New UK government bets on green energy. Companies are wary.

A new state-backed company, funded by increased taxes on oil and gas production, will invest in many renewable-energy projects around the country. Industry executives are split on whether the plan can meet the government’s ambitious goals.

Great British Energy has about £8.3 billion, or around $11 billion, to invest in renewable projects over the next five years. Its mandate is to speed up the adoption of green energy to help the government hit its target of decarbonizing the electricity grid by 2030.

That would require an enormous build-out of renewables across Britain. More than double the existing capacity of onshore wind, triple the solar power and nearly quadruple the offshore wind would be needed to hit the target, according to consulting firm Oxford Economics.

Britain’s dependence on energy imports has left it vulnerable to supply shocks in recent years. When Russia’s invasion of Ukraine led to a surge in prices, it prompted calls in the U.K. for the country to wean itself off foreign supplies, including by accelerating its green-energy plans. Britain generated 46% of its electricity from renewable sources last year, government figures show.

“In an unstable world, the only way to guarantee our energy security and protect bill payers…is to speed up the transition away from fossil fuels and towards homegrown clean energy," U.K. Energy Secretary Ed Miliband said in a July statement that set out GB Energy’s plans.

Since taking office, the new Labour government has ended a longstanding de facto ban on onshore wind power in England, approved the construction of three new solar farms and raised the amount of subsidies available for renewable energy this year by more than 50% to a record £1.5 billion.

Meanwhile, some companies are pulling in the opposite direction. Under pressure from shareholders, London-based oil giants BP and Shell have dialed back their green transition plans to maintain the typically higher returns that come from oil and gas production and trading.

In June, BP scaled back its plans for biofuels production in the U.S. and Germany. In July, Shell said it would pause construction work at a Dutch biofuels plant, casting doubt on the future of a facility the company had said would be one of Europe’s largest, churning out sustainable aviation fuel and renewable diesel.

Executives of both companies have said they would continue to invest in low-carbon energy, but will steer away from capital-intensive projects that lack a clear path to the kind of profits that investors have come to expect from oil and gas.

Oil-industry executives have also voiced skepticism about Britain’s energy plans, which include increasing and extending a so-called windfall tax on oil and gas production to fund GB Energy. Companies have criticized the U.K.’s shifting tax regime, saying it hinders their ability to forecast returns on long-term investments.

“However this is played, the stability is key. More changes at the goal posts just undermines the element of stability that we would advocate for," Shell Chief Executive Wael Sawan said in a recent interview.

Renewable-energy executives say they are hopeful that the government’s plan can help accelerate funding for low-carbon projects the way the U.S. Inflation Reduction Act spurred investment in renewable-power plants and battery production. Much of the incentive driving IRA-related spending comes from tax credits.

In Britain, direct government investment in low-carbon projects should reduce risks for investors and pull in more funds, proponents say. “We’ve already seen interest from discussions we’ve had with some of our investors," said Greg Jackson, CEO of Octopus Energy, a London-based renewable-power provider.

GB Energy’s first move was a deal with the Crown Estate, an entity that oversees most of the seabed around Britain’s coastline, to undertake early development work for offshore wind projects.

Efforts to reduce planning timelines for projects might be “a bit boring and gnarly," but they are key to getting major renewable developments online, said Alistair Phillips-Davies, CEO of British power generator SSE.

For instance, a proposal to expand what SSE says will eventually be the world’s largest offshore wind farm has been held up over the past three years by snags in the permitting process. SSE is currently leading the development of the project in the North Sea.

While state-owned energy companies are relatively common in Europe, Britain already has a growing, well-funded renewables sector.

The U.K. has long had levers to stimulate funding in renewables, including a mechanism that offers companies a guaranteed rate for electricity, said Rob Gross, director of the UK Energy Research Centre, an independent institute that receives government funding. That mechanism is widely credited for propelling Britain’s offshore wind market to the second-largest in the world.

Renewable markets such as offshore wind and solar already have plentiful funding as well, said Michael Liebreich, CEO of consulting firm Liebreich Associates. GB Energy could be better utilized if it narrowed its focus on nascent technologies such as long-duration battery storage and floating offshore wind to signal the government’s commitment to those markets, he added.

Another concern is that GB Energy’s cash pile is too small to tackle the costly challenge of connecting green-energy projects to the U.K.’s electricity grid. More than 700 gigawatts of renewable projects are waiting for a connection, according to the U.K. energy regulator, around 12 times what the country currently has in renewable capacity.

The U.K. grid was initially built to deliver power from coal-fired plants to cities and industry. To hit the government’s green-power target, some 2,500 miles of new and upgraded transmission lines would be needed, according to data provider Aurora Energy Research. That would cost several times GB Energy’s budget.

Meanwhile, proponents of continued oil and gas drilling warn against potential new limits to production in the North Sea. The Labour Party had pledged in its election campaign to end new drilling licenses there, though it is yet to confirm its plans. The U.K. still sources around half its gas from the region.

“Their manifesto says oil and gas production in the North Sea will be with us for decades to come, so we’ll be reminding of that," BP CEO Murray Auchincloss said.