The UK Government needs to “manage expectations” around the likelihood that its flagship energy company will bring down bills, a new report has warned.

The paper, A New Energy and Industrial Revolution: Making GB Energy a Political Success, produced by Stonehaven, and commissioned by Project Tempo, says ministers need to be wary of “overpromising and underdelivering".

Instead, the new firm — which will be based in Aberdeen — should pursue “realistic goals” and “use its limited capitalisation to focus on entering into new energy agreements with industry".

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The creation of GB Energy (GBE) was a key pledge from Labour during the general election, with the party’s manifesto promising to establish “a publicly-owned clean power company to cut bills for good". 

The firm, backed by £8.3 billion of public cash, will not supply power to homes but aims to drive up the number of green projects, including wind, solar and carbon capture.

It is one of the key drivers of Labour’s clean energy mission to effectively “decarbonise” the UK’s electricity production by 2030.

During the campaign, Labour repeatedly promised that GB Energy would cut energy bills by up to £300 a year.

(Image: Jacob King/PA)

However, they have since moved away from that figure, and last week, Sir Keir Starmer whipped his MPs to vote down a Tory bid to have the £300 commitment enshrined in law.

In their report, Stonehaven and Project Tempo say the Government “is particularly at risk of overpromising on the issue of consumer bills, which was core to Labour’s case for GBE during the election campaign.”

They say while “it is possible for GBE to reduce bills in the longer term, it will be challenging for GBE to have a significant impact on bills during this parliament.

"There is, therefore, a danger that measuring its success exclusively in terms of cost-cutting will fracture public support and undermine the long-term case for GBE.”

The authors identify four main issues which could hamper bids to bring down bills immediately.

The first is that GBE simply does not have enough money to be able to cap energy bill rises, in the way that state-owned EDF managed in France. 

Secondly, they point out that the price of energy on the wholesale market is still set by natural gas, leaving prices exposed to external shocks.

Thirdly, they raise the prospect of bills getting higher. Meeting the 2030 decarbonisation target will “require the Government to support a monumental buildout of both generation assets and National Grid transmission infrastructure.”

Under the current system, levies to pay for subsidies such as the Contracts for Difference Scheme — where renewable energy generators receive a fixed price for their electricity, regardless of the market price — are added to consumer bills.

Fourth, the authors say that even if GBE’s initial projects could affect the wholesale market price of electricity, it currently takes over 10 years for wind and solar farms to come online due to planning, construction and grid connection issues.

Polling by Stonehaven found GBE popular among voters, with 58% of the public supporting its creation compared to 11% opposed.

When asked what they thought the priority of GBE should be, 44% backed making more energy in Britain to reduce the country’s reliance on cheaper foreign imports.

There was also high support for creating more jobs and investing public money in mega-scale clean infrastructure.

(Image: Stonehaven/Project Tempo)

There is also some scepticism among the public about the company’s ability to keep bills low. The poll found that 43% of the public believe GBE will make no difference to household energy bills, with 37% unsure.

The report says this “creates opportunities for GBE to secure political support outside of immediate household bill reduction.”

It continues: “Early promises about bills may not be forgotten by voters, but they may be forgiven if the Government can start to manage expectations better and show it can deliver a positive vision around energy security and building in Britain.”

The central recommendation in the report is for GBE to invest in domestic clean energy supply chains, through bespoke Power Purchase Agreements, guaranteeing a fixed price on energy costs.

By partnering with strategically important sectors, GBE can “turbocharge a new energy and industrial revolution while maintaining enduring political support beyond 2030".

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Adam Bell, Director of Policy at Stonehaven, said there were huge benefits in reducing industrial energy costs.

“Britain stands on the brink of an energy and industrial revolution. The Government's mission to achieve a clean power system by 2030 is ambitious yet obtainable, but it requires public support and political legitimacy.

"GBE is central to this revolution; however, it must be framed not just as a means to reduce bills, but as a vehicle for delivering a broader range of economic benefits including industrial security and skilled jobs.

"Britain’s industrial energy costs are some of the highest among peer countries, putting investment at risk. Great British Energy would do well to change that.”

Pandora Lefroy, CEO of Project Tempo, added: “Great British Energy has a pivotal role to play in transforming the UK's energy landscape. It has the potential to sit central to a new energy and industrial revolution.

"But managing expectations around short-term achievements while championing the long-term benefits is going to be essential. The Government must balance its goals for clean power with realistic expectations for GBE's initial term.

"This balanced approach will foster the necessary public trust and support, allowing GBE to evolve into a lasting force for good for UK industry and energy sectors.”

A Department for Energy Security and Net Zero spokesperson said: 'We are confident that Great British Energy has the right remit to help deliver the government’s mission to make Britain a clean energy superpower, end the UK’s energy insecurity and protect bill payers against future price shocks for good.

“It will work with industry and alongside other government incentives, such as the National Wealth Fund and British Jobs Bonus, to build the supply chains needed to support a new era of clean homegrown power, bringing jobs and investment across the country.”