The GB Energy blueprint

GB Energy chief executive Dan McGrail tells reNEWS why he believes the publicly-owned energy company's renewables strategy is a recipe for success

Transcript

SPEAKER_00 0:01

Welcome to the Renews podcast with me, Stephen Dun.

SPEAKER_01 0:10

A decade from now we will have high levels of activity in deep water offshore winds. I hope that four years from now we're able to look back and see the formulation of a national champion that the country can be proud of.

SPEAKER_00 0:28

I'm here with Dan McGrell, the chief executive of uh GB Energy. Dan, you're very welcome to the podcast. Yeah, I'm delighted to uh be on with you. So we're sitting down a week or so after you published the GB Energy Strategy Plan. It sets out the plan to be a developer, investor, supported the supply chain as well. You know, before we get into the nitty-gritty of it, as you know, Dan, it's a tough time in the industry. We're seeing job losses, we're seeing developers walk away from projects, we're seeing supply chain companies, you know, refuse investment opportunities. It's not a great time, is it, to be coming to the sector with you know, five plus billion pounds uh uh of money to invest?

SPEAKER_01 1:12

I I d I don't know. I can look, I first of all, I I you know I I understand that in some ways what the sector is feeling, and speaking, you know, in some ways about the energy sector at large, but actually bringing it into into renewables and offshore renewables, is I think we're seeing the kind of ripple effect, the concentric circles of of a couple of auctions which didn't deliver the outcomes that we wanted as an industry. So the the the work right now is is is relatively low. But actually, if you look at the bigger picture, and I think this is what we've tried to do in the strategy, is is to look at the fact that, you know, first of all, if the policy environment, there have been few times when the policy environment for renewables have been as favourable, at least the intent is very strong. Um, and all of the messages from governments have been very clear about, you know, we we need to add energy capacity in all sorts of different forms, lots of renewables, but you know, new nuclear, um, uh, you know, future expansion of CCUS and all of these various different technologies. So the investment hypothesis remains fundamentally strong. And if you look even further afield than the UK, you know, uh investment in renewables continues to outpace investment in oil and gas. I think it was roughly double last year. So, you know, the the overarching macro environment should be a favorable one, even though there are relatively short-term issues. And those short-term things are very real and they do affect people's jobs, and we need to be mindful and cognizant of that. But you know, the fundamental premise of investing in renewables as a growth factor is is a good one. And and I think that will continue to be the case into the future.

SPEAKER_00 3:03

One of the things when you read the strategy document that's quite interesting is uh is GB Energy's appetite for risk. There's a couple of mentions in the strategy document about investing in areas where the market won't, or investing in projects that wouldn't otherwise get built. You know, at the moment we're seeing experienced developers and OEMs and supply chain companies, you know, walk away from projects, investments, factories, etc. So I'm really interested to know what GB Energy's risk appetite is and why you would feel comfortable, say, going and investing in a project or something that wouldn't otherwise get built by the market.

SPEAKER_01 3:47

Well, let me start the answer by contextualizing the shape of the strategy a little bit. I mean, we work really hard to find a shape for the business which balances a number of different trade-offs. Um, as a publicly owned energy company, which is, you know, first of all, you part of what we're trying to do is to match the capital that we're trying to invest with the ambition that we have as a country, whether that's ambition for deployment or whether it's ambition for building intellectual property and technology know-how and building supply chains out, where that ambition is high, but you know, acknowledging that the private sector capital isn't flowing at the speed that we want. And that's the the space that a privately owned, sorry, publicly owned company should should play in, really, and should prioritize. But even within that, there are there's a balance that you have to strike between you know how fast can we do things. So, you know, part of the part of the intent um on having you know a more, let's say, IPP style model onshore within you know pretty tried and tested technologies, but focused on public land. That's about having some pace, but also you know, balancing risk in that in the portfolio. Also looking at things like local, so we can, in local and community energy, so we can really drive public ownership into uh the sector, community ownership, which we think is something that can make a real impact. Whilst we also look at something like offshore and deeper water offshore, which objectively all of the you know long-range targets and ambitions, if you look at the Committee on Climate Change's seventh carbon budgets, I think it's 88 gigawatts of offshore that we need. You know, objectively we won't be able to do that in shallow waters. So we're trying to anticipate the need of the market, anticipate the future, and that is riskier, but all but but it's but also it's ri it's risk within a frame of, you know, look, we we within fixed bottom offshore, we knew we've we did scaling up before. We did we worked against the voices that said this won't ever get to cost comparity or you know won't get down to the wholesale price. We worked against those voices and used innovation and regulation to drive the industry to the space where we wanted it to be. So you know, we have we should have, I think as a country and as an industry, a degree of confidence in our ability to overcome challenges. And and I think you know, we're setting out a plan which balances off, you know, from a business perspective, various different risks, drives at job creation, drives at public ownership, and and tries to manage pace within all of that.

