Investment Summit to Increase Energy Bills

Over half of the summit announcements are energy related and all will increase our energy bills through subsidies

Introduction

The Government has announced the results of the International Investment Summit held last week with much fanfare. They claim the summit has secured £63bn of investment and nearly 38,000 jobs. But how much of this investment is really new, and what will be the impact on consumers?

International Investment Summit Sector Breakdown

The Government announcement lists 23 different items of investment across several industrial sectors as shown in Figure 1.

Figure 1 - International Investment Summit Investment by Sector (£m)

By far the largest sector is energy, taking £34.3bn of the total £64bn investment. The second largest sector is data centres with £24.3bn. The remaining 8.5% of investment is spread across ports, airports, property, medicines and what I have loosely termed innovation.

How Much is New Investment?

However, the headline announcement is not quite what it seems. Many of the projects have been announced before. At least £39.6bn or 61.9% of the investment has been announced before as shown in Figure 2.

Figure 2 - Investment Summit Project Already Announced (%)

For instance, one of the largest project re-announcements is Blackstone’s £10bn data centre investment in Blyth was agreed in April 2024, under the last Government (see Figure 3).

Figure 3 - Blackstone Blyth Data Centre Announcement

Similarly, Orsted’s £8bn offshore wind investments were announced as part of the AR6 auction results last month and the AR6 process was initiated under the Tory administration, as was Greenvolt’s £2.5bn floating offshore wind farm. Moreover, the £8bn of carbon capture projects were announced by the then Tory Energy Minister, Claire Coutinho in October 2023.

Amazon’s £8bn data centre investment was announced last month, seemingly totally unrelated to the investment summit. It also appears that not all the £8bn will be “investment” because the press release says the money will be spent on “building, operating and maintaining” the data centres. The operating costs of large data centres are considerable because of the amount of electricity they consume. The claim of supporting 14,000 jobs also appears dubious because it seems to include tech jobs at clients that might utilise Amazon’s cloud services.

Planning permission for the £1.1bn investment in expanding Stansted was granted in October last year, and Stansted is owned by Manchester Airports Group which is in turn owned by a consortium of Manchester local authorities so should not count as international investment. Finally, the Holtec SMR factory was announced in May 2024, it’s just the final site selection that was announced last month.

That leaves us with the remaining £24.4bn of investment that might be termed new, but £2bn of that is from UK business Octopus Energy. A further £1bn is from a new property company set up by publicly owned Network Rail and London and Continental Railways; again, hardly international investment. It is also likely that many of these transactions would have happened without the lavish summit.

Impact of Energy Investments

The Chancellor, Rachel Reeves made a speech at the summit and claimed that the “Government’s number one mission is to grow the economy by being the most pro-business this country has ever seen”. It is interesting that she chose the words “pro-business” and not “pro-market.” We can perhaps see why if we dig into the announcements related to energy (see Figure 4).

Figure 4 - International Investment Summit Energy Sector Breakdown (£m)

The offshore wind projects were announced last month as part of the AR6 renewables auction results. As we covered then, the strike price for fixed offshore wind was in the range £76-£82/MWh (in 2024 prices), both of which are above the average reference price so far this financial year of around £61/MWh, largely set by gas. The generators are guaranteed subsidies that will be paid by consumers. The capital expenditure for the Orsted projects is £8bn to deliver 3.48GW of generating capacity, or £2.3bn per GW. Moreover, the Greenvolt floating offshore wind project has a strike price of £195/MWh, more than three times the recent reference price. The capital expenditure for this project is £2.5bn for a 400MW generator or £6.25bn per GW. Both projects are spending far more than £1.4bn per GW the Government estimated for offshore wind deliverable in 2030. These staggering costs will be paid by consumers through their bills.

The investment in Carbon Capture and Storage (CCUS) is estimated at £8bn. However, in return for the £8bn investment, the Government has confirmed that £21.7bn of funding has been made available over 25 years for these projects. This means that consumers or taxpayers will be on the hook to pay back nearly three times the initial investment in subsidies to make these projects work.

Of course, the billions to be spent on storage will not generate a single extra MWh of electricity. Indeed, after taking account of losses during charging and discharging, the batteries will consume energy. Adding extra expenditure to the system without increasing output can only increase system costs and thus push up our bills even further. The £8bn to be spent on transmission and distribution will also have to be paid back through higher network charges on our bills.

Data Centre Challenges

The second biggest investment category is in data centres. However, there are significant challenges ahead for these projects.

First, there is the problem of obtaining grid connections, with the system already operating at capacity across many areas of the country, including the area with most datacentres – the “Slough Availability Zone.” Second, even if connections can be delivered there has to be significant doubt that we are capable of generating sufficient electricity to power the hyper-scale 1+GW behemoths that are under consideration to support the AI revolution. Third, as previously discussed, we are not cost competitive because the UK has the highest industrial electricity prices among the 28 developed countries covered by the IEA.

There must be grave doubts, despite the investment summit fanfare, whether these projects will be delivered on time or ever.

Conclusions

Overall, the investment summit was a damp squib, mostly re-announcing projects that were already in existence. Not only that, the energy projects that were declared will only increase our already extortionate electricity costs, making the country less competitive and act as a drag on growth.

However, it is revealing that the Chancellor declared her government to be “pro-business.” We can see this means distorting the market to give corporations guaranteed returns at the expense of the consumer and taxpayer. It is astonishing that the Labour Party, supposedly the party of working people, is actively encouraging corporatism. Labour has become a kind of reverse Robin Hood, robbing the poor to give even more to the already rich.

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