Bishop Hill The lights may stay on, but the economy may go out
May 1, 2013 Energy: grid Peter Atherton, the head of utilities research at UK broker Liberum Capital has issued an extraordinarily damning assessment of UK energy policy. The good news is that he reckons the lights may not go out. The bad news is that he thinks that this will be because of a "huge spike" in energy prices. This will of course extinguish much of the UK economy.
Here are a few of the highlights in the report.
UK energy policy is not plausible...
The Energy Bill ...effectively re-nationalises the investment-making decision process in the power sector. But it is not clear that policy makers yet appreciate that this also means that the risks and costs associated with these decisions must also transfer to the public.
...we identify a number of possible triggers [for a crisis]; a generation capacity crunch in the 2014-17 period leading to a sharp spike in power prices, a lack of dispatchable generation by the end of this decade onwards, and spiralling consumer costs/developer profits that a future government will find untenable.
...political risk looks certain to rise sharply in the UK energy space in the coming years as the implausibility and contradictory nature of policy is exposed by events. We welcome recent moves by both Centrica and SSE to take a more cautious approach to allocating capital to UK renewables. UK utility stocks have benefited in recent years by being viewed as having relatively low political risk, this may well change in coming years. Most exposed will be Drax, SSE and Centrica.
UK energy policy is effectively a massive long position on the oil price i.e. if the world does indeed face sky high oil prices in coming years then the policy will be seen to have worked. But even if this bet proves correct will we see much benefit? The answer is probably not unless the rest of the world follows the UK’s lead.
The idea that the Energy Bill transfers risk from the private sector to the taxpayer is a new one on me. The explanation is in the body of the report:
The government will replace the existing regime with a Contract for Difference (Cfd) mechanism. This new mechanism will very largely transfer the price risk from the developer to the consumer by guaranteeing an achieved power sale price for each power station covered.
As every banker knows, transferring risk from the private sector to the taxpayer is good for business but bad for the country and the taxpayer. For the government to go down this road again could therefore be seen as criminal.
Reader Comments (54)
The bad news is that he thinks that this will be because of a "huge spike" in energy prices. This will of course extinguish much of the UK economy.
Isn't that what the Greens want?
A policy "success" in BitBucket's parallel world then?
As someone who worked in a company that was extinguished because of energy prices I can tell you it’s a painful and inevitable outcome. At the end of it, they pack up the equipment, then ship it and the work to China and we import the result. CO2 saved zero. Green jobs, zero.
Anyone wanting to take a long term personal view of the price and availability of energy and fuel in the UK and who is planning to stay put in their own property for the foreseeable future should plan ahead carefully.
Insulate as and when you can afford it, get a woodburner, get some alternative low voltage lighting and keep your eyes peeled for the day when someone invents a really long-lasting hassle-free deep cycle battery which will make a private (NOT grid connected) solar array a sensible arrangement.
Not possible for the renter, or flat dweller etc but then these policies always were going to hit the less well off much harder than the better off.
Never were revolutionary technical advances more needed.
Britain is already an expensive place to do do most business. It's impossible to believe that any company with a choice of locations internationally is going to opt for a country where the electricity rockets unpredictably upwards in price and isn't even guaranteed to be available at all.
There aren't any foreign businessmen wanting to 'set up' in Britain and ask yourself - why would they want to?
Osborne the scam and the political claque infesting Westminster play the game. Therein, to give easy 'money' [QE call it what you will] to their allies and friends the banks to repair their battered balance sheets and then - tell the public they're attempting to boost business lending. Then blame the banks for the sclerotic economy - it is a charade.
While at the same time facilitating and via the green agenda - energy costs prohibitive and taxing the bejabbers out of us all - fuel taxes just one example and musing aloud "why is the economy flatlining?"
Simples Sergei.
HMG are extracting the urine and implementing unilateral industrial suicide.
Don't vote for UKIP............................ if you support and wholeheartedly agree with the Brussels surrogates of the LibLabcon slimeballs.
