The UK now has a state-owned clean-energy champion. Can it succeed?
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Welcome to Xero. I am Akshat Rati. This week, the UK's publicly owned energy champion. The Labour government was elected last year to much hope from climate advocates. One reason was a big promise to develop a new state-owned energy company. It was imaginatively named Great British Energy, or GB Energy for short.

It's almost exactly one year since its creation. And it's only in June that the government announced GB Energy would receive a budget of £5.8 billion to spend over the next four years and get the organisation off the ground. Sounds like a lot of money, but is it? And what exactly will GB Energy do with that money? How can it have maximum impact in cutting UK's emissions and energy costs? And which technologies does the company believe will help UK achieve its targets?

I put these questions to Dan McGrail, interim CEO of GB Energy, in an interview that was recorded live at Bloomberg's Sustainable Business Summit here in London. Dan, welcome to Bloomberg and welcome to a live taping of the Xero podcast. The Labour government has big plans for GB Energy.

It's been nearly a year since it was announced and created. You lead Great British Energy and on 11th of June, under the spending review, you got an allocation of 5.8 billion pounds. Great British Energy Nuclear, which is a separate entity with a separate governance, got 2.5 billion pounds. So let's focus on the bit you run and give us a big picture. Say in 2035, 10 years from now, what do you hope GB Energy will have achieved?

Well, first of all, thank you for having me here and good morning, everybody. Great British Energy is an innovation from a policy perspective, which from my point of view and starting really at the big picture and the motivation is I think it's fundamentally a good idea to give British people a stake in the energy transition. I mean, we're here today because we see this as being one of the great economic opportunities of our times.

and I think it is right therefore that we find ways to create a dividend for British people and I think that that's a motivation in and of itself. But as an energy industry professional and having worked in the sector pretty much all my career,

I just think there's a discrete role for a state actor. The private sector has been incredibly effective at mobilizing where we've had sort of policy and political stability, wider economic stability, and things like the growth of offshore wind were possible partly because the conditions were quite benign. Whereas we look today, the world is more complex and yet...

We have a series of mature technologies and as we strive to achieve that energy security, independence and abundance, we have a series of mature technologies which we know the private sector can mobilize. But there are some frontier technologies which we know we're going to need.

which by 2035 need to become pretty mainstream, where private sector activity is comparatively low at the moment. So we see a role for GB Energy to invest alongside the private sector to really target areas where there's a nascency in the technology. Obviously, we believe in the trajectory, so it's not speculative, it's fundamental, and we can talk about some of the examples.

But, you know, the role that we can play to catalyze investment, to bring that additional confidence that, look, the UK government as a country, we believe in the role of these technologies and therefore we build our capability and our strategy around them. So let's talk about specific technologies. You've said GB Energy is the first publicly owned company in 75 years. You're very proud of being able to give it a shape and ability to do something. Now, £5.8 billion, a big investment.

but let's put it in perspective. The clean energy mission, which is supposed to get the UK to 95% clean power by 2030, is going to be needing 200 billion pounds in investment. So how exactly do you plan to invest or spend this 5.8 billion for maximum impact? So it's a really good

good point because you know it is a large sum of money and bear in mind this is you know a sum of money to start the organization up right so you know our aspiration by 2035 is to start to build towards the scale of you know other comparable stakeholders

state-owned energy companies such as, you know, Allstead or Vattenfall. So this is the sort of endowment that gets us moving. But you're right, we have to invest intelligently. And, you know, we know that the cost of one offshore wind farm or a major investment is, you know, is already in similar numbers. So we have to initially invest in sort of the spaces where we really think that can have maximum value. So I'll give you a couple of examples.

We know by 2030, pretty much every offshore wind farm in the UK is going to have to be in water which is deeper than 80 meters. Now, that's quite a technical point, but basically what it means is that those wind farms are going to have to float.

which is an area of investment which is at the moment quite challenging. There's a significant amount of private sector capital deployed, but it's slowing down in its progress. So we're going to look to come in at that riskier stage of projects in their development phase prior to the major investment decisions when we do expect private capital to come in and we may deploy some of our capital as a minority partner, but ultimately to send a signal that,

to the wider investment community that the UK government believes in the trajectory of these technologies and we will believe in the long run because it takes four or five years to get to the investment decision. So bridging that risky gap where you've got to go through consenting, where you've got to secure the grid connections, where you've got to go through that whole development at risk, that's a space where we think we can deploy sums of capital which are meaningful

but then get you to the point where you can crowd in the private capital. So what you're mentioning there is floating offshore where you don't have these wind turbines actually tethered to the floor with a big concrete base, which is what current offshore tends to be. And the UK has a good track record in taking a frontier energy technology and then lowering its price.

