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« Buckle up | Main | Consistent industrial policy »
Monday
Oct142013

Investment freeze

The latest briefing note from Liberum Capital makes for fairly terrifying reading. According to authors Peter Atherton and Mulu Sun, energy investors have now digested Labour's announcement that it is going to institute a price freeze if it wins the next election and they are, not to put to fine a point on it, appalled:

As we noted at the time this is a dramatic intervention that immediately increased the political risk faced by all participants in the UK power market, not the suppliers themselves. We warned that a price freeze would chill investment in new generating capacity, something confirmed today by SSE who have said that moving to FiD on any major new generation investment was not possible until the outcome of the election was known.

And as the note makes clear, since Miliband made his intervention, investors have been selling out of UK energy utilities just as fast as they possibly can. This should kill off any new investment in capacity for the foreseeable future.

Suppliers of emergency operating reserve - diesel generators in other words - will be rubbing their hands in glee.

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Reader Comments (48)

This confirms that Miliprat is either not interested in the future well-being of the UK, he just wants to become PM at any costs, or he did not think through the consequences of his statement on the freezing of energy prices. Either way, he should never again be allowed anywhere near Government.
Also covered at http://www.thegwpf.org/britains-energy-crisis-investors-abandoning-sinking-ship/

Oct 14, 2013 at 9:43 AM | Registered CommenterPhillip Bratby

So, the next general election will be a choice between two parties that will put the lights out (Labour and the Lib Dems) and the Conservatives who might just possibly, one day when it is obviously too late, get around to thinking about building power stations that, unlike wind farms, actually work all the time except when shut down for maintenance.

If UKIP's leaders were a bit less concerned with cleaning behind fridges, they would realise that they have an open goal in front of them. In fairness to them UKIP has produced a sensible paper on energy policy.

Entitled Keeping The Lights on
http://www.ukip.org/images/PDFs/keeping-the-lights-on.pdf

However, UKIP's energy policies seemed to have attracted very little attention in the media so far. Nigel Farage should be shouting from the roof-tops that UKIP would abolish the Climate Change Act.

Oct 14, 2013 at 9:44 AM | Unregistered CommenterRoy

Well done Ed. At last you've said something that has made a difference!

Oct 14, 2013 at 9:45 AM | Unregistered CommenterRoyFOMR

Ironic that the report claims that investors have fled the UK into the arms of EON and RWE, two German firms in the home of the Energiewende.

Note also that the FTSE100 is down 2% so the fall in the ex-utils is 2-3% relative to the market. And the fall was just in the first few days after the policy announcement. Is this your definition of, "selling out of UK energy utilities just as fast as they possibly can"?

Oct 14, 2013 at 9:47 AM | Unregistered CommenterChandra

It's come to a pretty sad state when the Red Cross is going to issue food parcels to those in fuel poverty as the result of Government policy.

Pensioner groups are warning that the elderly will be hit hardest hit by price rises, with many forced to decide whether to “heat or eat” this winter.
The scale of the problem was underlined when the Red Cross announced that it will collect and distribute food aid in Britain this winter for the first time since the second world war.

http://www.thegwpf.org/green-madness-red-cross-distribute-winter-food-aid-time-wwii/

Oct 14, 2013 at 9:51 AM | Registered CommenterPhillip Bratby

Milliband is an idiot, but could this be a case of every cloud has a silver lining? No more investment will mean no more expensive and in-efficient windfarms? (large scale at least?)

Oct 14, 2013 at 10:00 AM | Registered Commenterlapogus

Also from GWPF 2 links to the Express who are also pointing out the green madness to their readers

http://www.thegwpf.org

Oct 14, 2013 at 10:00 AM | Unregistered CommenterNoTrophyWins

- Far from Big Energy corps being against green dogma and big green taxes, they have always been friends with them. As the bigger the overall price the bigger the reasonable 5% profit is in real terms.

Oct 14, 2013 at 10:05 AM | Registered Commenterstewgreen

lapogus, it is the subsidised wind farms with priority access to the grid that are making conventional plants increasingly uneconomic, even without the suicidal price freeze (good word!) proposal.

