Labour's Great British Energy Suicide Note

Labour's numbers on energy bills, cost of renewables, jobs and funding do not add up

Introduction

This Substack has been highly critical of the Conservative government’s energy policy. However, we are now in an election period, so it is time to subject Labour’s energy plans to some scrutiny. On Friday, Labour announced more details about its plans for Great British Energy.

Their plans include many promises, but precious little detail on how they will be achieved. Labour’s central claim is that they will “cut energy bills for good” and they put some flesh on the bones by claiming in the text of their regional maps their plans will “save £300 off the average annual household energy bill”. Labour’s claim appears to be based upon a report by the energy thinktank Ember. However, it does appear they mean a saving on electricity bills, not overall energy bills.

Magical Thinking for Renewable Energy Prices

Ember use Ofgem’s energy price cap for 3Q23, which states that the average household electricity bill was then £1,127. They claim that if we follow their “Delivering Commitments” scenario electricity bills will fall to £828 by 2030, for a saving of £299 per year, which they conveniently round up to £300. The trouble is, the latest Ofgem price cap shows the average electricity bill will be £913 in 3Q24, or some £214 less than Ember’s starting point. More than two-thirds of the proposed saving has already been delivered, mostly by falling gas prices. In fact, the total energy bill (including gas for heating) in the price cap has already fallen by £449 since 3Q23, so on that measure 1.5 times the promised saving has already been made.

These reductions in the electricity price cap have been delivered despite a massive increase in the cost of renewables. Since 3Q23, the assumed cost of Renewables Obligations in the Ofgem Price Cap is up nearly 15% to almost £32/MWh supplied and Feed-in-Tariff costs have gone up over 18% to £7.64/MWh supplied. The annual cost of Contracts for Difference has gone up too, from around £770m assumed in 3Q23 to £3,087m in the latest price cap report. The CfD cost per MWh has gone up roughly four-fold from £3/MWh supplied to over £12/MWh supplied. Taken together, all these subsidy schemes add about 5.1p/kWh to our electricity bills, up from 3.7p/kWh in 3Q23. It is difficult to understand how adding more renewables will reduce electricity prices.

To square the circle, Ember relies on a single dodgy assumption. They assume that all new offshore wind power will be delivered at the price achieved in Allocation Round 4 (AR4). This is the round where several wind farms agreed to deliver electricity at £37.35/MWh in 2012 prices or about £52/MWh in today’s money. This is problematic because Vattenfall pulled out its Norfolk Boreas development last year because it could no longer deliver at the agreed price. Moreover, the other AR4 projects are being offered the chance of rebidding part of their projects at higher prices in AR6. The offer price for offshore wind in AR6 is £73/MWh in 2012 money or £102/MWh in today’s money, nearly double the winning bids in AR4. So, to support their claim of a £300 per year saving on electricity bills Ember relied upon magical thinking. They assumed offshore wind prices will be about half of what is being offered this year.

Labour also rely upon another report from Ember that contained completely unrealistic build out plans for renewables which I covered here. We are nowhere near on track to deliver the required renewables capacity.

Fantasy Green Jobs

Labour also claims they will create 650,000 new skilled jobs in the “industries of the future”. They are not quite clear what this means but let us assume they mean in the wind and solar power industries.

In 2021, the wind and solar sectors employed a total of 22,000 full-time equivalent people, at a cost of around £250K per job. Labour is proposing they will deliver a stunning 30-fold increase in employment by 2030. Even if they did manage it, we could not afford it. If it really takes so many people to deliver so much renewable power, then this should not be paraded as a badge of honour. Quite the contrary it will be a sign that the productivity of the power sector has plummeted.

Spending on Expensive Energy Sources

Labour promises to accelerate spending on floating offshore wind, tidal power and green hydrogen by co-investing with private partners.

In AR6, floating offshore wind is being offered £176/MWh in 2012 prices or £246/MWh in today’s money, which is three to four times recent wholesale electricity prices. Moreover, the Hywind floating offshore wind farm is being towed to Norway for major maintenance after just seven years of operation. This is hardly a sign that floating offshore wind is going to be our energy saviour.

Tidal Stream power is being offered £261/MWh in 2012 prices, or a staggering £364/MWh in 2024 prices. In December, the Government announced the results of its first green hydrogen auction. The average price offered was £175/MWh in 2012 prices which equates to £244/MWh in 2024 prices. Electricity made from this green hydrogen would cost over £500/MWh.

All of these technologies are far more expensive than existing renewables and many times the cost of gas-fired electricity. This “co-investing” will only increase electricity bills, the exact opposite of their claim to reduce bills by £300 per year.

Where Will the Money Come From?

Labour aim to inject £8.3bn into Great British Energy over the course of a Parliament, which is about £1.7bn per year. They plan to fund this by imposing a “proper” windfall tax on oil and gas companies. However, there is already a windfall tax of 35% which takes the marginal rate on oil and gas profits to 75%. The windfall tax, properly known as the Energy Profits Levy (EPL) raised £2.6bn in its first year.

The offshore energy industry has already said that Labour’s tax plans could make the UK oil and gas sector uninvestable. Moreover, with Labour’s pledge to stop awarding new oil and gas licenses, there will not be much in the way of new investment in the North Sea. It is therefore extremely unlikely that the EPL will deliver an additional £1.7bn per year to fund Great British Energy. We are left with fantasy plans that are essentially unfunded.

Endorsements of Labour Energy Plan

Labour’s plan has been endorsed by some of what we might call the usual suspects. For instance, RenewableUK has tweeted its support of Great British Energy. Support has also come from an unexpected source. Sir Patrick Vallance, has been wheeled out like the ghost of Covid past to support Labour’s plans. He said:

“I believe that one such priority is the urgent need to end the era of excessive carbon emissions, high energy bills and energy insecurity by accelerating the net zero transition to clean, homegrown energy.”

Which just goes to show his grasp of energy policy is even worse than his woeful Covid projections. It is thought Sir Patrick might be angling for a job advising any new Labour Government.

Mild Criticism from BBC Verify

As if to illustrate how mad the plans for Great British Energy are, even BBC Verify managed some mild criticisms of Labour’s policy (see video below).

The BBC appeared to pour cold water on the deliverability of 98% clean energy by 2030 and said some of the figures were uncertain. However, the BBC made their own claim that renewables are cheaper, which is patently false and did not properly interrogate the £300 per year savings claim. 

Conclusions

It is patently obvious that Labour’s plans are a fantasy. Their numbers on energy bills, the cost of renewables, jobs and sources of funding simply do not add up. If renewables really were cheaper, then private companies would be falling over themselves to install new capacity without Government subsidy. The fact that subsidies are rising substantially in AR6 proves that Labour’s claims are a simply a big lie.

All in all, they amount to a Great British Energy suicide note. More expensive energy will be a disaster for industry and crippling for the poorest in society. Time for Labour to take their Great British Energy plans, and its logo, to a darkened room with a bottle of whisky and a revolver.

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This article has been republished by the Daily Sceptic.

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