GB Energy - Labours flagship or a load of hot air ?

 It's hard to point to anything tangible in Labour's election manifesto.  Probably the only tangible thing was to create Great British Energy - an electricity generation company to liberate the British public from high energy prices.

Here's the headline on GB Energy website

"Britain already has public ownership of energy – just by foreign governments. Taxpayers abroad profit more from our energy than we do. It is time to take back control of our energy."

"A first step of a Labour government will be to set up a new publicly owned champion, Great British Energy, to give us real energy security from foreign dictators."

Well EDF owns and operates our UK Nuclear power stations. Are the French foreign dictators? 

I agree with the sentiment of reducing the UK's high energy prices.  They are artificially high due to levy's to fund supposedly economically viable infrastructure investment such as wind turbines.

There are also dubious pricing practices - in particular standing charges - in the almost unregulated non residential energy consumption market.

By reducing energy prices it will improve the prospect of survival of UK business by being more competitive.  It's hard to think of many businesses that don't need energy to operate.  However I don't think Labour has any plans to increase regulation of energy supply to British businesses.

Side story:  During the height of the energy crisis after Russian invaded Ukraine I was listening to the radio in the car. An owner of a sausage factory called in.  His lecky bill was £50k per year  - then the  crisis happened.  The offer from his supplier was a standing charge of £250k/yr and a projected bill of £1.2M/yr. So he shopped around - all suppliers were in the same ballpark (smells of a cartel). So he took dramatic action - he invested in solar, he bought some diesel generators and disconnected his factory from the grid.  Net result.  An annual bill of £100k per year.  I think the suppliers are probably guilty of price gauging.

Back to GB Energy - I am extremely sceptical it will reduce the average household's energy bill by £1,400 like some Labour morons have claimed.

Let's looks at the numbers.

Labour plan to invest £8.3 Billion investing in clean power.  Now that means it can't be nuclear - not because nuclear isn't clean - it' because it costs a lot more to build large scale nuclear.  Hinkley Point C is expected to cost £33Bn.   In part this is planning bureaucracy and government stupidity.  China has standard nuclear designs and build theirs for about £6Bn.  Maybe you're saying well the Chinese are not as safe and therefore higher risk - in which case why are the Chinese building Hinkley?

I agree with the factory concept.  We should just let Rolls Royce get on with their roll out of standardised  Small Modular Reactors rather than large bespoke power stations. However that's probably not going to happen - it's not jobs for the boys.

Maybe we might even see some Thorium based nuclear reactors - no don't be silly - Thorium is useless for making nuclear bombs.

So Labour are going to realistically spend £8.3Bn on wind turbines and solar panels. 

Now Labour are essentially going to create an investment vehicle.

Surely that means it's a radically new idea and no-one has thought of setting up energy investment vehicles before.

Not true.

Let's look at some existing traded companies that invest in "green energy".

Let's start with Renewables Infrastructure Group Ltd TRIG.  They have a market capitalisation (valuation) of £2.53Bn. They pay a dividend of 7.18% so distribute profits.  It should be pointed out that that for the year ending Dec 2023 they made a £27.6Million LOSS so dividends are being paid out of past profits - they can't keep paying dividends forever.  Their balance sheet values their assets (turbines) at £3.14Bn so you can effectively buy them at a discount of  roughly 20% cheaper than their asset cost.

TRIG has sold £210M of assets (wind turbines) recently - mostly in Ireland and Germany.

This £210M is NOT being used to invest in assets (more turbines) but to pay down debts and to buy back their own shares (the stock market thinks the company performance isnt good enough so the shares are cheap). 

Let's take a look at another "green energy" investment company - Greencoat UK wind (UKW) [disclosure notice - I have invested in this company and hold current positions]. 

Greencoat has a market cap of £3.25Bn and pays 7.43% dividends.  Their balance sheet shows they have assets of £5.54Bn so you can buy them at a whopping 41% discount of asset value. For the year ending Dec 2023 they made a PROFIT of £126.6M.  Now I am sure Labour is screaming "tax them with a windfall tax (or should that be a wind tax)".   However that a 2.2% return on investment.  I could put the £5.54Bn in the bank and get way better than 2% yield.  They are paying dividends to keep investors on board.

Greencoat has borrowed £2.3Bn.  Building these big infrastructure projects is capital intensive and you have to look at things in the long term eg 30 year life of a turbine.  However the cost of borrowing has increased so Greencoat now has challenges with debt.  The management are prudent and are therefore focused on debt reduction. They are forecasting £1Bn in cash surpluses over the next five years to reduce their gearing.

Now these 2 companies are roughly equivalent to what GB Energy is going to invest. Both these companies are valued at less than their investment.  

Are Labour going to do something which will magically make their investment more valuable than these?  Does Labour have access to capital at a lower cost than these companies?  Yes probably - labour can steal money for the UK public to give it to this company [shouldnt Labour therefore issue tax payers with shares in return for the stolen money?]