Jack Savage said:
Which is perhaps ironic. Markets and necessity being the mother of invention are the things green policies are supposed to be exploiting - by making energy bills higher British people and businesses will have to become more efficient and more innovative. Artificial hurdles seemingly designed to punish us for the sins of our predecessors and to make us better folk though hardship and problem solving.
The biggest problem with those policies is that they never give market forces and inventiveness a fair go at solving problems because politicians can't resist trying to shape society as *they* think it should be. We see this with the dishing out of renewable subsidies, issuing carbon permits, demanding smart meters and other things that go far beyond simply taxing CO2 emissions. We know those things are unnecessary and damaging to economic growth yet they still insist on their five year plans and carbon emissions targets. And we still vote for them.
Don't spikes have a steep drop on the far side? I think the ratchet principle is more likely to prevail.
I also think we need a few black-outs to concentrate minds. Nothing else will expose the green idiocy so clearly, or better demonstrate the futility of windmills and smart meters.
Meanwhile, schools and the Science (sic) Museum are doing their best to make sure that Britain will soon have a new generation of clear-eyed world-class scientists...
...or not.
(Link not recommended for anyone with a dodgy heart)
http://www.thisishullandeastriding.co.uk/Newland-School-Girls-eco-conscious-fashion/story-18718188-detail/story.html
@TinyCO2
In my case I got a job working for a logistics company shipping what I was involved in manufacturing from warehouses to it's destination. Most of my ex-colleagues just retired early.
What we need to do is the mark the card of all the Quisling politicians involved and have a personal or family interest in renewables and/or carbon trading, so that they are put on trial for corruption.
A spike goes up then it comes down. A step goes up but doesn't come down.
"The government will replace the existing regime with a Contract for Difference (Cfd) mechanism. This new mechanism will very largely transfer the price risk from the developer to the consumer by guaranteeing an achieved power sale price for each power station covered."
Unfortunately few companies are likely to take the huge financial risk of large scale power station investment without some such guarantee. The alternative is for the government to start building themselves.
The underlying reality is that the cheap energy on which our postwar affluence was built is no longer available.
Reversion to 1930s living standards should not be regarded as a return to austerity, but as the end of the cheap fuel cloud-cuckoo-land we have inhabited for the last half century.
May 1, 2013 at 4:45 PM | Entropic man
Reversion to 1930s living standards should not be regarded as a return to austerity . . .
Please let us know your date of birth.
What nonsense Entropic man. The only reason we have high energy prices is because of Government policies over the last 20 years. Who wants to return to the 1930's poverty and deprivation? Not the voters. If the green econuts want that, then let them go and do it elsewhere.
Brownedoff.
It's called living off your capital. Our civilization has been living high since WW2, longer than we've been alive. Now the capital is running out and we have to learn to live poor.
Philip Bratby
It is not just us. Oil and gas prices are on a long-term rising trend worldwide and will continue to increase.
Voters may wish to keep their high living standard, but wishes are not reality. Politicians promising continued affluence may be elected, but will be unable to deliver.
May 1, 2013 at 4:45 PM | Unregistered CommenterEntropic man
[snip. Manners]
American fuel and energy prices are tumbling due to fracking. Their economy will soon overcome the Obarmy stupidity and will soar ever upwards leaving the green european economies in their wake. As a result, manufacturing will leave for USA and China, and maybe India, creating massive unemployment in europe, currently the highest evah, evah. Germany may or may not leave the eu in order to take control of her own destiny. If she does the rest of europe and the UK will become less efficient than current 3rd world countries. Our economies will have no money for benefit entitlements, support for the unemployed, support for the elderly, roads, hospitals etc. At this point, every member of a green organisation here in France will be hanging by their necks from the lamposts along the Seine. [snip]
Summary Conclusions
In this note we conclude that:
1) EU policy makers have grossly
underestimatedmisunderstood the difficulties and risks of their drive to decarbonise the power sector.2) EU policy makers have failed to take into account the huge changes in the
economic, commodity and financial environments and
adjustyet continue to fiddle with policyaccordinglyin spite of the evidence that the policy is wrong.3) The economic arguments supporting the current climate change dominated
energy policy look
weakeconomically illiterate and public support isuncertainnon existent.4) Given the hostile rhetoric that utility companies face today from across the
political spectrum
on bills and profits, it takes quite a leap of faith to believethat future governments will steadfastly defend the huge bill and profit increases thatthat E.on, RWE, EDF and Iberdrolawill inevitably result from current policy.
will not just bugger off back home within a few years.
