Labour is to put a government-owned power company at the heart of the UK’s energy system for the first time since the privatisation of the industry in 1990, in one of Keir Starmer’s boldest pledges so far.

Great British Energy, with £8bn of investment, forms the centrepiece of Labour’s promise to decarbonise the electricity supply by 2030. This would stop well short of any form of renationalisation: GB Energy would be a state-owned investment vehicle and company working alongside and often in partnership with the existing private sector suppliers. The plan is for it to be largely invisible to households, not offering electricity directly to consumers but financing and helping to build low-carbon infrastructure, from windfarms to – potentially – nuclear reactors.

Earlier this week Starmer said: “It’s time for change. Labour will create a publicly owned clean energy company to power Britain’s future energy security – taking control of our energy supply to bring down bills.”

But could GB Energy, to be based in Scotland, really bring a step-change to Britain’s energy future? Here we take a closer look at the Labour party’s green energy policy.

What does GB Energy plan to do?

The Labour party plans to set up a publicly owned energy company to own, manage and operate clean energy projects across the country if the party comes to power. The company would have access to £8.3bn over the course of the parliament, which would be partly funded by tougher taxes for North Sea oil and gas companies.

About £3.3bn has already been earmarked for Labour’s local power plan, which aims to provide funding to local authorities and communities to build small-scale clean power projects. Another £5bn would go towards investing in projects and supply chains that may be less attractive to private investors – these could be new technologies such as floating offshore windfarms or solar panels for social housing developments.

The sums are small compared with the cost of major offshore wind projects and nuclear power plants. But the Labour party believes that careful investments could reap major benefits.

The Guardian understands that although GB Energy’s first steps into the industry are likely to be investments alongside established private sector companies, it has ambitions to finance and run its own projects in time. This may eventually include developing in-house expertise to deliver major energy projects, including nuclear reactors.

As it stands, the UK’s projects for new reactors at Hinkley Point, Sizewell C and Wylfa in Anglesey are all facing huge problems. The most advanced, Hinkley Point, has had long and costly overruns. New nuclear power, then, will be expensive and the UK’s existing ageing nuclear fleet is running out of steam. Labour hopes GB Energy could play a role in reducing the construction risk of these mega-projects.

Could GB Energy really lower bills and boost energy security?

Importantly, GB Energy would not supply electricity directly to households. But the Labour party claims it would still be able to lower home energy bills by helping to wean Britain off its reliance on gas power plants and on to cheaper homegrown renewables.

Starmer vowed this week to “close the door on Putin” by turning Britain into a “clean energy superpower”. By guarding the UK against global energy market spikes the party would ensure “a permanent and sustainable end to the cost of living crisis”, he said.

The promise of lower energy bills could prove to be true, in time. GB Energy is considered a crucial plank in helping Labour to achieve another election promise: to create a virtually zero carbon electricity system by 2030, five years ahead of the government’s target.

If it achieves this it could save each household an average of £300 a year from their energy bill, according to analysis by the independent thinktank Ember. So although GB Energy cannot promise to cut bills this winter it could help create an energy system that relies more on homegrown renewables and is likely to be cheaper in the long run.

Is GB Energy any better than a private energy company?

Many of Britain’s biggest clean energy projects have been built by companies owned by governments – “just not ours,” said Mathew Lawrence, the founder of the thinktank Common Wealth. Lawrence pointed to three key reasons why publicly owned energy companies might be better placed to drive Britain’s energy progress than profit-seeking private companies.

First, a publicly owned energy company could reduce the significant upfront costs that usually rely on debt-financing. Second, it would be willing to stay the course even if the project is faced with unexpected cost shocks. Finally, the state-owned company would be free to make investments based on a system-level view of Britain’s energy needs and climate ambitions, he said.

The Guardian understands that GB Energy would focus on the “riskier” areas of the energy industry – such as the nascent market for floating offshore windfarms, green hydrogen and tidal power – which could help to spur Britain’s green energy progress but where profits are less certain.

The clearest opportunity for a publicly owned energy company to make a difference in the energy sector, according to industry executives, would be in community energy: small-scale local projects such as wind or solar farms. “We don’t have any problem delivering multibillion pound projects,” said one senior industry executive. “But GB Energy could help to galvanise a step-change in community energy.”

Has this model worked in other countries?

Yes. Government-owned energy companies are standard across Europe. Many work closely with city councils and municipalities to develop community-scale projects that cumulatively can make a major difference to reaching national clean energy goals.

The Guardian understands that Labour has looked to Germany for examples of where energy company RWE, of which about 15% is owned by German municipalities and cities, has partnered with community schemes. The company owns and operates small-scale renewable projects across the country in partnership with local governments on the condition that it maintains at least 51% ownership.

In the German city of Bedburg in North Rhine-Westphalia, the company built a €30m windfarm that generates enough electricity to meet the demand of 28,000 households – more than the city’s homes and businesses combined. “It works because there is a willingness from the local community – they ask for the project, and RWE helps to make it happen,” said one industry source.

Does GB Energy go far enough?

Great British Energy alone could not solve the myriad problems of Britain’s energy industry, or enable the UK to meet its net zero targets single-handed. But it forms the linchpin of both Labour’s energy and cost of living policies.

For example, Labour intends to double the government’s investment in home insulation from £6.6bn to more than £13bn over the parliamentary term, the highest amount invested by any government, which could have an immediate impact on home energy bills and Britain’s carbon emissions.

The party also plans to address the UK’s sluggish planning system, grid connections and green skills. In total its green plans represent £23.7bn over the parliamentary term.

These sums may seem large but they have been reduced drastically from the £28bn a year that Labour was originally planning to invest in green industry, and which leading green economy experts have argued is necessary.

Among the biggest issues a Labour government would face is the dire state of the privately owned national electricity grid. Windfarm developers can wait for up to a decade to get grid connections, stifling growth, and the grid is not well suited to the intermittency of wind and solar generation and needs to be upgraded, with more energy storage also needed. National Grid has announced plans for £30bn of new investment over five years, but this follows years of underinvestment.

Even with Labour’s investment in insulation, millions of homes would still be left out, but finding a way to upgrade them without more cash may be impossible. Heat pump uptake is also still far too low – the party will have to ponder how to encourage households to install them, without huge subsidies.

One of the UK’s success stories has been shutting coal-fired power stations. But one of the biggest, Drax, managed this by burning wood instead. Green groups point out that burning forests for power is shortsighted and counterproductive, and billions of public subsidies are being poured into the plant. The Conservatives have put off the question of whether to continue the subsidies, but Labour would be unable to shirk it for long.

Across the UK’s energy landscape, Labour faces a struggle that GB Energy, ambitious and striking though it may be as an intervention, can only go some of the way to fixing. “My biggest concern is that GB Energy could prove to be a distraction from the work that needs to be done across the sector to help us towards net zero,” said one industry source.

• This article was amended on 6 June 2024. An earlier version said that RWE was state-owned. In fact it is not state-owned although about 15% of RWE’s shares are owned by German municipalities and cities. It is Sizewell C not B where the project for new reactors is facing problems.