SPEAKER_00 6:33

We're at the offshore renewable energy catapults offshore wind spotlight event. So I'd like to focus on offshore wind. Uh could you put a bit more colour, Dan, around the strategy document and what it sets out as the plan for offshore wind? I think it talks about being an investor into equity stakes, less so about a developer of greenfield sites. Could you tell us a little bit more about what the specific plan is on offshore wind and also clarify what deep water means? Is is there a room for fixed there or is it all floating?

SPEAKER_01 7:10

So so okay, let me let's break that down a little bit. Um, first of all, um, you know, I I believe quite strongly that, and I've alluded to in my last answer, that we as a country um should as invest as much effort in learning from success as we do in learning from things that didn't go well. And you know, our story on fixed bottom offshore wind is one of um staged um development into you know something it's 25 years this week since uh the Blythe project was built, which is a great milestone. Um, but at that point 25 years ago, few would have believed that we'd get to the point now where you know offshore wind is you know objectively planned to be the backbone of the energy system in the future. So, you know, we went through a test and demonstration phase, we went through a commercialization phase with round two, those were both based on rocks, and then we went into an industrialization phase with round three, which was majority of that was based on on CFDs. And we went through a journey there which drove cost out, it localized innovation. There are 40,000 people that work in in offshore wind today. So in in a generation, we've built an industry, and I think for us, what we're looking at is saying, okay, and as I said earlier, there is a need to go into deeper water. Our plan in in many respects is to come in as a at the development phase of projects, so to invest alongside the private sector in that. And what we're what we're hearing from the market and what we're the feedback that we're getting is that GB Energy co-investing into projects that are in development phase is a way of sending confidence to investors to continue to spend development capital because frankly, development capital, for the reasons that you mentioned and the challenges in the market at the moment is the most difficult capital to secure for private investors. So having a publicly owned energy company coming in and signalling that there's confidence in the technology is a powerful thing. But the other nuance in all of this is that we still think there's a job to do in test and demonstration, which I think we've signaled by our investment into the Pentland project. Um, and then the commercialization phase, that kind of round one and round two analogy, um, where you kind of build towards the industrial era. And I think there's a really important job to do to get volume into the market, to get projects that are getting built of a sensible scale, so that you can then start to pour in, you know, the j the supply chain expansion in a in a stepwise fashion, but signaling intent into the long run. And I think that that's that's our our plan.

SPEAKER_00 9:58

Just looking at it, I mean, if you think about the market and GB Energy as being a public player in that, and what you've just said around the market saying we like the idea of GB Energy because it gives us you know a signal for development capital, doesn't that signal that something's gone wrong in the whole development space? And you know, wouldn't wouldn't developers much rather get a grid connection that they can develop towards and get their permitting and get their routes to market rather than have to rely, let's say, on public money to give them the the the boost to continue in the fight?

SPEAKER_01 10:35

I think there's two things that come across from me from that. One is one is that sort of describes the scenario you're describing is a perfect world, you know, of benign conditions. And and in some respects, if you look back at at fixed and the the journey that fixed went through, I mean, thank goodness you know there was a there was a you know there was a period there where economic conditions were pretty benign, you know, interest rates were low, there were no major shocks in electricity prices, and and that trajectory from AR1 to say AR5, probably AR4 actually, were were like, you know, that was sort of the conditions in the outside world were pretty stable. Yes, we had things like Brexit and sort of other other economic challenges, but fundamentally the economic conditions were pretty pretty solid. Today those those those circumstances aren't the same. And you know, you've got other wider things like you know, changes, big dramatic changes in market demand, like we've seen in the US. You know, these things have ripple effects. The the other side of it though is is that, and I I've said this actually in my previous role in in Renewable UK or on you know on platforms, is that one of the challenges with something like deep water or floating offshore wind is you've got to have real faith in the destination to be able to set off on the journey. And what I mean by that is you know, the big amounts of capital investment that are required in port infrastructure, big amounts of capital investment in um OM facilities, these types of, you know, you you need to dimension these investments for the for the long run, but recognizing that you're only starting at the beginning of the journey where the volume isn't high. I have absolute belief that a decade from now we will have high levels of activity in deep water offshore wind. But today, many people could objectively look at me, say listen to me saying that and thinking, well, show me the evidence. But you can't, and you can't show the evidence because you know clearly we're only doing a small amount of activity in this in the sector at the moment. So I think that's part of the role of of you know the catalytic public uh public investment alongside the private sector to say, look, we you know, we believe in the destination, come on the journey with us. So so that's it. And and let's also realize that there are big innovation challenges. You know, the I think when something like Scot Wind was released, I think the premise in many respects was look, you know, this is you know, this is an evolution of offshore wind. But and that and that, you know, on in many respects on PowerPoint, that's true. But when it comes to actually building a component the size of a football stadium, you know, in a week to be able to get or two weeks to get kind of industrial scale deployment, you know, that's that's a huge amount of learning that needs to happen in the in theatre, as it were. And and the best way to do that, in my firm view, is to build some projects.

