no, which side of that fence do I sit on?” answer; I am just wondering what is acceptable within the context of the Bill.

Michael Shanks: That is a really fair question. The question of risk appetite is important; that is partly why setting up GB Energy as a company, regulated by the Companies Act and with a fiduciary board made up of financial experts who have a responsibility as a board of directors for the direction of the company and for its financial results, is so important.

There has to be some risk appetite, and one of the earlier witnesses made a point that I would agree with—if there are absolutely no projects that do not have any risk at all, GB Energy is not really filling the gap. It is really important that GB Energy can move in the spaces where the current investors are not necessarily finding those opportunities. Crucially, however, GB Energy is obviously owned by the taxpayer and therefore, as a backstop, there is a real conviction that it will only invest in things that have a likelihood of producing a return for the taxpayer.

Of course, when we get into making individual decisions, that is partly why it is important the Bill does not go into a granular level of detail on every single thing that GB Energy will do, because it is really important that we give that board, those experts and everyone they bring in to advise them, the space to move into opportunities as they emerge.

If we were to go back five or 10 years, we would not have thought that we were about to have the world’s biggest floating offshore wind farm off the coast of the UK. That would not be on the face of a Bill like this, but actually it is a huge potential opportunity for us and we would like those kinds of opportunities to be open to GB Energy to explore.

[Olivia Blake]

Q If we are to learn the lessons of coal and the 1980s, South Yorkshire would be a perfect location for a satellite office—just to put that on your agenda, Minister.