Philip Bratby
It is not just us. Oil and gas prices are on a long-term rising trend worldwide and will continue to increase.
Voters may wish to keep their high living standard, but wishes are not reality. Politicians promising continued affluence may be elected, but will be unable to deliver.
May 1, 2013 at 5:13 PM | Unregistered CommenterEntropic man
[snip.Manners]
You may not have lived for very long but there are a few of us who have. We have seen several recessions and depressions and the mistakes that politicians made in order to make the situation worse. The problem now a days is the inteference in politics by the Greens and communists thrown out of Russia and eastern europe in the 80s and 90s.
We need a brave leader with integrity and honesty. Unfortunately they are all dead.
that E.on, RWE, EDF and Iberdrola
will not just bugger off back home within a few years.
May 1, 2013 at 5:21 PM | Unregistered CommenterBrownedoff
Our EDF is negociating currently with Cameron's idiots to set a future, garanteed price for electricity before they will build the nuclear power station that they know the UK needs, DESPERATELY. That's why I bought share their shares. Dividend of 8%/an grace à l'angleterre. If cameron won't agree the right price well yes they will bugger of home and elsewhere in the world.
[Snip]
Stephen Richards
As a baby boomer I'm now on at least my 5th recession. I dont remember one like this.
As an EDF shareholder, are you happy for your company to risk shareholder value in the UK energy market?
Would commenters please avoid making personal insults.
Our postwar affluence was built on energy from coal. It is still there.
To think that a modern economy can be run on energy derived from the lowest energy density sources imaginable, most of which are intermittent, shows just how far from scientific literacy our political masters are. It's no wonder the country is heading for an energy crisis. No personal insults there.
@ Stephen Richards
I also live in France and have seen prices in many things surge, I live in hope that it is not only the Greens in France that meet ' La Justice ' there are all those in Brussels as well, having said that my Electricity bill has remained constant for the past 3 years. If I had money to invest, EDF is one of the few European enterprises I would invest in, the rest would go to Chinese and Indian companies developing L.F.T.R.'s.
The Institute Of Energy Research also have a report out
http://www.instituteforenergyresearch.org/2013/04/30/climate-change-madness-do-the-europeans-know-what-they-are-doing/
via GWPF
Entropic Man,
On what do you base your comment "Oil and gas prices are on a long-term rising trend worldwide and will continue to increase."?
It is my impression that oil prices are well down from recent highs, especially in the US (where an independent report has just doubled the reserve estimates for the Bakken field). Gas prices are already very low in the US and, in Europe, the gas:oil price link is fracturing. Gazprom has just returned $3.3 bn to clients following contract "adjustments".
Several commentators think that, while peak oil supply is as distant as ever, peak oil demand may be with us - due to fuel substitution, efficiencies, etc..
Ever-rising prices is the official mantra, of course. The fear of cheap, abundant gas is surely the reason for the government's procrastination on shale as it would undermine the whole green programme.
May 1, 2013 at 4:26 PM | Alecm
Man the Chinooks ! (a reference to our old ally "Gusty" Pinochet's use of that aircraft).
"Reversion to 1930s living standards should not be regarded as a return to austerity."
.
Can't speak for the 30s but the 40s I was born into were awful. I lived in a two bedroomed house, with one cold tap, gas lighting, one sink, a cooker, a fireplace in every room, but only enough money to keep on in what we called "the kitchen". The two bedrooms were shared with my mother and father and my sisters, each had a bucket in for peeing in the night because the one toilet was outside. In winter we went to bed wearing as many clothes as we could, we bathed in a tin bath in front of the one fire in the house with a clothes mantle in front to hide my Mam and Dad when they bathed. We all used the same water occasionally topped up with water boiled on the stove. We never had enough money for holidays, I had two in my childhood staying with relatives.