SPEAKER_00 13:49

You are listening to the Renews Podcast. For breaking news or to access our exclusive market intelligence on the global renewable sector, subscribe at renews.biz. Now, back to the show. So you talked about the fabrication challenge there today. You've launched the uh energy engineered in the UK strategy with an initial 300 million out of a plan of a billion, I think, uh pounds of funding in the supply chain. You know, if I'm sitting here as a as the MD of a fabrication company, can you tell me what it's gonna look like? What do what what opportunities is this fund going to present me? How do I apply? What's gonna happen what's gonna happen?

SPEAKER_01 14:34

So, yeah, so we're releasing the Energy Engineer in the UK initiative um today, which is a big part of our strategy. And it's one of the different things I think about a conventional energy company versus the publicly owned one because we are playing a role here in with with some concessional capital as well as as well as investment um capital. Um, so the scheme um we previously announced it, but today we're actually opening it for offers. There'll be an online portal. Um, the details are all going to be on our website about how to apply. But we're targeting 13 key components uh that we you know very much positioned at you know, trying to build that that supply chain capacity. And there's some really innovative aspects to it. So there are there are areas where we're incentivising um not only the tier one investment, but you know, actions that those tier ones take to bring in further tier two and tier three companies is you know, is more financially advantageous. So we're we're we're trying to use novel concepts to really unlock not only the big factories, but also the crucial elements of the supply chain beneath that. Um the there are three pillars to the energy engineered and the UK um uh initiative. Part of what the first part, as you've pointed out, is grant funding, the £300 million fund uh with for these for these critical components. The second pillar is about what we're calling strategic market interventions, and I'll give you an example of that in the concept of uh in the context of um of of um offshore wind, which is that you know many people in in the world of deep water and floating are saying, look, there are lots and lots and lots of different floating foundation designs at the moment, and that makes it challenging for OEMs because you know, turbine OEMs are then like, well, you know, how do I standardize my product offering into this space? So there we're looking at how we bring a you know a funded um initiative together to bring those parties to into deep collaboration that then leads to deployment in the field, trying to bridge that gap between in a you know, frankly, between PowerPoint and putting something in the water. Um, so that's a more you know, that's a it's and and frankly, it's sometimes when we what we do in in and we don't have a great history of is as a country is anticipating the market failure and acting before it becomes a market failure. So that strategic market intervention there is we can see there's a problem, how do we accelerate the solution? And then the third pillar is that you know is us investing in companies where actually equity investment would be more helpful or useful alongside uh grant funding. So, you know, and I think this is particularly helpful for companies that are looking to scale up that might have a technology and offering which is you know uh in the uh you know innovation phase, coming up through the TRLs, and they're you know, where we can invest equity and help fundraise to take that company to the next level. So it's a package that is designed to um to be complementary and offer different products to help to help the supply chain grow. The last thing I want to say on this though, and I think this is really important, is my experience when I was bringing a major foreign investment to the UK is that what the government did was signpost um how to find different sources of funding and help. You know, so if you're a foreign investor, bring in a major facility or even a relatively small one, you know, finding a location, navigating port investment, navigating permitting and consents, and the various different sources of public funding is a challenge. And you're kind of left to do it yourself. What we're doing, what we're really passionate about in this strategy is that GB Energy, as the educated renewable experts or energy experts within the public finance ecosystem, are able to sort of act as the coordinator, the the front door, the the people who put the best offer forward for UK PLC. And we coordinate in the background with National Wealth Fund or Scottish National Investment Bank or the Crown Estate or Scottish Enterprise or you know all the various different actors, we help bring the UK PLC's best offer for that invest investor, and you know, and I think that's you know a bit of a game changer in terms of you know helping us as a country really compete.

