Great British Energy Bill (First sitting)

Debate between Josh MacAlister and Wera Hobhouse

Committee stage
Tuesday 8th October 2024 Public Bill Committees

[Josh MacAlister]

Q Dan McGrail, this is a question for you. What are the views of your private sector members about the role that GB Energy can play in de-risking investments and crowding in private sector investment? What are they saying at the moment?

Dan McGrail: Occupying space where there is a highly liquid market for private capital is unlikely to bring much additionality. Offshore wind is one of those places —fixed-bottom offshore wind, to be precise. That is a mature market; there is capital that will flow to projects if the wider investment conditions of those projects are right, and that is more Government policy-related. However, there are other markets. For example, onshore wind in England has basically been under-invested in for the past decade. There will still be nervousness within the private sector: “Do I want to be the first developer to test local planning? What does the risk profile of that look like?”

I see a clear role for GB Energy to partner with the private sector to help to accelerate the return of investment in that market, or for example within the growth of the floating offshore wind market, where there are clear opportunities that go beyond just the energy sector and into transition, such as floating offshore wind in Scotland or in the Celtic sea, where we know that there is a much bigger economic growth story. Those are areas where I think we could see public and private capital working very comfortably together.

[Wera Hobhouse]

Q We had a line of questioning around research and development. Do you think it is important that the Bill is future-proofed in that way—that GB Energy really focuses on those markets and those projects where the private investors would not come in behind? Is there any way in which the Bill could strengthen that? Research and innovation is probably one of the main focuses of what GB Energy can deliver successfully.

Adam Berman: A fundamental conundrum with GB Energy will be the extent to which, through legislation, you want to constrain its investment activities. Clearly, from an industry perspective, we are very keen that there be an emphasis on additionality, on complementing and not duplicating private sector capital that is already there.

Dan mentioned wind. The recent CfD allocation round 6 auction crowded in about £20 billion of private sector investment—that is one year and one auction. That is not to say that £8.3 billion capitalised over a Parliament is not a significant sum of money; it is to say that if we want the most bang for buck, it is absolutely about thinking about those areas where it can be complementary to the private sector. On the one hand I am saying that, yes, industry would be very happy for GB Energy to have that as a focus, but it is also fair to say that it would be a restriction in GB Energy’s activities if it were only to engage in a space that enabled additionality, because it would restrict some of the investment portfolio that it could end up with.

Dan McGrail: The private sector and the industry in general have been quite clear that we see a real benefit in the participation of GB Energy in emergent technology, such as tidal energy. However, even within the five founding statements, there is nothing specific about fostering UK home-grown innovation. I would err on the side of caution within legislation, or at least I would not put it as a boundary condition. It should not be the only thing, but if it were somewhere in the plan—either in the founding statements, if they get modified, or in the plans brought forward by the Secretary of State—that would be healthy.

Great British Energy Bill (Second sitting)

Debate between Josh MacAlister and Wera Hobhouse

Committee stage
Tuesday 8th October 2024 Public Bill Committees

[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.

[Wera Hobhouse (Bath) (LD)]

Q Following on from what you were saying about uncertainties, and how we have the Bill but then there are all sorts of other questions, it is about creating certainties for us as legislators, to some extent, as well as for investors. Clause 5 says that

“the Secretary of State must prepare a statement of strategic priorities”.

Do you think that it would be important to have a timescale for that, so that we know when the Secretary of State is preparing the strategic priorities, and so that it happens quite quickly? That is something that we can do: put a possible time limit or timeframe into this Bill.

Josh Buckland: That is a very good question; I look back to my time as a civil servant. Sometimes timelines can be very useful because they give clarity, externally, as to when priorities will be updated and when there will be new interventions from Government, but sometimes they do not necessarily reflect the external environment as things change. If there were to be a decision to include an additional requirement around the timeframe, I think you would still want the ability to respond to external events as the world changes, to ensure that the priorities set out to the institution could adapt as the external world changes. Obviously, that is very true in the energy transition.

Clause 5(8) states that Great British Energy must have the ability

“to publish and act in accordance with”

that statement. The thing for me—again, it may not be an issue for the Bill itself, but it will be interesting to watch—will be how bound Great British Energy is to the specifics of the Secretary of State’s statement and what latitude it has beyond that, because clearly it will want to take its own commercial decisions. Fundamental to its independence and ability to crowd in private finance will be that it is taking commercial decisions with strong justification. That is an area that may not need any greater clarity in the Bill, but it will be one thing that private investors will look at quite closely.