Oct 14, 2013 at 10:11 AM | Registered Commenterjohanna

Miliband has launched two initiatives in an attempt to get noticed: One Nation Labour and freezing energy prices. The first did no harm to the country. But the second is plainly disastrous. The man really is a dangerous idiot.

Oct 14, 2013 at 10:14 AM | Unregistered CommenterPeter Stroud

Well I'm glad Ed spoke up. It might just bring out the real issues responsible for the rise in prices. If Labour dismisses the notion of poor hedging strategies in wholesale gas purchase then it just leaves profiteering and green taxes. So let's see the numbers. It could even be due to the UK having had relatively low energy prices up to now, since it seems we still have amongst the cheapest electricity and gas in Europe.

Oct 14, 2013 at 10:14 AM | Unregistered CommenterJamesG

Don't forget that this price freeze is worse for generators than it initially looks.


Something that people forget, or aren't aware of, is that the electricity distributor - the National Grid - has a guarranteed regulated price escalator. The National Grid gets to increase the charge it makes to distribute the electricity around the country.

So if retail prices are forzen and distribution costs are still increasing - as they must under contract - the price paid to generators must fall.

Oct 14, 2013 at 10:19 AM | Unregistered CommenterGeckko

Further comment here
http://www.cityam.com/article/1381721764/miliband-s-policies-have-already-damaged-britain-s-economy
UK power sector down 5%, elsewhere in Europe up 5%.

Oct 14, 2013 at 10:28 AM | Registered CommenterPaul Matthews

We're all assuming that the lights going out is a bug, not a feature, of this policy. I still maintain it's a feature.

The left are praying that the darkness (on the Tories watch) will stimulate a WHYOHWHY crisis that will allow them to surf the anti-Energy company anger into full-scale re-nationalisation.

The Greenshirts don't have a plan. They simply want the lights to go out, as they are just the most modern incarnations of the anti-civilizationists.

Oct 14, 2013 at 10:30 AM | Unregistered CommenterStuck-Record

"Nigel Farage should be shouting from the roof-tops that UKIP would abolish the Climate Change Act."

He may well be shouting from the rooftops but few will hear him unless the MSM give him voice. They tried the oxygen of publicity to enable him to self destruct, then they tried ridicule but he became even more popular. Now they try to pretend he doesn't exist
Just like us he is restricted in his audience by the circulation of the few outlets open to him.
However, I find that more and more people are getting the message and intend to vote UKIP at least for the EU elections.
By the way, has anyone else noticed an intermittent thread interference these last few days? Is it human, malware, or just random noise?

Oct 14, 2013 at 10:31 AM | Unregistered Commenterroger

Johanna, Yes, I appreciate that, but even with the massive subsidies, wind farms are expensive to build and don't generate that much. Off-shore in particular, e.g. SSE pulled out of their proposed scheme off Macrahanish a couple of years ago, and Scottish Power / Iberdrola have effectivly shelved plans for their massive 1.8GW Argyll Array off Tiree. Even with generous subsidies, I suspect wind is marginal. The load factor for SSE's Griffin 250MW Griffin windfarm in it's first year of operation was only 15%. The developers claimed they would get 25-30% at the public inquiry, and no doubt told their investors the same. Wind is a crap way to make electricity on a big scale, subsidies or not, and investors will be more circumspect if there is less money to go round.

Oct 14, 2013 at 10:45 AM | Registered Commenterlapogus

Chandra,

"Note also that the FTSE100 is down 2% so the fall in the ex-utils is 2-3% relative to the market. And the fall was just in the first few days after the policy announcement. Is this your definition of, 'selling out of UK energy utilities just as fast as they possibly can'?"

Did you get as far as Chart 3?

Oct 14, 2013 at 10:52 AM | Unregistered CommenterJames Evans

Lapogus, that may be true for offshore wind, but I read somewhere here recently that Scotland (I think) now has a record number of applications for wind installations coming in - more than 1 per week. Perhaps one of the resident wind gurus can comment?

If it is true, it is an example of the energy equivalent of bad money driving out good.

