Why Labour’s net zero plan will cost taxpayers the earth
Labour GB Energy
Labour’s £8.3bn bet on a state-owned energy company promises to cut costs for British taxpayers, but the numbers don’t add up.
The party has pledged to invest in renewable energy generation to slash homeowners’ bills “for good”, to create 656,500 jobs across the UK and to retrofit millions of homes.
It will do all this, it says, through a new state-run entity called “GB Energy” headquartered in Scotland.
However. Robert Alden, a Tory councillor and former deputy chairman of the Local Government Association, has done some quick maths and the results suggest £8.3bn will barely scratch the surface.
The calculations come just as leaked audio messages from Labour’s shadow chief secretary to the Treasury, obtained by The Telegraph earlier this week, revealed that the party’s net zero plans will cost “hundreds of billions”.
In 2022, £16.7bn was invested in the energy industry across the sector according to the Department for Energy Security and Net Zero – double what Labour has said it will invest over five years.
Then there is the yearly cost of that many jobs – £25.5bn, based on the sector’s average wage of £38,900 according to Glassdoor.
Bringing four million homes up to an energy performance certificate (EPC) rating of C would cost a further £30bn, based on it costing on average £7,529 per home, according to the English Housing Survey.
Mr Alden told The Telegraph: “It just doesn’t add up. They’ll need far more money than they’ve claimed. You’re going to end up seeing taxes having to go up because of this.”
GB Energy was first announced two years ago and the party has said it would fund the new venture through a windfall tax on oil and gas firms.
Last year, Sir Keir Starmer, Labour leader, compared GB Energy to state-run energy firms in Denmark and Sweden that generate and sell energy.
Onlookers questioned whether it would just replicate the same mistakes made by Labour-run councils in Bristol and Nottingham – but on a national scale. In these cities, councils set up energy companies only for them to run out of money a few years later and deplete taxpayer reserves by tens of millions of pounds.
But in May, Sir Keir changed his tune and said in an interview with BBC Radio Scotland that GB Energy would not be an energy retailer.
Instead, he said it would be an “investment vehicle”. So it won’t generate or buy energy, it will simply invest in other companies that will.
At the time Lorna Slater, co-leader of the Scottish Greens, accused the Labour leader of another “U-turn” after abandoning the party’s pledge to invest £28bn into net zero.
Bill Bullen, chief executive of energy provider Utilita, said: “You ask 10 different people what it [GB Energy] will do, and you get 10 different answers. A supply company? An investment vehicle? Everything is getting thrown into it – ‘Oh, GB Energy will do that’.”
Barriers to cheaper bills
Rachel Reeves, the shadow chancellor, has said her party could cut annual household energy bills by as much as £1,400 through GB Energy. But can investments alone bring down energy customers’ bills?
Electricity generated from renewable sources such as wind is much cheaper to buy on the grid than electricity generated from gas, the price of which is susceptible to international volatility.
Bertie Gyenes, a consultant at LCP Delta, said: “We might not see any impact [on bills] in the first few years, but then suddenly we could once prices [of energy] start being set by wind rather than gas.”
But his colleague, Sam Hollister, said it will take a lot more money to get to that point: “We’re not going to meet Britain’s net zero goals with £8bn, or £28bn. It was never going to be enough. £430bn is what the UK power sector needs to reach it.”
Others say blockages in the planning system will inevitably slow things up, just like they have under the Tories for the past 15 years – meaning bills are still a long way off from feeling any substantial impact.
Between 2018 and 2023 over two-thirds of applications to build renewable energy projects in the UK were either abandoned, refused, withdrawn or expired, according to consultancy Cornwall Insight.
One energy insider, who asked not to be named, said: “The need for planning reform is obvious to anyone involved in infrastructure. I do not see that urgency reflected in the Labour Party manifesto or in their dialogue with the public. “Transparency about the trade offs at the local and national level need to be acknowledged.
“Many of Labour’s policies anticipate local authorities or regional bodies dispensing schemes. I don’t see the capacity available in planning departments or housing teams that this would assume exists.”
Labour has said it would put £3.3bn of the £8.3bn into what it calls a “local power plan”, tasked with building “over 1000 local power projects”.
This would see energy companies work with councils to build onshore wind farms and add solar panels to homes, sharing ownership – and presumably profits – in the projects.
Ms Reeves told The Times in October that one idea the party had would be to cut energy bills for people living near onshore wind farms or energy pylons.
“When people and communities host critically important infrastructure, they should get some benefit from doing so,” she said.
But the party has also continued to bang the drum on economic growth, something which might be hard to achieve if profits are spent appeasing homeowners rather than re-invested into new projects.
Matthew Lockwood, a senior lecturer at University of Sussex, told the Herald earlier this month: “If GB Energy wants to play a serious role in growing new technologies like green hydrogen and floating wind, it will need to reinvest the profits it makes, rather than passing them on to customers in the form of lower energy bills.”
‘Labour needs to be careful with risky investments’
Labour wants to decarbonise power by 2030, two years earlier than the Conservatives pledged to do under Boris Johnson. In the party’s manifesto, published earlier this month, Labour said it would invest in a combination of “onshore wind, solar and hydropower projects”.
Tidal energy is one type of investment being floated by insiders. Back in 2018, £200m of taxpayer money was stumped up to pay for a tidal energy project in Swansea.
Just weeks later, the money was withdrawn by the Welsh government after it discovered the project would not make enough money in the short term to justify it.
Building tidal energy infrastructure can take as long as 30 years to make a cost-effective return, which means it is one of the more high-risk areas for investment.
Floating offshore wind is another area of potential investment. At the moment the UK produces 14 gigawatts (GW) of offshore wind. By 2030, Labour wants to produce 55 GW – enough, in theory, to power the entirety of the UK.
Mr Gyenes, of LCP Delta, said: “Tidal and floating offshore winds have been mentioned a lot. They’re in the very early stages of technology and we don’t have a lot of them right now. They aren’t being developed at scale, because there are still some risks, and they are still expensive to build.”
Mr Hollister added: “What we don’t know is what the risk appetite is going to be for GB Energy. If you play it too safe, you’ll probably crowd out the private sector. Too risky, and you’re putting taxpayer money at risk. They will need a portfolio with pay-back periods.”
One anonymous energy consultant said technologies haven’t been seeking government funding so much as policy certainty.
In recent years, they said the slowness of expected policy decisions on hydrogen and CCUS (carbon capture, utilisation and storage) has been “more frustrating” than a lack of taxpayer funding.
They added: “Commercially viable technologies can generally attract private or existing funding. The uncertainty of policy and regulatory limbo in the UK is a material dampener on investment. Properly funding swift departmental decision-making might be a better use of funding for some technologies.”
Labour was contacted for comment.
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