Dan McGrail and Adam Berman gave evidence.

Welcome to our fourth and final panel this morning. We will now hear oral evidence from Dan McGrail, CEO of RenewableUK, and Adam Berman, who is director of policy at Energy UK. For this session we have until 11.25 am. There are questions at 11.30 am in the Chamber—I have one myself.

I think a few of us have.

A few of us have. Okay, if we finish early, we have more time to leg it over there. Please could the witnesses introduce themselves.

Dan McGrail:

Good morning everybody, my name is Dan McGrail, I am the chief executive of RenewableUK, which is a trade association representing the wind industry predominantly, but also the tidal energy sector and crucially, the supply chain that sits within that. We have about 500 member companies across the UK and we work closely with devolved Administrations and national Government.

Adam Berman:

Good morning. My name is Adam Berman, I am director of policy and advocacy at Energy UK, which represents the whole of the energy sector really, short of upstream oil and gas extraction—everything from all the forms of generation, right through the networks and into household level. We represent the retail energy suppliers as well.

Q For the record, can I say how nice it is to see Dan again? And also to thank you, Adam, and Emma for the support and, indeed, challenge you posed when I was sitting on the other side, talking through the Energy Bill last year. I ask of both the panellists: the strategic policies and plans are set out in the Bill—are they adequate for GB Energy and indeed the aims and ambitions of your organisations as you seek to see them progress?

Dan McGrail:

It is good to see you too, Shadow Minister. First, I think there is a trade-off in legislation like this, between the focus you want to provide, and the guard rails put into the Bill, and giving the entrepreneurial freedom to the organisation to invest where opportunities arise. We believe, and the report we wrote prior to the release of this was quite clear, that focus is important, but is legislation the place to put the focus? Our view is that the business plan that is set up and put in place by the chief executive and their team, once appointed, is the place to put that focus. It will be much more predictable if it is developed by experts in the sector who have conducted a thorough analysis of where the opportunities are for investment, and where the real additionality is.

One additional point that is important to detail in the statement, when it comes, is how the investment priorities of GB Energy would be different from those of the private sector. Would GB Energy take a longer view on returns on investment? Would it have a different rate of return? That would help to clarify the role of GB Energy within the ecosystem of the sector and with other private investors so that there is understanding of where real partnership opportunities lie.

In short, the answer to your question is that it is important to have a focus, but do the focus in the plan rather than in the legislation.

Adam Berman:

I certainly agree with Dan. My one reservation with the legislation is that GB Energy will face two distinct competing priorities: the first is making money, which would probably primarily come from established mature renewables, and the second is solving distinct problems within the energy system that are a result of market failures. There is some overlap—although not complete overlap— between those two priorities. The question is whether there should be more clarity in the legislation over which strategic objective GB Energy should be solving. That is not an issue for industry to resolve, but it is something that, without stronger guidance in the legislation, GB Energy may struggle to reconcile once it is formed.

Q Do you think there is enough provision in the Bill to allow for the Secretary of State to be publicly accountable for the decisions that he or she may take in the future, in regard to the concerns you have just raised?

Adam Berman:

I do not think there is a deficit in terms of accountability, and I do not think there are 500 bodies that should be consulted before any decision is made by GB Energy; if you look at things like the planning system and statutory consultees, you can see how that is an issue. That being said, there is a list of organisations that any Secretary of State should consult, through their due diligence, which is everyone from the National Energy System Operator to the Climate Change Committee to industry to devolved Administrations. We would very much assume that the Secretary of State and the Department would do that due diligence themselves. However, I do not think shackling GB Energy through the legislation to having to do that to make every decision is necessarily the right approach.

Dan McGrail:

I fully agree with that.

Q I wanted to ask about the definition in the Bill on clean energy. Do either of you have any thoughts on whether that definition is clear enough?

Dan McGrail:

From my perspective, the definition is probably good enough. It is quite tricky to go too narrow and say renewable energy only, because there are certain areas, such as long duration storage, where the sector would like GB Energy to participate in, or at least to have the freedom to participate in, which, if it is too narrowly constrained or defined, may prove problematic later down the line.

One thing I think would be advantageous in the definition, or in the objects, is to clearly set out the guard rails, such as ensuring the carbon budgets are referenced. If we reference the carbon budgets, future Secretaries of State would need to make sure that any investments that were made were in line with the delivery of the carbon budgets. That is comparable to what was done with the set-up of the Green Investment Bank, where there were specific references to what the Secretary of State would need to go back to primary legislation to change, and what would be foreseeable within secondary legislation—not directing the Green Investment Bank to invest in fossil fuels, for example, would have required a complete change of mandate. I think some similar thinking, therefore, would be helpful here.