But the UK doesn't have a good track record on building businesses around those technologies. So there is no British company that's going around the world building offshore wind farms today. I dispute that. I think there are some, you know, SSE, for example. Yeah, but they're not doing it at the scale that an Orsted is doing or Vattenfall, the two examples that you brought up, right? Orsted does that.

How exactly do you think with £5.8 billion, could you create an industry or a set of companies or maybe one big champion that would do floating offshore, not just in the UK, but globally? Well, clearly we've got to

to work on how we target the investment around partners who we really believe can create that scale and whether we can build, be part of that in terms of building capability and experience over time. But the other part and the important narrative around GB Energy is the role that we will play in co-investing in supply chains as well. Because ultimately,

We've chosen to locate in Aberdeen for a reason. There is a really, really accomplished oil and gas supply chain, which is specializing in, amongst other things, everything that happens below the waterline. Talking specifically about floating offshore wind here, there is no offshore wind farm that's been built in the UK

That hasn't had a role for some Aberdeen supply chain as part of it. So we think there's a role to build UK domestic champions in the technology that helps scale. And it isn't just isolated to wind. It's also, you know, we can go beyond that and look at carbon capture and storage or long duration energy storage, things that we know we're going to need in the future, but right now require some of that seed capital and that confidence.

in the projects to build future. So on 23rd of June, there was an additional announcement saying, at least in the press release, it said the government is announcing additional 700 million pounds going to GB Energy for building up these supply chains.

Is that new money? Is that additional money beyond the $5.8 billion? It's part of our overall budget, but that we're allocating specifically towards supply chains. And can you give me an idea of how exactly do you invest in creating that supply chain, like specific examples? So part of it will be in the traditional way of supporting it with grants, and that will be a part of our business, which frankly is non-commercial.

And then there's, you know, we also look to take equity positions. We'll work also with partners like the National Wealth Fund to look at how we can invest in companies that we believe in their technology, believe in their trajectory, and then support that with the pipeline of projects so that their technologies get deployed.

In this audience, you're going to have many investors, many banks. How have your conversations with those entities gone? Because you're going to have to co-invest with them given you want to multiply the sum that you have been allocated. Look,

Look, I've just come from a meeting this morning with a major well-known UK bank and their sustainability practice. And genuinely, and this is one of the things that's really heartening for me, is that the inbound inquiries into GB Energy, the amount of people who are bringing us opportunities, is kind of proving that the fact that the market wants the role of this kind of long-termist

maybe greater risk appetite player in the market to work alongside the private sector. So look, I'm encouraged by the quality of the conversations, the breadth of the conversations that we're having with banks, with institutional investors, and ultimately with developers as well. One thing we didn't talk about in the technology set is about 30% of UK's emissions come from burning gas in homes, home heating.

Is GB Energy going to look at decarbonizing heat and how? Our priority is probably around power and electrification. And over the next three to four months, we're going to be working quite consultatively with the sector on understanding how we develop a long-term strategy. The biggest

Most frequent question I get asked is, what's GB Energy going to do? And I need to answer that question in fairly short order. So our intention is to be really precise on where are the areas of technology that we're going to invest in. And I'd say another point on this, which is, look, if you look at those other European publicly owned energy companies,

like Ørsted and Vattenfall that have been set up, they all set up with a technology strategy around them. So, you know, Vattenfall and Statcraft were hydro companies, Ørsted offshore wind, EDF nuclear, so on and so forth. So we need to, I think, create capability around certain technology fields. And right now, heat, I mean, we see ourselves as in the kind of business to business space. Heat is very much in the consumer space. That said,

We do see scope for community and local energy within our strategy. It's certainly something that the government envisages being part of the strategy. And, you know, there will therefore be an intersection with...

you know, the electrification of heat. And so we have to explore exactly how that might work in practice. It'll be your anniversary of creation on 5th of July in 2025. But in that period, what exactly have you built? There's one project announcement that I've seen around getting rooftop solar for schools and for hospitals. What else? To be precise, the anniversary of the government announcement

is on the 5th of July. We actually got Royal Ascent, I can't remember exactly the date, but it was something like the 11th of May. So our legal existence is a matter of weeks rather than a year. Having said that, it's not like we've been doing nothing. So we've been building the organisation up,

Recruiting people, which is an important place to start, and also prioritising some early activities. You referenced the rooftop solar scheme and this is an area where we're really looking to learn and build capability. So we've chosen to invest part of our budget into investing in around 200 schools and hospitals, rooftop solar schemes.

