Labour’s proposal to create a new state-owned energy generator is a significant moment in UK economic policy. It is a long time since a government took ownership of a company for deliberate rather than emergency reasons and doing so would put direct intervention in the economy firmly back on the table.

This would not be full-fat nationalisation of the kind that Jeremy Corbyn’s Labour proposed. Great British Energy would be a new entrant to a competitive energy market, rather than taking over the whole show.

It makes more sense to see this proposal as an extension of the industrial strategy approach that has become increasingly popular among policymakers. The state already funds research and development, lends money to businesses at preferential rates and uses its balance sheet to support private sector investment. If it’s taking on so many of the risks involved in innovation, why not go the whole way and claim the returns too?

There are two competing aims a Labour government would need to trade off in creating a state-backed energy company. One is the desire for a “national champion”, a vehicle for the state to earn as much income as possible from what is currently a lucrative industry. The other is to actually try and fix an energy market that has brought so much economic pain to the UK.

Keir Starmer’s speech suggested that it is the national champion role that figures most prominently in Labour’s thinking. This is understandable. The next government is likely to inherit a dire fiscal predicament, much of it caused by the energy crisis. The temptation for the state to claw money back from energy windfalls is understandable.

But the risk of the national champion approach is that it does the easiest possible thing – investing heavily in wind and solar energy – while leaving the more difficult challenges of the UK energy system untouched.

Simply put, the UK does not have a problem investing in renewable energy. The amount of electricity generated by renewables has quadrupled in the last decade and there is huge appetite among private investors to increase this. If a new state-led company moves into this space, it is much more likely to crowd out private investors than to accelerate the growth of renewable energy. Labour’s proposal appears to have recognised this, by emphasising it will focus on investments that are harder for the private sector to reach, such as tidal energy.

But there are even more important challenges that a state-owned energy company could focus on. The most difficult prize in electricity generation is to find a clean backstop to renewable energy, which can fill the gaps when wind and solar outputs dip. At the moment, gas mostly plays this backstop role, with the unfortunate consequence that gas prices effectively set the market price of electricity. If Great British Energy could develop clean alternatives to gas or large scale energy storage options and sell them at affordable prices, it could drastically reduce electricity costs across the UK. The direct profits accruing to government would be lower, but the economic benefits would be far greater.

There are other energy challenges that a state energy company might consider taking on. One is encouraging flexible electricity consumption, so that households shift their energy use to periods where demand is low or renewables output is high. A new Great British Energy company is likely to have a lot of spare energy at certain times. If it were to offer extremely cheap electricity during these periods, it could encourage households to begin adjusting their electricity use at a large scale. Again, the direct profits from this option would be limited but the wider economic benefits would be vast.

Finally, the biggest energy challenge of all is the gas we use to heat our homes. This accounts for more of our energy bills and a greater share of overall UK gas use than electricity. The solutions are mostly to switch from oil and gas heating to more efficient electric devices such as heat pumps. But this effort is hampered by the UK’s very high cost of electricity, which means heat pumps have similar running costs to gas boilers. If Great British Energy offered discounted electricity to heat pump users - particularly during periods of excess electricity generation - it could make them the obvious choice for home heating and go a long way to tackling the UK’s gas addiction.