Oct 14, 2013 at 11:09 AM | Registered Commenterjohanna

James
I'm not sure Chandra does charts.
Anyway, he was probably busy thinking up which killing remark (not) he was going to hit us with next.

Oct 14, 2013 at 11:10 AM | Registered CommenterMike Jackson

James, chart 3 is for just 2 companies, both of which dropped and then just followed the FTSE100 down. The Bishop seems to be referring to utilities in general, not just two. So his statement about selling out as soon as possible is clearly untrue.

Oct 14, 2013 at 11:12 AM | Unregistered CommenterChandra

johanna

I think that 1 a week is an underestimate.

....councils in Scotland have received more than 2,500 wind farm applications in the past 18 months.

http://www.bbc.co.uk/news/uk-scotland-24508808

Oct 14, 2013 at 11:20 AM | Unregistered CommenterMessenger

@ Chandra

And your point is?

If you're trying to generate a sceptics vs. warmists pissing contest based on shading the truth through to outright lies, don't bother. Your lot lost that one years many years ago.

Oct 14, 2013 at 11:25 AM | Unregistered CommenterJerryM

Chandra,

Since close of business on Sept 24th (the day before Millpedes announcement), SSE has dropped from £15.80 to £14.42, a drop of 8.75%.

On the 24th Sept the FTSE100 closed at 6575.61 and is currently at 6494, a drop of 1.24%

Since SSE is a part of the FTSE 100, some of the 1.24% drop in the FTSE 100 is due to the drop in SSE. In other words without the drop in SSE the FTSE 100 would be higher than it currently is.

Oct 14, 2013 at 11:30 AM | Unregistered CommenterTerryS

It's called dithering. With the Labor solution, you'd best move to the Land of Chavez. At least it's warm there so your misery will be focused just on eating instead of freezing. Oh, and bring your own lifetime supply of wipes as well.

Oct 14, 2013 at 11:56 AM | Unregistered Commentercedarhill

As wind farms are so patently useless, why don't the developers just omit the third blade, and have the turbines stationary as a giant 'v sign'...?

Oct 14, 2013 at 12:27 PM | Unregistered CommenterSherlock1

There is a huge price to pay for Parliament behaving like an un-ruly playground. The smart guys that shorted SSE have made a killing.
Grüss, omb

Oct 14, 2013 at 12:38 PM | Unregistered Commenterombzhch

Is it possible that Miliband was ordered to do as he did to trigger this crisis so we can exit the green madness?

There is a way to do this AND save massive amounts of fossil fuel imports without nuclear but to get the investment, the windmills have to be culled.

Oct 14, 2013 at 12:54 PM | Unregistered CommenterAlecM

Roy - second comment, absolutely 100% on the money. UKIP are missing an open goal and the silence is deafening.

Meanwhile what we're seeing here are consequences of a policy that has very real potential to be the single most disastrous in modern UK political history. It really is that dangerous. All 3 'leaders' deserve to be held very seriously to account for this rank stupidity, (And no, that doesn't mean a place in the Lords) as do their green media and activist cheerleaders.

We're in very dangerous waters.

Oct 14, 2013 at 12:59 PM | Unregistered CommenterCheshirered

That UKip brochure is generally ok but gets mixed up about coal fired power stations. They write:
"Britain is required by the EU’s Large Combustion Plant Directive to close all its efficient coal-fired power stations"

But Brussels don't mandate the closure of coal plants, just a reduction of pollutants by scrubbing; particularly of sulphur dioxide. But Ukip tell us in the same brochure:
"Coal-fired power stations must use clean technology to remove sulphur and nitrogen oxides, particulates and other
pollutants."

So in fact, they recommend exactly the same as Brussels! It's a bit like that episode of Yes Prime Minister where Jim Hacker declared that he wouldn't allow the EU to ban the British sausage when they had really only wanted to rename them "emulsified, high-fat offal tubes".

Oct 14, 2013 at 1:06 PM | Unregistered CommenterJamesG

@stuck-record

"We're all assuming that the lights going out is a bug, not a feature, of this policy. I still maintain it's a feature."