It's hard to see what Labour is going to do differently from an investment perspective.  These are 2 companies you have probably never heard of yet they are roughly equivalent to Labours flagship investment strategy in GB energy.  In the scheme of things Labours investment in minuscule and unlikely to make much of an impact - it certainly wont create enough energy to drop my energy bill by £1400 per year.  The scale of the investment is little more than political posturing.

Most people must have now seen wind turbines.  Have you ever noticed they usually are not spinning and therefore are not generating power?  This isn't just in the UK - it's everywhere I've been.  There's usually an army of turbines with just one spinning.

They are deliberately not generating power.  Why?

Well the energy market - it's just that a market.  They are only bothering to generate power then the price is high enough to bother.  Unlike nuclear, gas and coal power stations - it's easy to turn turbines on and off in response to dynamic market pricing.  It takes time to warm up the boilers on power stations so they are better at providing long term steady output rather than fluctuating demand. If the wind is blowing you can decide whether to spin or not.    In part this helps prolong the life of the turbines by reducing wear and tear and also it helps keep prices artificially high.  

The final problem for Labour is the market.  The UK Offshore Wind auction in Sept 2023 failed to secure any bids.  The auction price was set at £44 per megawatt hour (MWh).  Nobody was interested.

 As a point of reference as I type the market price is £96/MWh so why would you supply at a 50% discount?

These are long term supply contracts that effectively guarantee the price the investor will get.  You are of course investing large sums of money which potentially take decades to recoup so you want some security in order to reduce risk.

As the cost of capital has increased the break-even price has risen so investors would be looking for around £60 per MWh. 

So even if Labour is waving bundles of Billions of pounds at investors, there's no guarantee there will be any takers to build anything.

The situation in the not so long term for the UK is looking pretty bleak.  Let's turn to Nuclear.

 The French foreign dictator EDF runs the UK nuclear power stations Torness, Sizewell B, Heysham and Hartlepool.  These are currently producing about 4.7 Gigawatt of  energy.  As I type that 18% of all energy demand in the UK so Nuclear output is significant - solar is 9% and wind is 16%.   We have a long way to go before 100% of UK energy is renewable.

Now here's the problem - virtually all the  UK's nuclear power station output will be decommissioned in the coming years.  Hartlepool will cease producing power March 26. Torness and Heysham will stop producing power March 2028.  That leaves just Sizewell. 

That's about a 75% reduction in nuclear generation capacity.  The new nuclear power stations are large projects which are bound to be late and over budget and certainly not on line in the same timeline. The planning process for new power stations is slow and will not deliver.  There's also the risk that we have just one Nuclear power station - Sizewell which could easily go off line due to faults/maintenance reasons. Also Sizewell is not like other nuclear power stations in the UK - there's only one reactor and two turbines. If there's some problem with the single reactor it stops producing all energy.

So we are going to see a drop in nuclear power contribution from 20% to 5% in just a few years. 

So the green lobby will say we'll fill the gap with wind. So maybe Labour are right - it's a great time to be investing in wind. 

Currently we are producing at best 18% of the UK's energy demand from wind.  We have 11,000 wind turbines in the UK which have taken about 20 years to build.

So to put that in perspective to find the gap left by nuclear we need to build about another 11,000 wind turbines in the next 3 years.  That's 10 per  day Labour need to build.  To quote the film Jaws.  "I think we're going to need a bigger budget [than £8Bn]".

Of course the wind doesn't always blow so it's not guaranteed energy.

Now that's only one side of the story.  Labour want everyone to have an electric car. Where's that energy going to come from.

Let's briefly do some sums.

There are 33Million cars in the UK and we are assuming 100% are electric

Electric cars claim to be able to do 1 mile on 250Wh of energy [I personally challenge this - when cycling on my bike I output 250W up a hill and I certainly dont weigh 2 tonne]. However I'll work with their number.

The average car does 10,000 miles per year so it needs 2.5MWh of energy per year so all UK cars would need 82.5 GWh of energy to charge these over the course of a year.  

Now nuclear output is 4.6GW and the grid distribution losses are about 8% so really that about 4GW so we need all nuclear power for 20 days per year just to charge cars.

Now Labour also wants to ban all Gas boiler heating in homes.  That's a much bigger number than cars. However Labour have already taken steps to reduce heating demand.  By scrapping winter fuel payments to Pensioners they have removed 10 million people who need to heat their homes.

In short the transition from carbon fuels to electric will dramatically increase energy consumption at exactly the time that generation capacity is going off line.

So who in Labour should care about this impending energy disaster?

Well that's Ed Miliband, Secretary of State for Energy Security and Net Zero. Ed studied Philosophy, Politics and Economics at Oxford uni.  He doesn't have a technical background however he should be able to do the basic maths to work out that demand is too big and output is too low.

He should be taking action to extend the life of the UK's nuclear power stations right now.  At the bare minimum he should delay turning off a nuclear power station until it's replacement is fully operational.

However I suspect he won't.  He is probably anti-nuclear like his mother Marion Kozak.

My advice - buy a generator to power your home.  Keep your petrol/diesel car.  Buy some candles.  We are set to go back to previous Labour days of the 1970s - get ready for the blackouts.