The effect of these is really interesting because we went to visit one hospital in Hull, which had built a five megawatt array on a field that it just had next to the hospital. And

They're fortunate enough to have the capital available to do it, but it's saving them just under £2 million a year, which funds about 50 band five nurses or 30 fully qualified doctors. So it's an outcome. It's using energy and sustainability as a vehicle to achieve a better outcome.

And equally, I went to a school in Sheffield, right in the middle of a pretty deprived area where they were able to fund teaching assistants. And so you're improving educational outcomes and they're engaging the kids in it. So this is a really logical thing that we should do more of. Now, these first investments really help us learn and see what the scope and the potential of this is. But we see the local aspect of how we can use

public sector real estate as effectively an anchor tenant to build smart local energy networks as a business model that can be scaled and can be outcome focused

as well as just being about purely electricity. You said the word invest, but my understanding is this is grant money. This is initial grant money, but the long-term runway for this is how do we turn this into a business? And what of the £5.8 billion will be roughly grants and what will be invested in companies? About a billion pounds in grants altogether. All

albeit we will work intelligently with the business community to see whether actually some, where, you know, is a grant the right solution where actually equity could be a better solution. So we'll try and have a degree of, you know, flexibility in how we approach that. We'll be back after the break with more of my conversation with Dan McRae, interim CEO of GB Energy.

And hey, if you're enjoying this episode, please take a moment to rate and review the show on Apple Podcasts and Spotify. Your feedback really matters and helps new listeners discover the show. Thank you. Another thing that we haven't talked about is transmission. Now, in the 700 million pound announcement on supply chain building, there was a mention that transmission would be included in that spending.

Transmission is a key bottleneck for electrification in the UK. There's too much wind in Scotland and there's much more demand in the south. The Clean Energy Mission and the department have a plan to try and build more transmission cables going up and down. How exactly does GB Energy take part in this? Is it in just traditional investments or is it advanced technologies because they're quite complex?

some very interesting ideas for taking the same cable and sending three times the amount of power in them, for example? I think the short answer is both. I mean, I think we have to act in the short term to alleviate capacity in the market and build capacity. And it's actually part of our energy independence narrative, because the reality at the moment is that people building wind farms or transmission networks are competing with transmission operators in other markets for factory slots.

And interestingly, I don't think it's just about factory capacity. It's also about skills capacity. I mean, electrical technology is probably the most complex part of the value chain in terms of understanding and building capability.

So we've got to work actually quite coherently here in terms of, on one hand, building out capacity in the short term, building skills that can act alongside that. And we won't do that on our own because there's a big ecosystem of actors around building skills. But in the long run, when I think what's going to ground capacity here in the UK for 20, 30, 50 years, it's going to be innovation. If you look at the aerospace industry, the aerospace industry has...

We make wings, we make landing gear, we make avionics and propulsion systems in the UK because we have the best innovation ecosystem that drives that. It's not because we're a low-cost country or we buy more planes than anyone else. We just have to build deep capability. So for me, it's really important that when you're looking to add manufacturing, you add that manufacturing as part of an ecosystem or an innovation pathway, which is then become self-sustaining. So we've talked about the idea that

GB Energy could try and unlock more private capital, could try and advance some of the frontier technologies. But one driving principle that this government has been trying to work on is to lower the cost of energy. How exactly does GB Energy satisfy that need? I've always believed from the beginning that lowering energy costs, you know, is a

a national endeavor. You can't delegate that responsibility to one organization. So the role I think we can play, partly we've talked about already, which is about crowding in the private capital. The more we crowd that in, it will bring more competition. It will bring more availability. But it also, I think,

The other area that is helping to alleviate capacity constraint in the supply chain. And then the third area where I see is playing a role is doing more to build these really potentially transformative smart local energy systems where we bring, you know, at the moment, the limit to those being built out further.