I have mentioned in the past that it may be a feature. But not one pushed by the Left or the Greenies.

If we want to increase nuclear power substantially in the UK, we will need to build Nuclear on green-field sites. That's currently impossible, due to Green opposition. If the lights actually go out due to Green incompetence, that will provide the best chance we have to overcome that opposition and install new green-field nuclear.

One ideal generating mix for the UK is baseline nuclear, load-following gas. If the environmental activists cause a disaster, we may be allowed to implement that...

Oct 14, 2013 at 1:12 PM | Unregistered CommenterDodgy Geezer

The Energy companies are making a lot of noise and hoping to influence policy accordingly. Not investing will kill their businesses and so this is pretty unlikely. By this posturing now they risk being nationalised by an incoming Labour government. Which would be popularist move of course.

Oct 14, 2013 at 1:49 PM | Unregistered CommenterFarleyR

Farley

They can invest in other countries

Oct 14, 2013 at 1:57 PM | Registered CommenterBishop Hill

Colonel Kill D Economy: I love the smell of burning diesel int he morning. It smells like ... doom.

Oct 14, 2013 at 2:31 PM | Unregistered CommenterBruce

Companies invest where there is a suitable ROI. They are not likely to invest otherwise. The Labour Opposition has, with one statement, made any ROI calculations impossible before the next election due to the uncertainties.

Don't expect any long term investment in power in the UK in the near future unless accompanied by very substantial bribes by Government.

Oct 14, 2013 at 2:41 PM | Unregistered CommenterArthur Dent

Has anyone seen details of Ed's price freeze plan? My gut feeling is that it isn't going to be 1970s style price controls but nothing more than paying for more renewable nonsense directly out of general taxation, and thereby preventing energy companies from using green levies as a reason to put prices up.

Oct 14, 2013 at 2:53 PM | Unregistered CommenterGareth

This is all pantomime. Murdoch chose Miliband because, like William Hague, he is completely unelectable. It will never happen.

Oct 14, 2013 at 3:38 PM | Unregistered CommentereSmiff

Stuck-Record
I fear you are correct, I have thought the same for a while too.

Oct 14, 2013 at 4:14 PM | Unregistered CommenterSandyS

Speaking of Chavez, his big mate Castro boasted that the price of chickens had been frozen on Havana markets for thirty years. On the other hand no chickens have been seen on the markets for thirty years!

Oct 14, 2013 at 5:02 PM | Unregistered CommenterGordon Walker

The Ron Dennis ,McClaren documentary on BB2 last night

Last night i was waiting to watch Downton Abbey (no rape scenes this week) .I caught the last half hour off this documentary on BBC 2..It was about Ron Dennis and McClaren using their Formula one expertise to mass produce a sports car.Actually built a new high tech plant next to their excising headquarters in Woking
This is to mass produce 80 cars per week instead of just their usual 8 per week.

This documentary made me feel incredibly sad.Because McClaren a private high tech British car manufacturer had every thing so professional and so well organized .The McClaren factory its like a sterile Pharmaceutical Laboratory you would see in Switzerland.Their worker highly motivated articulate not wearing Lab Coats but really smart clean standard uniform.

Ron Dennis and his worker didn't think of themselves not as greasy mechanics but skilled high precision craftsmen.
Their tools are Lasers and Laptops.not greasy spanners and oily rags .No girlie calenders and cups of stewed tea

Ron Dennis had a big Celebrity London in the West End with his drivers Jenson Button and Lewis Hamilton for his new mass produced road car.

After watching this i have come to really sad conclusion .There is nothing wrong with British industry ,nothing wrong with British workers, nothing wrong with British Innovation what is wrong is British Politicians.

Compare modern day McClaren to British Leyland in the 1970s.Remember Red Robbo and the wild cat strikes at Longbridge just a symton.Just remember the Allegro ,the Austin Maxi ,Triumph TR7 and the Mini ,Rust Buckets that wouldn't start.
1970s Japanese and Ford cars unpatriotic but they would start on a cold winter morning.then get you home.

