With both parties setting out plans to reform the National Grid, New Economy Brief looks at the why energy campaigners are focusing on the Grid, surveys the UK energy system’s structural problems with ownership and extraction, and explores a new paper from Common Wealth which makes the case for public ownership.
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The National Grid has been in the spotlight in recent weeks as both Labour and the Conservatives set out reform proposals aimed at speeding up the deployment of clean energy infrastructure. The National Grid is the private company that owns and runs the UK’s energy transmission and distribution system (see Common Wealth’s helpful explainer on How Britain’s Energy System Works). It has recently come under fire for “decade long” delays in building new connections allowing business and households to contribute to the grid, which the head of Ofgem says endangers the UK’s net zero target. For example, Octopus Energy has been told it will have to wait 13 years to connect three solar farms. What do Labour and the Conservatives propose to do about it?
The Conservatives’ plan for regulatory reform. New connections to the grid are approved on a ‘first-come, first-served’ basis, so speculative projects that may never be built can take priority over others that are funded, designed and ready to go. In his speech last month on the government’s new approach to net zero, Rishi Sunak announced an overhaul of the system to fast-track the most viable projects.
Labour’s plan to “rewire Britain”. In response, Labour outlined their own plan to “rewire Britain” and unlock £200bn of private investment currently that’s being held up by the “out of control” queue for new grid connections. Labour propose a publicly-owned energy company (GB Energy). This would launch a “super-tender which will procure the grid supply chain that Britain needs”, open up new grid construction to competitive tendering and bid to build or co-build new connections.
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New energy infrastructure, charging networks for electric vehicles, and the electricity to power heat pumps all depend on good grid infrastructure. Decarbonising the electricity network (whether by 2035 or 2030) will require unprecedented investment in the grid to get new renewable generators connected. BEIS estimates that households and businesses will have to pay between £40bn and £110bn through their energy bills to transmission and distribution companies by 2050 to do this. Coordinating this investment and building so much infrastructure so quickly will be difficult, and distributing the costs for this fairly will be crucial for maintaining political support.
Where is the money going? Many question whether the UK has the right ownership model for such a critical piece of national infrastructure. The National Grid has been a private company since the electricity industry in 1990 was privatised - an anomaly by European standards. This means one of the Grid’s key aims is maximising shareholder value. Analysis by Common Wealth shows that National Grid PLC’s top ten shareholders range from global asset management firms like BlackRock and Vanguard, to Norway’s government pension fund and the Abu Dhabi Investment Authority. Importantly, over the last five years, the company has paid its international shareholders nearly £9bn in dividends and stock buybacks.
The wrong priorities? Carbon Tracker notes that investment in the grid has stagnated in the past decade, and has fallen since 2017 despite a fourfold increase in the deployment of new solar and wind projects. Customers can be charged up to £62m a day in ‘congestion costs’ - effectively paying power companies to stop producing when there is more energy being generated than the grid can handle. National Grid has committed to invest up to £9bn in electrical transmission in the five years to 2026, but it will pay nearly as much again to shareholders over the same period, assuming dividends stay around their average.
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Common Wealth argue that the government will not be able to meet its target of a decarbonised electricity system by 2035 if it leaves transformation of the grid to private investment and coordination. They add that, if Labour is serious about a 2030 target, a publicly-owned grid is vital: “underinvestment is a feature, rather than a bug, of the regulated private monopoly model of grid ownership and governance, which is unable to deliver the scale of investment and strategic coordination of deployment needed at the pace required.” They argue for public ownership, which allows strategic coordination through direct public planning, investment and delivery. The government actually partially accepted this case last year, announcing the nationalisation of the Electricity System Operator, the part of the Grid that balances supply and demand across the network.
Costings: ‘how are you going to pay for it’? Of course, opponents of nationalisation argue that it would be an expensive distraction from other spending priorities. Common Wealth helpfully calculated that eliminating dividend payments from the company’s energy transmission wing for 10 years would cover the cost of acquiring it. They also note that the company spent £9.2bn on servicing debt over the last decade - almost a quarter of its total capital expenditure - and that public ownership would slash these costs, since the public sector can borrow more cheaply than the private.
The limits of privatised climate policy. Labour emphasised the importance of using public investment to ‘crowd-in’ private investment into the green economy at their party conference, while also talking about the importance of public sector control through GB Energy. If we are to learn the lessons of Bidenomics, we need to grapple with these issues of power and control of crucial infrastructure, and watch where the money is flowing. We are likely to hear more questions over whether we want private capital owning (and profiting from) from vital parts of the green economy. (For more, read our briefing on The UK in the ‘green arms race’.)
Profits and inflation. New ONS analysis finds that in the year to the second quarter of 2023, higher unit profits made up about a fifth of total inflation. Profits accounted for about 1.6 percentage points of inflation - over three quarters of the Government’s 2% inflation target.
Green credit policies and long-term price stability. Raising interest rates isn’t just a bad economic choice for the climate, argues Positive Money’s Sneha Yadav - it won’t even achieve its stated goal of bringing inflation down. Hiking rates “not only hampers green investments by inflating the costs of financing renewable energy projects but is also an inadequate tool for tackling current sources of inflation”, she says.
Higher rates bad for younger and lower-paid workers. Bank of England Monetary Policy Committee member Dr Swati Dhingra has said in an interview with the BBC that higher interest rates could ultimately hit young workers and those on lower incomes the hardest.
The cleaning industry and the future of work. A survey of 500 cleaners across the UK found that more than a third of respondents have worked while ill because they couldn’t claim sick pay. The research, carried out by the Centre for Progressive Change and Autonomy, also found that more than half of those surveyed report being harassed, assaulted or discriminated against at work.
“From Security Comes Hope”. Insecurity will “define life in Britain” as we head towards a general election, and Labour’s ability to offer security will determine it’s electoral success, argues a new report by Labour Together. The report outlines five conditions of a secure life that could guide the next Government: a secure job and a decent wage, bills that are predictable and under control, a decent home you can grow old in, everyday services that you can depend on, and safe streets and strong communities.
Tax and poverty in Scotland. This week, the Poverty and Inequality Commission Scotland has published a new report detailing how tax policy “can reduce poverty and inequality”. It recommends bringing “wealth into scope for future tax policy” and implementing “transparency measures on the profits of multinational companies” as well as finding a replacement for council tax.
What next for the clean energy transition? The New Economics Foundation’s Chaitanya Kumar analyses the political debate around the transition to clean energy following party conference season, arguing that “the opportunities for and challenges to a clean energy transition are even clearer”.