And we weren't considered, nor did we consider ourselves, poor. My sisters were born in the thirties and the only thing I remember them saying about it well into their seventies was that summers used to be hotter then.
Our host has asked us not to insult each other, so I'll refrain from commenting on your suggestion that returning to the thirties shouldn't be regarded as austerity.
Perhaps our greatest hope is that the energy companies will refuse to play ball in implementing government policy of further investment in renewables. I believe they have yet to agree a price for standby capacity (the "spinning reserve"). They should be able to assess the likely future costs to the consumer better than anyone else and, in consequence, the political risk that will entail. Being practical engineers I presume they are well placed to put odds on the likelihood that the government`s green agenda will fail - brought down by its impracticality and inherent contradictions. Or are they too just as smitten by the green agenda?
Entropic Man- I take it you have not heard of "Shalegas"?
The point is that current energy policy, which falls out of tackling climate change, is based on renewable sources which don't work very well, isn't decreasing emissions, isn't future proofing us and isn't contributing to energy security.
It is pie in the sky, it is expensive and damaging the economy and it is likely to end in disaster.
@entropic
How will this piece of news affect your contention of ever-rising prices?
http://www.doi.gov/news/pressreleases/usgs-releases-new-oil-and-gas-assessment-for-bakken-and-three-forks-formations.cfm
http://www.thegwpf.org/doubles-estimate-shale-oil-reserves/
"UK energy policy is effectively a massive long position on the oil price i.e. if the world does indeed face sky high oil prices in coming years then the policy will be seen to have worked"
This policy is already failing, as the link that Latimer shows, the Bakken oil field amount has been doubled, The World is awash with tight Gas and Oil as more and more is being found almost every day, also some fields are being reopened in the North sea and elsewhere because technology moves on and unrecoverable oil from a few years ago is now recoverable. The power that OPEC had to control prices is virtually at an end.
The Japanese are also working on Methane Clathrates from under the sea and the industry reckons there is more of that than all the other fossil fuels put together.
Basing our energy policy on the idea that the price of oil will keep rising is a massive error.
I wrote and told my MP that 4 years ago but of course they just stick their fingers in their ears and go la la la.
Dana Nuccitelli is working his arse off at the Guardian trying to torture the figures to support his claim that 'renewables are cheaper than fossil fuels'. He's got Dr Roy Spencer in his sights.
Seems a highly convoluted route he's taking, and in any event he hasn't added the costs of fossil fuels to renewables - which are needed in order for renewables to be viable. But the combined cost then makes renewables more expensive than existing energy sources....
http://www.guardian.co.uk/environment/climate-consensus-97-per-cent/2013/may/01/roy-spencer-wrong-fossil-fuels-expensive
Anyone who believes that is just not in touch with reality.
As a baby boomer I'm now on at least my 5th recession. I dont remember one like this.
As an EDF shareholder, are you happy for your company to risk shareholder value in the UK energy market?
May 1, 2013 at 5:35 PM | Unregistered CommenterEntropic man
We remember recessions by how we were affected. If you were made unemployed you will remember it as bad, if not, not so bad.
And, you really must learn to read more slowly. Of course I'm happy to invest in EDF when the English are stupi enough to pay them an exorbitant price for energy for a really long period (20 to 30 yrs) only a fool wouldn't be. I get 1.75% interest at my french bank and 8% at EDF. NO Brainer.
BISH
You're a rotten spoilsport. He deserves all he gets. ; )
The World is awash with tight Gas and Oil as more and more is being found almost every day
Some was found a long time ago but the watermelons are preventing it's extraction. In NE France there is a massive field with enough reserves, for france, for maybe a millenium. Don't forget we have lots of nuclear. Hollande can't get at it because he needs the greenie beenies to stay in power and he is already the most unpopular president evah evah.
Reversion to 1930s living standards should not be regarded as a return to austerity,...