Adam Berman:

I do not completely agree. I do not think there is a big problem of definition, but I would say that we need to ensure it is consistent with the CCC’s existing language and with the technologies that it thinks are consistent with the sixth carbon budget. Clean energy may encapsulate all of them, but I think we would have to make sure that it includes established mature renewables, nuclear, carbon capture, utilisation and storage and hydrogen, just to leave those options on the table. I do not disagree with Dan that there needs to be a focus, but GB Energy needs to at least be given the option to engage in the technologies where it thinks there may be additionality in terms of bringing in GBE’s involvement.

Q To go back to the few organisations that you mentioned in connection with consultation, you got to devolved Administrations but I did not hear about local government. The Local Government Association has been pushing very hard and is keen for the place-makers—those who understand what demand will be, what the spatial strategies are and what land is available—to be part of the planning very early on. Do you agree that they should be included in the shortened consultation list?

Adam Berman:

Clearly I agree that they are of incredible importance when it comes to planning the energy system and that the dialogue with them about the local communities that they know better than anyone else is pivotal. The challenge is that for GB Energy, as far as I understand it, a major part of it is local power plans, which will already have involved close consultation with local authorities and communities in lots of different ways.

From an industry perspective, I would be hesitant about placing that as a condition on GB Energy’s investment. That is not to diminish its importance; it is just to ensure that we are allowing GB Energy to be successful and that we are not holding it back. There is a very good argument that that should be included in the legislation, and that the national energy system operator and the Climate Change Committee should be included in the legislation, but once we have gone through all those bodies, it starts to become prohibitive for the investment process, which we want to be free and fair for GB Energy. We are therefore slightly hesitant about saying that we necessarily have to look to any particular body for consultation.

Q May I follow up on that? We are looking at the governance side. We know that on the spatial side, we have the local energy action plan. Rather than taking an individual look, I am looking at how we ensure that where that spatial strategy happens, rather than talking about individual local community consultations, those who know about the place-making are brought into the energy planning early. I fear that leaving them out will once again endanger all the progress that has been made in local energy area planning. We just need a reference to it somehow.

Adam Berman:

That is a really good point. I think that there could be something in the legislation to ensure that GB Energy’s investments are consistent not only with the local area energy planning, but with the strategic spatial energy planning that the energy system operator is doing.

Dan McGrail:

There is a really important point here about how, to be successful in the market, GB Energy will need to engage with those processes anyway. There will be accountability around the company, but one nervousness I have is about trying to put too much into the Bill specifically on GB Energy. I agree that the point should be about complying with the things that we need to deal with, whether those are in law, in programmes such as the strategic spatial energy plan or in the work of the national system operator. Those are all interconnected and contiguous pieces of a system in which GB Energy needs to be able to operate effectively. The onus, if we put anything in legislation, is to be compliant with all that.

We are getting away from the Bill a bit.

Q Good morning, gentlemen. Dan, you have argued in the past that GB Energy should have a very focused mission. What is your view of the objects for GB Energy set out in Clause 3?

Dan McGrail:

I firmly stand by the idea that GB Energy, at least in its initial phase, should do three or four things excellently, with some fundamental underpinning. It should champion the UK supply chain; it should act to promote skills; it should enable innovation. The market segments in which it operates should be focused on and defined early. Its budget of £8.3 billion is a lot of money, but to get value from that in the context of the energy sector, GB Energy needs to focus on two or three areas in which it can really deliver additionality. I think the place for that is in the business plan, rather than in the legislation. As the legislation is currently framed, it allows the team the space, when they begin the work of the company, to define those two or three areas; it does not narrow them down. My view is that the legislation as drafted gives it that space.

Q Dan McGrail, this is a question for you. What are the views of your private sector members about the role that GB Energy can play in de-risking investments and crowding in private sector investment? What are they saying at the moment?

Dan McGrail:

Occupying space where there is a highly liquid market for private capital is unlikely to bring much additionality. Offshore wind is one of those places —fixed-bottom offshore wind, to be precise. That is a mature market; there is capital that will flow to projects if the wider investment conditions of those projects are right, and that is more Government policy-related. However, there are other markets. For example, onshore wind in England has basically been under-invested in for the past decade. There will still be nervousness within the private sector: “Do I want to be the first developer to test local planning? What does the risk profile of that look like?”

I see a clear role for GB Energy to partner with the private sector to help to accelerate the return of investment in that market, or for example within the growth of the floating offshore wind market, where there are clear opportunities that go beyond just the energy sector and into transition, such as floating offshore wind in Scotland or in the Celtic sea, where we know that there is a much bigger economic growth story. Those are areas where I think we could see public and private capital working very comfortably together.

Q We had a line of questioning around research and development. Do you think it is important that the Bill is future-proofed in that way—that GB Energy really focuses on those markets and those projects where the private investors would not come in behind? Is there any way in which the Bill could strengthen that? Research and innovation is probably one of the main focuses of what GB Energy can deliver successfully.

Adam Berman:

A fundamental conundrum with GB Energy will be the extent to which, through legislation, you want to constrain its investment activities. Clearly, from an industry perspective, we are very keen that there be an emphasis on additionality, on complementing and not duplicating private sector capital that is already there.