is much more about capital availability and the business models and the bankability. It's not about technology. It's not about innovation. It's just about how do we turn this into a model which makes it accessible to more social housing providers, more local authorities, more hospitals. So we might not necessarily be there focused on the overall system, but it'll be about how do we bring targeted benefits across

to the communities within which we can work. And ideally, that is a scalable thing, which we focus on those that need it most in the first instance. We started the conversation by talking about let's lay out what would be specific achievements that you think GB Energy will have in 2035. Now, we've gone through sort of the ideas that you have. But let me come back to that question, because you didn't paint a specific enough set of achievements that you would hope. I'm not

saying you know what will happen, but if you were to dream, what would be the 2035 achievements that you'd be proud of? Look, I mean, let me start with the local angle because we just talked about it. I would like to see right the way across the country, smart systems where we're integrating solar on schools or on private businesses or on local authority land,

together with battery storage and maybe some EV charging. We've got a big challenge in bringing EVs to people who don't have off-street parking, for example. So how do we bring those things together?

turn them into business models which ultimately allow people to get access to that at sensible prices and sort of democratize the electrification of society to as many people as possible so that that i would like to see great british energy's logo on hospitals and schools right the way across the country and other local community organizations

I would like to see us invested in these frontier technologies that we know that we need. I'd like to see floating offshore wind farms spinning in the North Sea with supply chains behind them, thriving in the northeast of Scotland and Aberdeen, where we've helped alleviate the impact of transition and make sure that that creates jobs and opportunities for people who may be affected by the decline of some other industries.

And I'd like to have some really smart British companies exporting their know-how. And maybe GB Energy is part of that ecosystem, exporting that know-how to other countries. And whether that's in long duration storage or carbon capture and storage, I think the scope for that 10 years, that's my mission. The initial announcement when it was made was GB Energy will have 8.3 billion pounds in

You've had to give up 2.5 billion of that to GB Energy Nuclear. Does that undermine your ability to live up to the stream? Yeah, to turn that into a negative. I mean, ultimately, the founding statement was very clear that there would be a joint element of it. But look, we're starting the company up. We secured £6 billion. That is a lot over four years to catalyze a company. You know, I see that budget as a huge, actually a challenge,

to think how do we deploy that intelligently and maximize the impact and the return, whether that's on jobs, on growth, on returns. That's a huge opportunity for us. And I certainly don't see it as an inhibitor, put it that way.

Last question for you, perhaps the most difficult one. Your title has interim CEO in it. You know, GB Energy, the government created it on 5th July 2024. You say the legal entity didn't exist until May, but you've been interim CEO since March. For energy companies, there should be no shortage of applicants wanting the job of a CEO, wanting to build a vision that you've just

Why is it taking so long to get a full-time CEO? Why is it taking so long? Look, I mean, Interim came in...

because about speed, you know, actually it was about, you know, wanting to stand the company up quickly. And, you know, I work in the industry and I'm, you know, incredibly enthusiastic about this. So to be asked to come and, you know, go on loan, as it were, to do this was a huge privilege. And then to be honest, the really important point is that when you go through these appointments in the public sector, there has to be a thorough process. And that process is

for anyone who's ever worked for the government, will probably understand that that process is not something that you can do overnight. It takes time, but I think it should be clear soon, put it that way. Thank you, Dan. Thank you very much indeed. And thank you for listening to Zero. Now for the sound of the week. That's the sound of a wind turbine from 250 metres away spinning in wind speeds of 40 kilometres per hour.

If you like this episode, please take a moment to rate and review the show on Apple Podcasts or Spotify. Share this episode with a friend or with someone who likes offshore wind turbines. This episode was produced by Oscar Boyd. Our theme music is composed by Wunderli. Special thanks to Rachel Morrison, Will Mathis, Eleanor Harrison Dengate, Jessica Beck, Somer Sadi, Moses Andam and Siobhan Wagner. I am Akshat Rati, back soon.

Join us in Seattle, July 14th and 15th for Bloomberg Green, two days of powerful conversations and meaningful connections. We'll explore what's next in the climate economy, clean tech, policy, and greener living. Featured speakers include Jane Fonda, Brian Gellert, and Vinod Khosla. The title sponsor is Amazon. Official airlines are Alaska and Hawaiian Airlines. Learn more at BloombergLive.com slash GreenSeattle. That's BloombergLive.com slash GreenSeattle.

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