Every time British politicians get involved in British Industry they always f__k it up.
Just as it was with the the Millennium Dome ,Northern Rock ,Lloyds Banks TSB Britsh Leyand British Rail,then so it is with Wind Turbines German Engineered a mile of the Baltic coast but 10 miles out in the Channel and the North Sea.How will they survive let alone produce any electricity in a storm force gale.

Why didnt politicians just stop and ask themselves why are we going to use Windmills a Medieval Technology to cure a perceived 21 century problem.We didn't use swords and spears to invade Iraq and didn't go to the Moon in Hot Air Balloon did we.
Nick Clegg will be on Nick Fararri LBC radio show this Thursday and might just phone in and ask him that.
Nick Clegg was brave enough to U turn on Student Tuition Fees so why dosent he U turn on Wind turbines stop building them and stop subsidizing them.

What i would do is take Clegg Cameron Blair ,Ed Davey Ed Milliband .John Gummer and Tim Yeo the authors of this sorry shit take them down to Margate and put them in a boat and take them out to off shore Wind Farm Array let them not sink the boat but them admire their Handy Work Just leave them there till a storm force Gale blows up and see what they all think then.

Oct 14, 2013 at 5:11 PM | Unregistered Commenterjamspid

Let me rub my crystal ball... Chandra... chandra... wait... something's appearing... you have a beard... you work in academia... you don't suffer fools gladly... you consider most people to be fools... you are irritated much of the time... you are in your early thirties... politically you lean to the left... you think your comments will have great impact here because you are smarter and better informed than the idiot denialists who hang out here...

...the vision is fading...

Oct 14, 2013 at 6:25 PM | Unregistered CommenterJames Evans

The election is based around problems from bad policy based solutions from the Labour and the Labour now try to distance themself from this in order to get in Control again?

Oct 14, 2013 at 8:33 PM | Unregistered CommenterJon

Is there anything that would prevent labour from funding themselves (and making themselves individually rich) by announcing destructive policies like this after making large bets in futures markets?

Oct 14, 2013 at 9:56 PM | Unregistered CommenterRobL

Speaking of freezing, on the other side of the pond that's exactly what's happening in South Dakota: http://www.usatoday.com/story/weather/2013/10/14/south-dakota-ranchers-reeling-from-cattle-losses/2980793/

Those breeds of cattle are normally hardy, and it's very early in the year to have cold that extreme. But they're not polar bears floating on shrinking ice floes are they?

Oct 14, 2013 at 10:32 PM | Unregistered CommenterJT

JT

I'm sorry? Was'nt it the sceptics telling everyone that predictions of more extreme weather were alarmist hype?

Oct 15, 2013 at 1:54 AM | Unregistered Commenterentropic man

To use a hackneyed cliché, The Perfect Storm.
Power that's too expensive = declining demand = no investment = no future.
This is exactly what primitivisation looks like and it is the avowed goal of the Greens and your Labour Party.
Down-under, you are indeed a lesson to us all

Oct 15, 2013 at 5:08 AM | Unregistered CommenterManfred

Thats the whole point Entropic its not extreme weather just a normal British Winter with a few days of snow will kill 5 000 them people freeze them in their own homes.

Oct 15, 2013 at 8:56 AM | Unregistered Commenterjamspid

What are you 'sorry' about Entropic, 'skeptics telling everyone' or 'alarmist hype'? My guess is that you're one of the 'Lost in Space' wunder crowd who rationalise frigid winters as a manifestation of global warming, you know, the crowd that aspire to a life expectancy of 25 yrs of age and fantasize about banging around in dank, dark and smokey caves as the apex of their achievement.

Oct 15, 2013 at 11:01 AM | Unregistered CommenterManfred

Which illustrates Adam Smith's 'Men of System'.

The curiosity is that no matter how many times the central planners have it demonstrated to them they cannot predict and control an outcome, so it is not what they design, they continue to repeat the process over and over again bringing us to the dictum that repeating something with expectation of a different outcome is a sign of insanity.

Oct 16, 2013 at 11:26 AM | Unregistered CommenterJohn B

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