Dan mentioned wind. The recent CfD allocation round 6 auction crowded in about £20 billion of private sector investment—that is one year and one auction. That is not to say that £8.3 billion capitalised over a Parliament is not a significant sum of money; it is to say that if we want the most bang for buck, it is absolutely about thinking about those areas where it can be complementary to the private sector. On the one hand I am saying that, yes, industry would be very happy for GB Energy to have that as a focus, but it is also fair to say that it would be a restriction in GB Energy’s activities if it were only to engage in a space that enabled additionality, because it would restrict some of the investment portfolio that it could end up with.

Dan McGrail:

The private sector and the industry in general have been quite clear that we see a real benefit in the participation of GB Energy in emergent technology, such as tidal energy. However, even within the five founding statements, there is nothing specific about fostering UK home-grown innovation. I would err on the side of caution within legislation, or at least I would not put it as a boundary condition. It should not be the only thing, but if it were somewhere in the plan—either in the founding statements, if they get modified, or in the plans brought forward by the Secretary of State—that would be healthy.

Q It is good to see you both. You were not here for the earlier sessions, but there were a lot of questions about whether there is enough detail in the Bill. Before I was an MP, I used to be the CEO of a charity; if the objects of that charity had gone into an incredible amount of detail telling me exactly what to do, it would have been very difficult 10 years down the line, when I joined the charity, to pivot and do what we did. I think you are absolutely right: we are hearing from every single witness that the Bill needs to be general enough to allow the business plan to be developed by the experts running the company. You are chiming with everyone else, which is interesting and good.

My question is about tidal power. I represent a Welsh Constituency, Monmouthshire. We have the River Severn in the south of the constituency, which is a tidal river, and we have the Celtic sea. What opportunities will the Bill give to generate more tidal power?

Dan McGrail:

The Bill allows space for GB Energy to take quite an activist role in the sector. I am aware of tidal power companies that are already very keen to engage with GB Energy on specific proposals. One thing about tidal power is that we have seen the success of many projects through the CfD auctions. We need to see them come to investment decisions. The more we can see a state actor enabling companies to take decisions, the more it will help to scale up the industry and then the technologies. From the technologies, we can hopefully deliver the kind of supply chain growth and jobs in local communities to which we all aspire.

Q Clause 5(1) requires the Secretary of State to

“prepare a statement of strategic priorities”.

I have been listening carefully to the priorities on skills and innovation from your perspective. Let me ask you both: if you were Secretary of State, what would be your key strategic priorities be for the Bill?

Adam Berman:

The first is public value, which goes beyond the ability of GB Energy to create profits and return them to energy Bills or whatever mechanism it might come up with. That is not to say that that is not important, but if this is new money—a significant amount of new capital—being made available by the Treasury, it is about how we, as a society and as an economy, can get the most out of those investments. So I would say public value, which is about not just financial returns but broader public benefits.

Secondly, it is about spreading economic activity and about how that links into the industrial strategy. That might be for the supply chain and also for GB Energy, but we should think not just about particular technologies but about particular regions.

A third priority would be the delivery of the UK’s legal objectives—its legally binding climate commitments.

A fourth priority would be the delivery of the National Energy System Operator’s priorities, which links to the strategic spatial energy plan that we have already been talking about, and ensuring that it helps to foster a workable decarbonised power sector. For example, we could see solutions such as GB Energy putting investment into wind or solar in areas with higher constraint costs or lower population centres with higher land use costs, which are not as attractive to private investors at the moment, but which with GB Energy’s lower cost of capital may well still be a profitable enterprise. It is about how we can have a win-win with NESO’s objectives.

Finally, impact on investment cannot be ignored. I recognise that it is not the Government’s intention at all that there be an impact on private sector investment, but we need to ensure, as a founding principle, that there is not a risk that any GB Energy investment could deter or crowd out private sector investment.

Dan McGrail:

I would add one thing to that very good summary. There are a number of new institutions being set up at the same time—NESO, mission control, GB Energy. There are also a number of big initiatives such as strategic spatial energy plans and centralised network planning. It would be very helpful for the sector and for industry to understand the interaction of those with the national wealth fund. I almost see an organogram in my mind of how things flow. In my conversations with the sector, there have been questions about where the limit of GB Energy ends and where the National Wealth Fund begins, and so on and so forth. It would be enormously helpful for the sector and for other institutions such as the Scottish National Investment Bank and UKIB to understand how they fit within that matrix.

If there are no further questions from Members, may I thank the witnesses for their evidence?

That brings us to the end of our morning sitting. We have had four panels with eight witnesses—thanks, everyone. The Committee will meet again in this Committee Room at 2 o’clock, when I will have turned into Sir Roger Gale.

Ordered, That further consideration be now adjourned. (Anna Turley.)

Adjourned till this day at Two o’clock.