[.green]1[.green] Why We Need Public Ownership of Renewable Energy Generation

Nine out of the top ten countries leading the energy transition to renewables have something in common: a publicly owned renewable energy generation company driving the process. [9] For example, as We Own It documents, Norway's Statkraft is Europe's largest renewable energy producer, while Sweden's Vattenfall is one of Europe's largest producers of electricity and heat; both are 100 per cent state-owned. Switzerland's Axpo and France's EDF (imminently) are 100 per cent publicly-owned and clean energy pioneers, while Denmark's Ørsted — the world leader in offshore wind —is publicly listed but the state owns a controlling 50.1 per cent stake. Yet despite being rich in renewable resources, inherently resources of the commons, Britain is almost uniquely in Europe in lacking a national green energy champion: a clean public power generator to drive the transition and ensure we all benefit.

Yet, public ownership already plays a critical role in clean energy generation in Britain - only, at the moment, it is foreign governments and publics enjoying the benefits of this growing sector. 42.2 per cent of the installed capacity from operational and under construction wind farms is owned by foreign public entities, including state-owned enterprises and public pension funds. Remarkably, the UK Government owns less of our aggregate offshore wind capacity (0.03 per cent) than the government of Malaysia (0.1 per cent), let alone the governments of Denmark (20.4 per cent) or Norway (9.2 per cent), (Figure 2). The city of Munich, meanwhile, owns more (0.85 per cent) than any British town or city. [10] (se. Figure 2)

[.img-caption]Figure 2: Public Ownership of UK Offshore Wind Capacity by Country Common Wealth calculation based on ownership data from the Crown Estate’s 2021 Offshore Wind Report; capacity is from 4C database, and the capacity factor data is from energynumbers.info[.img-caption]

The widespread involvement of foreign public entities indicates the desirability of this industry as an asset in which the UK public sector is currently failing to take a stake. Indeed, as recent TUC analysis has found, “If the UK today had a public energy champion similar to EDF in France, EnBW in Baden- Württemberg (Germany), or Vattenfall in Sweden, a significant portion of the excess profits taken by privatised electricity generators due to soaring wholesale prices would be coming instead to the government. Government would be able to use these revenues - equivalent to £2,250-£4,400 per UK household - to reduce bills or accelerate home insulation roll-out.” [11]

If the failure to build publicly owned renewables in the past was a mistake, looking forward, a key question remains unanswered: if the UK has seen impressive growth in clean electricity generation in the past decade, with the current pipeline of offshore wind alone standing at 86 GW, [12] is a publicly owned generation company really needed to spur development in this industry? Or can the development of the UK’s clean power future be left entirely in the hands of others, with no direct stake for the public? If we are to act, now is the time. There is at least 150GW of offshore capacity alone that could be deployed by 2050, according to the Offshore Renewable Energy Catapult; if public ownership is the right solution, then ambitious action can still secure lasting benefits.

To address this question, the following section is divided into two parts: first, an examination of the factors that mean an energy transition guided by market relations and for-profit actors faces structural challenges to delivering a rapid shift to 100 per cent clean power; and second, an articulation of the positive difference Public Power Britain can make to a clean power future — a faster, fairer and less costly transition than the alternatives, and reduced energy bills, enhanced resilience and the creation of publicly-owned energy assets that return wealth to the people.

[.green]2[.green] Decarbonising in an Era of Economic Stagnation

Forecasts of the decarbonisation of the UK’s energy system are predicated on a private investment boom. [13] Yet the British economy is marked by systemic slowdown, with growth, investment and profitability stagnant and historically weak. [14] In this context, mobilising private investment at the scale, speed and direction required faces strong headwinds.  That the UK is likely to enter recession later this year — with the Bank of England projecting that output will fall in each quarter from 2022 Q4 to 2023 Q4 and the MPC set to sharply raise interest rates — makes these obstacles even more significant. Against this backdrop, the challenge of addressing the climate crisis in an age of stagnation is substantial. [15]

The difficulty of driving rapid decarbonisation amid an economic downturn is sharpened by a critical determinant of corporate investment: expected profitability. This means that despite the collapsing cost of renewable energy generation (with technologies becoming cheaper to install and operate and with electricity from gas generation in the UK now costing nine times more than new renewables [16]) the private sector risks struggling to fully realise the benefits of cheap and abundant clean energy. This is because for the private sector cheapness of initial investment is not enough. Renewables must be more profitable and more suitable to the extraction of value for for-profit energy companies to shift investment out of fossil fuel extraction and into developing clean energy infrastructure. [17]

