What does the new Labour government mean for the energy sector?

read time: 7 mins

The creation of Great British Energy and the transformation of Britain into a ‘renewable energy superpower’ were arguably the clearest parts of Sir Keir Starmer’s vision ahead of the election. 

Now that he is in power, in this article we detail what the new government will mean for the energy sector. We provide insight on what the party proposed, including what is missing and the risk and opportunities that the promises could bring.

What did Labour propose?

The big spending pledge of £28bn a year in green investments was, famously, abandoned months ago in favour of a pledge to spend around half that. But the manifesto remained clear that the philosophy of major state investment and intervention in growing renewable energy will be a defining feature of this government. 

It attacked the Conservatives for failing to grow renewable energy because they are ‘ideologically opposed to using the role of the state, including public investment’ to do so. 
Pointing out the country’s advantages – ‘our long coast- line, high winds, shallow waters, universities, and skilled offshore workforce combined with our extensive technological and engineering capabilities’ - Labour promised to take a different approach. 

The Green Prosperity Plan will ‘partner with business’ to invest in ‘industries of the future’ with the aim of creating 650,000 jobs. 

With its stretching target of a clean energy grid by 2030, Labour has promised to work with the private sector to double onshore wind, triple solar power, and quadruple offshore wind by 2030, as well as investing in hydrogen, marine energy and carbon capture. This work will be backed by a legislative framework through a new Energy Independence Act. 

Nuclear energy will also get a boost under the plans, with a promise to get Hinckley Point C over the line, Sizewell C started and small modular reactors up and running. 

A strategic supply of gas power stations will be retained, the manifesto said, with a ‘phased and responsible’ transition in the North Sea. But new licenses for oil and gas drilling will not be granted, and neither will coal mining or fracking operations. 

Great British Energy, capitalised with £8.3bn in state funding, will also be established and will ‘partner with industry and trade unions to deliver clean power by co-investing in leading technologies; support capital-intensive projects; and deploy local energy production’. It will be headquartered in Scotland.

The remaining money would be for it to set up and establish itself in the market.

Details are yet to emerge but it is expected this company will initially invest in the government’s Local Power Plan. This is a funding pot for local government and community groups for grants and loans towards small-scale clean energy projects, such as solar panels on council houses, schools or hospitals. 

A further £7.3bn fund over the course of the parliament will look to kick-start and drive growth in green steelmaking, gigafactories producing electric vehicle batteries, decarbonising ports carbon capture and green hydrogen. For every £1 spent, Labour hopes to attract £3 of private investment.  

It has also promised to ‘ensure a much tougher system of regulation that puts consumers first and attracts the investment needed to cut bills’.

How deliverable is it?

The 2030 target will be excellent for spurring investment, but it is an enormous challenge.
It is an extremely short time line to line up investment and get schemes up and running.
A big question is how the planning system will deal with the applications for solar farms and onshore wind, for which - if we are to meet the target - spades need to start getting in the ground immediately.

But the well-publicised delays in the planning system, combined with often vocal local opposition can majorly slow these processes down. Labour has promised planning reform, and it will need to work if the party’s renewable energy goals are to be met. 

Currently setting up a new solar farm requires a good deal of regulatory compliance across different regulators, and the more this process can be streamlined, the easier it will be for investment to be deployed.  

But following years of switching priorities - from being ‘the greenest government ever’ to ‘cutting the green crap’, and from the high of hosting COP26 to promising to ‘max out’ the North Sea reserves a couple of years later - the clear direction of travel and ambition will be welcomed by many.

What’s not in there? 

Building a green energy super power requires an enormous supply chain, and while Labour has offered investment it is not clear how quickly this can be translated into the new workforce and expertise we need to achieve the aim. 2030 is a mere six years away, and it will simply take longer than that to get everything in place. 

It can take up to a decade for new green energy installations to get connected to the grid, even once they have made it through the byzantine planning system. 

Achieving a carbon-emission free grid is also a substantially bigger challenge than simply replacing our current power capacity with renewables. As we electrify home heating, transport and even steel production we will need much more energy. This is one of the greatest infrastructure projects in recent history and requires a good deal more than relatively modest central government investment and warm sentiment if it is to be a success.

What are the opportunities? 

The opportunities for all those involved in renewable energy generation are obvious - and enormous. 

The scale of the ambition and the promise of state support, scaled down as it may be, will be extremely attractive to investors, who will feel they have a strong degree of certainty about backing UK projects. 

And to have any meaningful claim to be serious about the policy, the new government will need to start clearing away the barriers to growth such as the planning system and the prolonged process of grid connection. The industry and its leaders have a real chance to ensure the reforms they have called for over many years are delivered. 

Previously, an excessive focus on short-term grant schemes rather than longer-term investments have hampered real growth and real scaling-up of capacity. There is also a chance to push for that to change as we develop an industrial strategy and a 10-year infrastructure strategy, with renewable energy expected to form a major part of both. 

There is also some positivity about GB Energy, and its promise to work with the private sector to unlock growth and investment. The company ‘could help drive innovation and investment where the private sector can’t on its own,’ Greg Jackson, chief executive of Octopus Energy has said.

What are the risks?

There is always a danger that comes with a political target, especially a high profile one with a very ambitious deadline. 

Some of the best ways to get us to a clean energy grid have long timelines. Nuclear power, for example, will be part of the mix but new plants cannot expect to be online by 2030, even if they start now. This sort of issue creates a risk of short-term thinking for political reasons. 

Rush is also never a good thing, if it creates bottlenecks, competition for a limited supply chain and price rises as a result. 

There is also some scepticism around exactly what role GB Energy will have in the industry. ‘We’re not really clear what its first priorities are and where its focus will be,’ said Tom Glover, of power company RWE. 

Ultimately, according to a recent report in Politico, it appears the ambition is for GB Energy to fulfill a similar role to Vattenfall, based in Sweden, or EDF Energy, based in France. Essentially it will be a company which is at least part publicly-owned, but operates independently in the global free market. 

This company has been one of the most eye-catching energy pledges, but the industry response has been muted. At best it could offer a useful partner for risky schemes, at worst it could be unnecessary competition. 

But the real hard work for Labour is developing and building the renewable energy capacity it has promised - and that is a task much bigger than GB Energy could ever manage alone. 

For more information, please contact the energy and resource management team.

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