UK eyes £60bn investment for GB Energy with Crown Estate deal

The newly elected UK government has confirmed details of what it calls a “Great British Energy Partnership.” This will see the Crown Estate, which manages the British monarchy’s £15.5bn portfolio of land and seabed holdings, lease out the seabed it owns to the newly formed publicly owned GB Energy.

The new energy firm has been launched with just over £8bn of public money and is expected to act as a co-investor in greenfield renewable projects to bolster private investor confidence.

In addition, the Labour government has widened the powers of the Crown Estate with a new Crown Bill expanding its investment powers and granting it borrowing capabilities. The government hopes that this will unlock further investment.

Offshore wind profits

The announcement comes a day after the Crown Estate released its annual profit figures, revealing that its investments in the energy transition have been extremely lucrative. In the last financial year, profits soared to £1.1bn, £658.1 million higher than the previous year, due to a short-term uplift from offshore wind leasing. The Crown Estate attributed this boost to decades of investment in offshore wind, with recent profits driven by option fees paid by developers through its latest offshore wind leasing round.

However, the picture is not entirely rosy. The total value of the Estate’s portfolio dropped by more than £1bn, reflecting more conservative estimates of future option fees paid by wind developers. Despite this, the boost in the Crown Estate’s finances will see the grant for the UK monarchy rise from £86m to £132m, with the remainder being fed back to the Treasury.

The UK’s offshore wind sector faced severe challenges last year when a government auction for offshore wind projects held in September attracted no interest from developers.

(Grid)lock?

Could the latest deal help revive the country’s ailing wind energy sector? Initial industry responses are positive. Bruno Gardner, head of Climate Change and Nature at UK Insurer Phoenix Group said: “Today’s encouraging announcement on GB Energy’s partnership with the Crown Estate provides a good example of the way GB Energy can leverage its capacity to materially accelerate progress in a pivotal aspect of renewable technology. We are committed to collaborating with government as it continues to develop plans and strategies for crowding in private finance to quicken the pace of the net zero transition in the UK.”

James Alexander, CEO at UKSIF, welcomed the government’s initiative to speed up offshore wind development as well as the public sector’s involvement in early development work. He described this as “a positive move that will reduce risk for developers and attract greater private investment.”

However, Alexander warned: “One barrier this will not solve is the current inadequacy of our grid connections, which we know remains a major barrier to investment.”

This sentiment was echoed by Luba Nikulina, chief strategy officer at IFM Investors. The manager, which is owned by Australian Superannuation funds, signed a Memorandum of Understanding with the UK government last year, intending to invest £10bn in UK infrastructure by 2027.

“The new government's commitment to get Britain building, whether in terms of removing the obstacles to onshore solar and wind construction or offshore including new technologies like tidal, is very welcome. Investors are keen to see more investable projects come to market,” Nikulina said.

“Making planning and permitting regimes more efficient and predictable can bring down the cost of capital, so the role GBE and the Crown Estate are set to play in driving projects forward in this regard is welcome too,” she added. But Nikulina also warned that poor grid connections remained a key concern for investors.

There are also concerns that the government is not offering sufficient backing for GB Energy. Dr Alex Chapman, senior economist at NEF, warned that there was a real risk that the project was underfunded. “The proposed £2bn per year is low and comes in at just half the expected level of private investment in new oil and gas, and just over 10% of the total investment needed in renewables over the parliament.

“If the government wants GB Energy to truly drive the UK towards a clean energy future it must increase its funding significantly, guarantee it will remain publicly-owned in the future and introduce it alongside a National Energy Guarantee to ensure everyone has access to the basic energy they need to live” he warned.

A first indication of whether investors are willing to support the government’s ambition will be the next Contracts for Difference Auction for Offshore Wind, due to be held later this year. Sam Hollister, head of Economics, Policy and Investment at LCP Delta, predicted: "It is essential that industry responds by bringing forward significant volumes of renewable power to support the government's ambition for clean power by 2030. With zero offshore wind procured last year, the industry and the UK’s decarbonisation ambitions are playing catch-up,” he warned.

However, he also expressed confidence that the reforms could potentially speed up development. LCP Delta predicts that up to £430bn would need to be spent to decarbonise the UK’s power system by 2050.

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