The relative return profiles of renewable investments (in the 4–8 per cent range) are typically lower than average returns on fossil fuel investment. [18] If maximising returns on investment is the criteria, then, solar, tidal, nuclear and wind-based energy generation remain for the most part unattractive investment propositions, despite their comparative cheapness to build and operate. [19] The differing expected profitability of investment in differing energy sources in turn partially explains why, globally, low-carbon investment accounts for just five per cent of oil and gas company capital expenditure worldwide (though this represents an increase from just one per cent in 2019) [20]; why Shell and BP used their record profits to invest three times and ten times more in fossil fuel production than low-carbon in the first half of this year [21]; and why, despite a pickup in investment in renewables after flatlining for much of the past decade, according to the IEA, “today’s levels of capital spending are still far from sufficient to tackle the energy and climate crises.” [22] Moreover, given surging energy prices – with the oil and gas sector’s income set to grow to $4 trillion in 2022, more than twice its five-year average – energy investment is likely to remain disproportionately and dangerously weighted toward fossil fuels. [23]

To overcome the limitations imposed when investment is guided by the profit imperative, public policy has sought to de-risk the energy market for private companies in different ways, whether in the government’s recent price freeze policy, which will see the direct subsidisation of energy company profits, or through policies such as Contracts for Difference. While the latter in particular has been successful at encouraging the growth of renewable capacity and generation, it nonetheless reflects an orientation toward a de-risking state that uses its capacities to secure private profits and insulate private firms from risk in order to encourage private investment, rather than directly investing itself. This is not to criticise the effectiveness of CfDs, rather to suggest that their existence is evidence of the hurdles that private investment always needs to overcome, and insofar as they constitute a fiscal cost, that raises the question of why private investment is seen to be so much more desirable than public investment. Taken together, the background condition of stagnation; the complex interplay of profits, prices and investment and their relationship to meeting public needs under capitalism; and the expensive architecture of de-risking, all point toward the limit of the market to deliver unaided clean power within the decade.

[.green]3[.green] Why Public Power Britain Would Lower Bills, Reduce Emissions, and Grow Social Wealth

Public Power Britain would be a publicly owned generator that would have a mission to generate 40-50 GW by the end of the decade. The case for PPB is based in part on the many benefits that a 100 per cent clean power system would bring. A green power system would over the medium term:

[.num-list][.num-list-num]1[.num-list-num][.num-list-text]Help stabilise the country’s macroeconomic position. [.num-list-text][.num-list]

‍Existing policy is unlikely to deal with the source of the import shock driving the cost of living crisis, our dependence on imported fossil fuels. As a result, our energy and heating systems will continue to import inflationary pressure, drive pressure on the currency, and put stress on the UK’s fiscal position. By contrast, Public Power Britain can play a key role in macroeconomic stabilisation by reducing dollar-denominated imports and boosting exports, while creating a new source of government revenue. Over time, this will provide an important counterforce against fossil fuel-based inflation and improve the UK’s macroeconomic position.

[.num-list][.num-list-num]2[.num-list-num][.num-list-text]Reduce bills and end fuel poverty.[.num-list-text][.num-list]

The cost of renewable energy generation is now significantly lower than fossil fuel alternatives. If the marginal pricing system that keeps the price of renewables artificially high is reformed, the growth of abundant clean and domestically produced energy as a total share of energy consumption could translate into significantly reduced bills.

[.num-list][.num-list-num]3[.num-list-num][.num-list-text]Enhance energy independence.[.num-list-text][.num-list]

Russia’s invasion of Ukraine has underscored the connection between energy and global stability: the world’s dependence on fossil fuels is a point of leverage for aggressive petrostates. By helping accelerate the development of a 100 per cent clean energy power system, the PPB can play an important role in developing strategic assets, strengthening economic resilience, and improving geopolitical autonomy.

[.num-list][.num-list-num]4[.num-list-num][.num-list-text]A greener world, a healthier society.[.num-list-text][.num-list]

By eliminating a key source of emissions, a public clean energy company would help ensure a thriving planet for generations to come; by cutting down pollutants, it can create clean air for all, and a healthier society.

