Grid system

Even Andy Burnham was surprised to get a standing ovation for taking VAT off electricity bills. His plans to address the plight of the industrialist seeking a grid connection did not meet with the same enthusiasm during his first Labour conference speech as prime minister. Yet faster grid access matters far more for bringing down Britain’s high energy costs.

On 29^th September, the government announced GB Grid, a new entity under the government’s publicly-owned energy company, GB Energy. Seeded with £4bn of reallocated funding, GB Grid will be able to finance and build grid infrastructure and plans to compete with incumbent providers. Alongside GB Grid, the government announced it would expand self-build connections and accelerate competitive tendering for transmission projects, effectively increasing competitive pressure on networks. This is a refreshing approach to bringing down energy costs, combining a bold public ownership experiment with unglamorous but necessary competition reforms.

Focusing on reducing energy bills is smart politics. According to national statistics as of August 2026, 89 per cent of British adults report that the cost of living is an important issue. This puts it ahead of the NHS, the economy in general, or immigration. According to More in Common polling, the primary way voters will judge the Labour government’s success is by how much living costs go down. Additional polls show that energy bills are the biggest problem within cost-of-living concerns, cited by three-quarters of survey respondents.

The debate on how to fix this problem often focuses too much on ideology. The UK is not unique in a global backlash against high energy prices, but different villains emerge in each country based on what people dislike. In the UK’s case, the rogue’s gallery ranges from net zero to private sector profiteering to fossil fuel dependency. Each of these examples prescribes a simple solution: respectively scrapping climate policies, nationalising private assets, or building more renewables to replace gas. Each is easy to sell to voters but risks misdiagnosing the constraints in the system.

“Growth diagnostics” offers a less ideological way of thinking about the government’s energy policy choices. Developed by Ricardo Hausmann, Dani Rodrik, and Andrés Velasco, this framework acknowledges that many different parts of a system may require change, but also that government policy-making capacity is limited. They propose prioritising reforms that remove constraints on other parts of the system. For example, subsidies like the Help to Buy scheme do not make houses more affordable if there are barriers to construction – developers just raise prices.

With a binding constraints lens, speeding up grid connections is an obvious place to focus. As of 2024, projects faced a connection date around five years later than their requested timing. This is longer than solar and onshore wind projects take to progress through planning and construction. If renewables projects cannot start supplying energy, shifting more expensive sources of energy out of the market will take longer. Demand connections from data centres to housing developments also face delays, forgoing business activities that can drive growth, slowing down electrification of heat and transport, and reducing the ability to spread the grid’s cost over more units. Across both demand and supply investments, the uncertainties associated with delays raise the required return on investment, further increasing costs. The government is already tackling the grid connection queue by reprioritising projects that are ready and aligned with the network plan, and considering fees to reduce the number of speculative data centres applying for connections. This focuses the queue on the right projects, but more reform is needed to speed up delivery.

While GB Grid is framed as the primary solution, it is more about putting the idea of ‘public control’ into practice. Trialling state-led grid investments at a small scale gives the government a test case for how public ownership could bring down costs if it had a broader mandate for nationalisation. While the British government already owns a networks company in Africa via British International Investment, this would be the first foray into building, owning, or operating network assets in Britain since Thatcher-era privatisation. The willingness to pay to speed up grid connections is high, so this could even become a profitable enterprise, as GB Energy was originally conceived.

Regardless of who owns the infrastructure, introducing competition into grid connections is the meaningful change to the binding constraint. Grid connections are currently handled by monopoly entities with limited competitive or regulatory pressure to speed up their services. Infrastructure developers are willing to finance and build more of the grid themselves, as outlined in my paper with the Centre for British Progress on speeding up grid connections. Regulation, not capital or supply chains, stops them from doing so. DESNZ’s announcement that it will accelerate reforms to self-build connections and competitive tenders is welcome, but Ofgem and Neso have been consulting on these ideas for some time. What is needed is a decision on the details.

Like any freshly announced energy policy, there’s plenty for investors to critique. GB Grid’s initial funding of £4bn is a small portion of the estimated £70bn grid build-out required from 2025 to 2031. If it is the only alternative to the privately-run National Grid and its equivalents, it will be insufficient to deliver meaningful time and cost savings. If more grid infrastructure is opened to competition, some private sector providers worry that GB Grid will crowd them out of tenders by underbidding them, but this is precisely the point.

Others doubt that government can manage energy projects more efficiently than the private sector, even though the unprecedented government-run grid expansion in the 1950s cost 42 per cent less than private building today (and was completed at twice the speed). GB Energy was announced with great fanfare but without a clear direction. Funding has been whittled away, key staff have left, and few major projects have launched since its inception. Adding GB Grid to GB Energy’s portfolio may stall the progress of yet another promising government initiative.

The biggest risk is over-indexing on public ownership as the solution if other important structural reforms are the immediate problem. As grid connections speed up, other constraints will bind public and private owners alike. Price formation is a major challenge. Market reforms that incorporate physical limits into electricity procurement could reduce costs for consumers, and longer-term contracts for existing renewables would reduce the impact of high short-term gas prices. Better price signals make it easier to increase demand, which could become the next binding constraint to reducing unit costs. This could mean making electricity cheaper by taxing it less or making it easier to finance and install technologies like heat pumps and EVs. With better functioning markets and more demand, coordinating decisions across generators and networks – in other words, vertical integration – could reduce system costs further. Public ownership has the potential to reduce investment costs and profit margins, but introducing this before addressing other constraints will limit its effectiveness.

The new Labour administration is doubling down on the power of storytelling to sell its policies, and it is working. The VAT cut to electricity bills has already bought goodwill. Taking back public control is an inspiring goal that cuts across government departments. In the case of energy, GB Grid is a tangible realisation of this popular idea, but its success will also depend on more competition. Addressing binding constraints may be less exciting to explain on the doorstep –  but it is more important for systematically reducing the costs of Britain’s energy system.

Image credit: Altaf Shah via Pexels