SPEAKER_00 19:10

You refer to your uh experience on the on Siemens back in the day around Hull and that. I mean, how do you feel about those who say that at the tier one level that that ship has sailed for the UK? Uh that large-scale fabrication is too expensive, labour costs are too high, energy costs are too high. The Asian Middle Eastern players have the markets sewn up, and wouldn't GB Energy's money be much better spent in you know the areas where the UK is strong around perhaps innovation and the services side of the sector? I mean, what's your view of that?

SPEAKER_01 19:47

I think I think both things can be be true at the same time. Look, I that we we need capacity expansion in Europe for major components, the lead time on a transformer when we Started on our journey with wind power was probably a year, maybe less. You know, now it's four years, you know. So there's clearly a need for capacity expansion in some parts of the sector. Um, you know, there are a number of it's probably right that there isn't going to be a huge, you know, massive you know, expansion of you know, lots of factories. But for me, the the it's also true that the ones that are out there, we should be showing up as the UK and backing ourselves because we've got a great market, we've got you know relative policy stability and clean energy. The CFD has been exported around the world as being you know a uh you know the sort of the gold standard of of investable rate um regimes. I'm talking there about the contract more than necessarily the the process by which they're handed out. And I'm absolutely convinced that, and I and I do this from experience, when we started the process at Hull, it was our view that in order to compete and make sure the longevity of that factory were was secured, it had to be super productive, it had to be a place where innovation was embraced, and you know, today, well not terribly long ago, that factory was exporting blades to projects in in Germany, in the Netherlands, in Southeast Asia, because it's productive and competitive. So we can in Britain run brilliant industrial facilities because we're brilliant, we're excellent at high-value manufacturing, we're excellent at things like you know, concepts like lean. Um, and you know, when we do it well, we we have no reason not to back ourselves. So, you know, my view on that is, you know, we should have a bit of belief in backing ourselves as an industrial economy. But at the same time, you know, it's also true that services matter. There's much more value added in services in terms of a percentage, you know, it's a more of a people business. So we should embrace services as being an area where we can genuinely innovate and you know, where we can use more digital, where we can, you know, we can be more predictive, where we can offer, where we can lead the world. And I often say one of those things, you know, we we know, because you know, we've got a couple nearly 3,000 offshore wind turbines, we know what it's like to live with a mid-aged fleet of wind turbines more than any other country. So we're gonna encounter those mid-life issues, we're gonna start to think about lifetime extension, you know, and having worked for an OEM, this is where actual value, you know, this is long-term value. So, you know, we we should really try and work out how we position ourselves to capture those challenges.

SPEAKER_00 22:44

The other thing, you know, big supply chain investments require is orders, a pipeline of orders. And that's what Siemens had back in the day. And we've seen lots of companies talk about potentially setting up here, you know, on the proviso of securing a pipeline of orders. I mean, you're in a very influential role now, uh, you know, in the public uh sector, shall we say? Um, we have the AR7 process, it was certainly uh advertised as changing the dial on offshore wind. Then we had the budget, and a lot of people uh in the supply chain are looking at the budget and thinking, uh this isn't what we expected. We expected a much more ambitious budget and we wanted to invest in the UK. I mean, what's your thoughts on that? I appreciate you're not directly involved in the policy, but I mean, that is ultimately what is required, not public funding or investment, a pipeline of orders.

SPEAKER_01 23:46

I I think I would, you know, look, I'm you're right to say I'm not involved in this. I don't have any insight that you know anyone in the private sector would have, and quite rightly so. Um, so you know, for me, I I think there are there were a number of important changes that went into this auction. And I think the best thing, you know, CIB's longer contract, um uh Secretary of State being able to look at the bid stack, all of these things, these are these are important changes, and I and I think the best time to uh assess that will be after the results and and and work out actually how you know how big was this auction. It is clear, however, that for CP30 to be a success, you know, that this auction, the one after, they need to be the ones that do the heavy lifting.

SPEAKER_00 24:34

Just briefly, I mean, one thing that's not discussed so much in the plan, but which I know is of huge interest to people who will be here today, and certainly some of the listeners to this podcast, is the partnership with the Crown Estate around leasing. Can you put a little bit more meat on the bones of that and what that's gonna look like and how you guys are gonna play together and you know how it's all gonna look for GB energy?