‍

Public Power Britain would help deliver this future faster, fairer, and more affordably than leaving development of renewable generation purely to foreign state-owned entities, private equity, and public companies, while better retaining and expanding the public’s share of Britain’s renewable wealth. A new publicly owned energy champion could deliver multiple benefits, including:

[.num-list][.num-list-num]1[.num-list-num][.num-list-text]To use the opportunity of the energy transition to grow public wealth.[.num-list-text][.num-list]

Private investment will continue to expand clean energy generation in the decade ahead, albeit below the pace we need to rapidly decarbonise the system. However, in doing so it will reproduce a privatised, extractive model of energy generation and provision, that transfers enormous (and growing) wealth from ordinary households and businesses to the owners of clean energy resources. [24] By scaling up a public actor, we can avoid repeating the mistakes of the development of oil and gas in the North Sea: a public generator can ensure that the power we produce contributes to shared national prosperity, with public assets creating flows of income for the public for decades to come.

[.num-list][.num-list-num]2[.num-list-num][.num-list-text]To deliver a fossil fuel free power system within the decade by accelerating the roll out of both proven and “moonshot” technologies.[.num-list-text][.num-list]

Public investment matched to an ambitious and clearly defined industrial strategy is key to unlocking innovation and inclusively dispersing its gains. In the energy transition, this could take the form of PPB investing in forms of energy and new technologies where the market has not provided investment at the pace and scale required. There is a clear role in these areas for market-shaping action by a public company that is better able to manage risk and operate over longer time-horizons. However, PPB should not content itself with derisking certain technologies and filling in where the market fails. A public generation company should also replicate and expand existing, proven and cheap technologies. The quickest, most cost-effective route to decarbonising the UK’s energy is through a roll-out of onshore and offshore wind; PPB should play a key role in accelerating their roll-out. Contracts for Difference should continue to unlock private investment, but rather than entirely relying on incentivising and nudging private market activity to meet our goals, a public company would allow us to deliver on specific, ambitious clean energy targets, taking advantage of the state’s unrivalled ability to plan for the long-term.

[.num-list][.num-list-num]3[.num-list-num][.num-list-text]To lower the costs of and barriers to develop new capital-intensive clean energy infrastructures.[.num-list-text][.num-list]

Relying solely on the private sector and foreign governments to entirely build our clean energy infrastructure will be slower and more costly to households and businesses, as well as to the climate. A combination of lower costs of capital, the elimination of shareholder dividends and pressure to maximise shareholder wealth as a driving imperative, and the avoidance of costly subsidies would make the development and maintenance of new clean energy infrastructures cheaper if a public generator run in the public interest played a major role in the transition. First, by borrowing at government rates that are lower than in private markets, a public company would have access to a lower cost of borrowing and overall cost of capital compared to private companies. Given the capital intensive nature of developing new infrastructure, this is an important advantage. Indeed, Ørsted’s UK country chairman has previously cited this as a reason for the company’s success. [25] The potential savings are significant. For example, according to modelling work conducted by Frontier Economics for IPPR, full public ownership through construction and operation could generate savings for consumers of £3.4 – £5.1 billion (in 2012 prices) between 2015 and 2035 with an offshore wind programme reaching 30.3 GW. [26] This would likely be significantly higher given the scale of investment required and the greater total of renewable power needed. Second, a public generation company would end the flow of wealth from ordinary households and businesses toward the shareholders of for-profit energy companies. Instead of channelling billions of pounds of dividends and buybacks to investors — whether private finance companies, major institutional investors, or foreign state-owned companies — any income generated would return to the public. Third, PPB would reduce the need to provide often-expensive incentives to private renewables companies to increase their capacity. Take the example of Dudgeon wind farm, which was estimated to have cost a total of £1.25 billion to build. [27] Cumulative net CfD payments since the farm came online in 2017 amount to £793 million. [28] However effective this programme has been in bringing forth private investment, it is surely better to spend a moderately greater amount and have the expenditure offset by the addition of a valuable public asset to the public balance sheet.‍

[.num-list][.num-list-num]4[.num-list-num][.num-list-text]To reduce bills by reforming the pricing system and ending the wealth transfer from households and government to for-profit firms.[.num-list-text][.num-list]