May 1, 2013 at 4:45 PM Entropic man
Particularly for this, Bish. One of the features of the 1930 depression which made it a lot worse than it otherwise might have been was that politicians followed the austerity path to the end. They threw millions people out of work, shut factories and caused mass migration and death.
That is why Ben Benanke has been pumping money into the American markets. They did not want to make the same mistake again.
Sooooooo, entropic, Austerity is EXACTLY what you would be going back to.
@geronimo
I was born in 1944 and your childhood is eerily similar to mine except there were only two rooms and one fireplace.
Still, these days gave me the lifelong benefit of a superb Scottish education, and that's the only good about them.
Vote ukip. They say the same things I see here. ;-)
http://ukip.org/media/policies/energy.pdf
Your demoralised posters should consider migrating, Australia might be a good choice. Yes we are not perfect, but we have plenty of energy - coal, gas, uranium, sunshine and wind; the latter mainly in Canberra. You will need to have appropriate qualifications; a conviction for stealing a loaf of bread no longer works. Cheers from sunny Sydney
"One of the features of the 1930 depression which made it a lot worse than it otherwise might have been was that politicians followed the austerity path to the end. They threw millions people out of work, shut factories and caused mass migration and death. That is why Ben Benanke has been pumping money into the American markets. They did not want to make the same mistake again." --Stephen Richards
You may be correct at some levels. But in the US, Hoover tried "priming the pump" with the RFC, increased public construction, and other measures. They failed, and he lost the next election. Roosevelt continued to do the same thing, with his NRA and CCC and WPA, taking money out of healthy parts of the economy and giving it as government largesse to others. Only there soon weren't any healthy parts, those having been deprived of investment capital.
On May 6, 1939, Treasury Secretary Henry Morgenthau stated: “We are spending more than we have ever spent before and it does not work. . . . We have never made good on our promises. . . . I say after eight years of this Administration we have just as much unemployment as when we started. . . . And an enormous debt to boot!”
You can't spend your way to prosperity, much as we would like to believe we can. The Obama Administration's phony "recovery" has left the US with higher unemployment now than in 1930.
This is known as the GLOBAL adjustment mechanism in Ontario Canada.
http://thebiggreenlie.wordpress.com/2011/12/07/wanna-know-what-the-global-adjustment-is-on-your-hydro-bills-it-supports-corporate-welfare/
It is well worth investigating. Higher prices damage industry. The GAM hurts the consumer -- who quits buying -- a double whammy to the economy!
Cheers!
Reversion to 1930s living standards should not be regarded as a return to austerity, but as the end of the cheap fuel cloud-cuckoo-land we have inhabited for the last half century.
May 1, 2013 at 4:45 PM | Unregistered CommenterEntropic man
---------------------------------------
I think not EM. Or rather, you think not.
You are inviting the same sort of solution to the last time the lights went out in Europe, circa 1939.
Politicians have been suggesting (demanding?) that "well off" pensioners, i.e. the kind that get close to zero percent interest on their savings, should give up their free bus passes and other perks.
Should wealthy fathers-in-law of prominent politicians give up their subsidies for "green" energy?
Roy: You are asking for all troughers to voluntarily take their snouts out of the troughs. I don't somehow think that will happen. The troughs have to be removed, and permanently.
Entropicman "Vote UKIP"
UKIP did not have a candidate in my area, so I "spoiled" my ballot paper by writing "None of these tossers" across it.
I also tore up my ballot notification card in front of the candidates and presented it to the green (and yes he did have a beard that a chaffinch could nest in) candidate and told him to dispose of it in an environmentally friendly manner.
Childish, I know, but highly satisfying:-)
You just don't get it do you? There are alot of highly intelligent and educated people here and out there who are completely fed up of been lied to and patronised by a green liberal elite who are just so sure of themselves.
"Times, there are a changing...."
Geronino,
They want to return to a sentimental version of the 1930s, such as you'd find on a Hollywood film set. Say, like The Waltons.
The reality was and would again be different, which is why allowing dreams of romantic primitivism any hand in dictating policy is so damned dangerous.