SPEAKER_01 24:58

Look, I mean we still there's a huge amount of pipeline in the market at the moment, and I think that's you know, that this is there's a slightly odd, you know, slightly odd situation where we've got this all this pipeline in the market, but then you know there's a question of like, well, what what what about leasing? I I I think you know, we're we're working with the Crown Estate um through our partnership development. Um there there is you know, I I realised that was announced a year ago. Um we're working particularly at the moment, a lot of focus on the supply chain side with uh you know how to marry up what we're doing with the supply chain accelerator program that the Crown Estate have so that we're we're really intelligent and additional to one another. So there's a there's a lot of focus around that. And you know, the Crown Estate have said publicly that they're you know they're going to engage with the market on developing a lease towards the end of this parliament, and we're working with them on that. So I I can't say any more at this stage, but we will have more to say in the future.

SPEAKER_00 25:53

If you take a step back for a minute, we look at GB energy and its strategic plan. There is a lot of different elements to it, whether it be the onshore greenfield developer, the offshore project investor, the supply chain grant funder slash investor, the community element. How are you gonna pull it all off?

SPEAKER_01 26:20

Um look, I uh it it's it's ambitious, you know, and I think I think we ought to be ambitious. We've been given you know um a capitalization that most startup companies could only dream of. Um and we're you know we're really keen to make sure that we put that to work across a number of different you know targets. So we set bold targets, we want you know the 10,000 jobs, how do we do that? Well, that we need I think the best opportunity we have to drive job creation is through our offshore program and our um supply chain activities. Really clear area, you know, driving it local and community is very visible, it makes an impact at local levels. Like I was at a hydro scheme earlier this week, which a community had put together, which was you know, it's just brilliant to see how energy is providing an impact into a community and providing knock-on benefits that most people wouldn't think of in the context of um of energy. So, you know, there's something really exciting that we should look to do more of there. You know, solar is making an you know huge impact on reducing bills for schools and hospitals. So that you know, that means better health outcomes, better educational outcomes. It's not just about the kilowatt. Um, so I think it's it's right that we have this kind of broad focus, but it but but still have focus. So that's why we've settled you know three clear priority areas. Yes, there's tech that they're technology agnostic, but they are market segments that we can put entrepreneurs over the top of, drive at you know, delivering outcomes in these spaces. And you know, I hope that you know, four years from now we're able to look back and see the the formulation of a of a national champion for for energy that the country can be proud of.

SPEAKER_00 28:10

Just finally, do you do you have any concerns or what what uh things, guardrails have you put in in the event of, let's say, any conflicts or crossovers between the different elements of GB energy? For example, you're invested in as an equity investor in an offshore wind project, you're talking to the rest of the shareholders, they want to make a decision to, let's say, hypothetically invest or s or place an order with Asian fabricators for foundations, but at the same time you guys have a stake, let's say, in a UK factory. I mean, there is a possibility, at least on paper, for a conflicting uh situation there for GB Energy.

SPEAKER_01 28:57

But I would say that's a reality of development. You know, I I think you know, even the private sector is drop is developing major projects in partnerships where they're sitting around board tables and might have different opinions about things. And you know, we'll look to use our influence. We're also realistic about how much influence you know that you that you can have in those conversations. But clearly, if someone, you know, you know, as we bring public capital to to bear in a project, you know, I think the partners that we we are working with have their eyes wide open, that our ambitions are very much about driving you know domestic content, about driving jobs and growth, and making sure that you know we learn lessons that pr pay longer-term dividends. You know, I think that's a really important point that you know we we extract knowledge as well as as well as immediate value that then pays into the into the into the projects going forward. So, you know, uh we could there are obvious structural things that we have to put in place as a publicly owned company, but at the same time, um, it's also about how you behave and being a good partner, working you know with people on common objectives, and sometimes they will run up against each other, but you know, being mature about how you work through them. And and I just think you know, we will learn a lot through this process. Um, but I but I'm you know we will also be investing with capable and you know responsible partners who've got common you know aims.

SPEAKER_00 30:29

I know everyone in the industry will wish you the very best of luck there.

SPEAKER_01 30:33

Thank you, Stephen. It's a pleasure, and uh yeah, let's uh you know happy to come back uh if you love me uh at some point in the future.

SPEAKER_00 30:40

Absolutely. Yeah, take it as it is. The Renews podcast was produced and edited by me, Stephen Dunn. Click subscribe wherever you get your podcast to make sure you never miss an episode. For more exclusive market intelligence on the renewable sector, see renews.biz.