The additional costs outlined above are borne by households and businesses in the form of higher energy bills. Take Dudgeon again, operated by the Norwegian state-owned Equinor, and owned 35 per cent by Masdar (Abu Dhabi state-owned), 30 per cent by China Resources (Chinese state-owned), and 35 per cent by Equinor. With a capacity of 402MW and a lifetime capacity factor so far of 47.5 per cent, it produces a yearly average of 1.67TWh, which, at a strike price of £150/MWh, generates £251 million a year in revenues for its owners, paid for by a combination of customers and government subsidies. Guaranteeing the inflation-linked strike for 15 years therefore guarantees the owners a total of £3.76 billion (in 2017 prices, undiscounted) on an initial investment of £1.25 billion. This is a transfer from customers and government (and indeed consumer-facing suppliers) to the owners of this infrastructure, far above the costs of energy generation. [29] At the same time, the marginal pricing system keeps the price of renewable power artificially high. By bypassing the market and marginal pricing system, the PPB could sell clean electricity cheaply and help ease a key driver of the cost of living crisis. The current design of Britain's electricity market uses a marginal pricing system, “Pay As You Clear”, whereby the wholesale electricity price is set by the most expensive power station that is necessary to meet marginal demand. In practice, this means the price of gas sets the price of electricity overall because the energy profile of gas - a flexible and reliable source of generation - means the marginal power station is typically gas-fired. As gas prices have surged over the past year, exacerbated by but beginning prior to Russia’s invasion of Ukraine, the fact that wholesale prices for electricity as a whole are set by gas prices has dragged the price of electricity to record highs. A publicly owned generator could bypass this problem entirely by offering lower wholesale prices through a Power Purchase Agreement (PPA) to a publicly owned supplier who would sell directly to households and businesses. This would enable Public Power Britain to avoid the market and marginal pricing system entirely and deliver significant savings by offering cheap, abundant clean electricity for all. While a public supplier would still have to purchase energy on the more expensive wholesale market when demand surges, overall this combination of generation, pricing, and provision could substantially reduce bills.

[.num-list][.num-list-num]5[.num-list-num][.num-list-text]To support a green industrial strategy that delivers good jobs and benefits communities across the UK, while supporting the development of strong global supply chain standards for all workers.[.num-list-text][.num-list]

‍Learning from Europe — where public energy companies provide patient capital to grow domestic supply chains and ensure homegrown R&D creates domestic manufacturing and employment — PPB could give weight to a market-shaping industrial strategy, onshoring key elements of the renewable supply chain setting high employment standards and delivering good unionised jobs, and improving coordination of the wider energy transition. [30] For example, analysis suggests that where public bodies invest in renewables directly the orders are more likely to be placed through British supply chains than under the private developer-led model. [31] Alongside this, as energy justice collective Platform argue, “the most important function of such an entity – as with state-owned oil companies – would be to improve the state’s bargaining potential and regulatory process. By acting as the ‘eyes and ears’ of government within the offshore industry, a national energy company could make available considerable insider information.” [32] At the same time, the PPB and wider public procurement strategies  should seek to bolster ethical global supply chains, not only with respect to how the materials needed for the renewable transition are extracted and produced, but also with respect to ensuring workers globally can benefit from well-paid, secure and good jobs in vital new industries.

[.num-list][.num-list-num]6[.num-list-num][.num-list-text]To make Britain a leading clean energy exporter.[.num-list-text][.num-list]  

‍While PPB’s core mission would be to lead the rapid roll out of renewable power for domestic use, helping decarbonise and reduce bills simultaneously, a public energy champion could create a green export giant: first, through exporting electricity to Europe, and second through the spillover effects of growing technical expertise, capability and ideas the transition will generate. Arguably, this is particularly true where PPB plays a role in developing and scaling new technologies like floating wind platforms.

[.green]4[.green] What Would Public Power Britain Do?

Mission

Public Power Britain would be a publicly owned generation company with a remit to build and operate new clean energy infrastructure that would generate 40-50GW of clean energy by 2030. This could be done through a mix of both existing and frontier technologies, including onshore and offshore wind, tidal, and solar. As an arms-length company, with its mandate defined by Parliament but operating independently on a not-for-profit basis, it would have five core missions:

• To secure a fossil fuel free future by accelerating the transition to 100 per cent renewable electricity within the decade and helping coordinate the wider energy transition;  
• To reduce energy bills for households and businesses by providing renewable energy at scale to the public via a publicly owned supplier, instead of through the wholesale market;
• To deliver reliable, secure, domestically-produced energy that ends our dependence on imported oil and gas and turns the UK back into a major energy exporter;
• To ensure the public shares in the wealth produced by common resources like wind and the waves, providing income from publicly owned assets and strengthening the public balance sheet through new publicly owned energy infrastructures and revenue sources;
• To develop onshore supply chains and industrial capacity, increase R&D and innovation, and provide good green jobs across the nations and regions of the UK, and more broadly support proactive, green industrial strategies.

Institutional design and operation

The resources PPB would harness are part of the commons. The common wealth of the wind, tide, and sun should be stewarded for the benefit of all, not subject to enclosure and privatisation. Forthcoming work from Common Wealth will set out in greater detail a proposed institutional design for a public generation company, but the principles of the commons should inform its operation: a pluralism of institutional forms, democratically governed, responsive to needs. That would mean an entity comfortable operating at multiple scales, geographically and politically, ranging from communities, councils and combined authorities to devolved and UK-wide governments.

At its core, the company should have clear operational principles. We know that we need to rapidly expand domestic clean energy production to cut bills, drive decarbonisation, and reduce inflationary pressure. Instead of trying to nudge the market toward that goal, PPB would plan and deliver renewable energy based on clearly defined social and climate needs.

Distribution

The income generated by Public Power Britain could be used to support a range of different outcomes. The allocation of its surplus should be democratically determined. Suggestions for the use of surplus include, but are not limited to: using income to lower bills; helping fund a Renewable Power Fund, akin to Norway’s Oil Fund (albeit on a smaller scale); the provision of a universal clean energy dividend; or the establishment of a fund for communities to bid to create local clean energy projects.[33]

Capitalisation and financing

The company could be initially capitalised through public borrowing or a National Investment Bank, equipped with the resources to deliver 40-50GW of clean installed capacity within a decade. The company could also, for instance, be able to issue a Green Bond that the public could buy into at a low rate, starting at, for example, £5. Much like an ISA, it would be a way to help raise funds for the company while giving people a sense of ownership and attachment to its success.

In place of private financing, financial and market-based governance, and profit-focused goals, the PPB would build out an energy future that was based on public financing, non-financial governance and democratic planning, and social and environmental goals.

Renewable generation

The exact mix of energy sources should be set in consultation with the Committee on Climate Change in pursuit of its missions. Public Power Britain should, however, have a broad and balanced portfolio of both proven and emerging technologies. An ambitious agenda designed to reduce both bills and emissions while helping to scale up emerging technologies could see the following plan:

• Ensure at least half of the total planned 50GW of offshore wind is generated by PPB;
• Generate at least 15GW of onshore wind, the cheapest, quickest route to clean power;
• Act as a first-mover in pioneering technology like floating offshore wind, generating at least 10GW by the end of the decade, alongside zero carbon hydrogen;
• Generate at least 10GW of solar power;
• Invest in tidal stream and tidal lagoon power including the Tidal Lagoon Power in Swansea Bay.

Towards “free energy”

Public Power UK can underpin a new system of ​”free basic energy” where every household would be entitled to a free amount of energy consumption but would pay a higher marginal cost for energy use above the free amount. As NEF have calculated, this would reduce bills for the vast majority of households while being less expensive than a two-year prize freeze and better incentivising energy efficiency. [34]

[.green]5[.green] Conclusion

The UK’s natural wealth has been squandered once before: after the discovery of oil and gas, the North Sea was actively transformed into a rentier's paradise. Absent change, we risk repeating past mistakes. However, with institutional imagination, we can ensure the energy transition does not just decarbonise power, but reclaims the wealth of the commons for the common good.

Public ownership of energy generation is already widespread; now is the time to harness this powerful, versatile tool to directly benefit communities across all the nations and regions of Britain. In doing so, we can begin to break from the power of fossil capital and move toward an energy democracy: "commoning resources, dispersing economic power and ending dependence on the multinationals that exploit public resources for private profit." [35]