Monthly Archives: November 2012

What are we to make of the bizarre events in Whitehall where the prime minister has personally intervened to block the appointment of David Kennedy, the highly respected head of the Committee on Climate Change who had been chosen by a formal civil service process as permanent secretary of the troubled Department of Energy Climate Change. In the classic manner this piece of bad news was slipped out on the day of the Leveson inquiry, when most attention in the media was focused elsewhere.

Some issues are very unclear and deserve answers: Read more

First Minister Alex Salmond, left, favours growth of wind power. Getty Images

The Treasury does not agree with the level of subsidies being offered but has been forced partially to back down because of the political imperative of keeping the coalition together. The secretary of state Ed Davey, a Liberal Democrat, believes in setting medium-term targets on emissions but has been forced to back down and to accept a time-limited policy, which will be reviewed again after the next election. The result is that no one believes the policy being published this week is the right answer, or that it will endure beyond 2015. Read more

Is David Cameron playing politics with energy bill? Image by Getty

When in doubt, kick the can down the road. That is what has happened with the UK energy bill after weeks of bitter negotiations between the Treasury and the department now known across Whitehall as DoSAC – after the disfunctional organisation in the television comedy series The Thick of It.

A couple of weeks ago, I said the bill would seriously disappoint some participants in the debate. The conclusion as announced – and we will only see the detail next week – seems likely to disappoint everyone.

The core decision is that long-term policy is postponed until 2016, after the next election. But the energy business does not work to election timetables or four-year horizons. Most investments are designed for decades, and in some cases, such as nuclear and power generation, the payback for investors won’t come until 10, 15 or even 20 years into the project. The investors, it is always worth remembering, are not men in black hats but ordinary people trying to decide what to do with our collective savings – in particular our pension funds. Read more

Anglo-French relations could hamper negotiations over UK nuclear power stations. Image by Getty

Another European summit, and another step in the progressive disengagement of the UK from the core of Europe. I wonder if the UK government appreciates the impact of what is happening on the real world of business? Let’s take just one example. Relations between Britain and France are at a very low ebb. No one is throwing plates but there is now a mood of mutual indifference, which, as anyone who has lived through a bad marriage will tell you, is worse.

I was in Paris this week visiting the Banque de France. The Banque’s senior management were as ever exquisitely polite, but the sense of distance from the UK was unmistakeable.

Anglo-French relations are always complicated but the current round of problems really began with Franςois Hollande’s visit to London at the end of February. Mr Hollande was at that time a candidate rather than Le President de la Republique. He was clearly ahead in the polls and judged likely to win by the most experienced observers of the French scene. But Mr Cameron, usually a model of politeness when it comes to personal relations, refused to see him. Read more

For an interesting and creative perspective on the changes that are occurring in the energy sector take a look at the material being put out by Alexa Capital. Alexa is the brainchild of Bruce Huber the long-term guru of the renewables business at Jefferies.

To illustrate what the report is about let’s start with a question – why has the power sector, particularly in Europe, lost so much of its value when electricity demand (other than from nuclear generation) continues to rise? Read more

President of the World Bank. Getty

Jim Yong Kim, World Bank president, has made an urgent plea for action to address the “devastating” risks of climate change as the development body releases a stark assessment of the potential impact of rising global temperatures.

“It is my hope that this report shocks us into action,” Dr Kim said in the foreword of a study the bank commissioned to look at what would happen if the world warmed by 4°C from pre-industrial levels.

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Scroby Sands offshore wind farm in Norfolk, just two miles off Britain's east coast. Image by Getty

A good rule in politics is never to take on those who care about a particular issue more than you do. I was in Norfolk at the weekend and came face to face with the new force in UK politics – a regiment of middle-aged ladies burning with indignation and determined to use their considerable powers of organisation to protect what they hold dear.

The issue at stake is not Europe, which is the obsession at Westminster, or the recession, or gay marriage. The issue is the growth of wind farms and the march across the beautiful Norfolk coast of developers planting the farms in order to milk the generous subsidies on offer. Norfolk, of course, is not an isolated case. Read more

Pipeline will be laid on the bed of the Black Sea

Gazprom has been putting the final investment agreements in place for the South Stream project, clearing the way for construction of the 63bn cubic metres a year pipeline to Europe to begin next month. Never mind that demand for Russian gas in Europe is falling, or the $19bn cost of South Stream. The pipeline will help free Gazprom from dependence on Ukrainian transit pipelines and improve European energy security.

Gazprom and its foreign partners took a final investment decision on the 900km offshore section of South Stream at a meeting in Milan late on Wednesday. The pipeline will be laid on the bed of the Black Sea and will link southern Russia with the coast of Bulgaria.

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Wholesale gas market faces investigation. Getty

The announcement of an inquiry into the wholesale gas market in the UK reflects the increasing concern about the way in which pricing structures operate in a business with a limited number of powerful players. It would be wrong to prejudge the specific inquiry. What matters is that the sector as a whole needs to regain consumer trust.

From the wholesale electricity business and retail gas supply, to the negotiations between the government and private sector over subsidies to wind and nuclear power generation, there is a culture of complexity with too many decisions taken in private. The commitment to transparency from the new energy minister, John Hayes, is very welcome and long overdue. Read more

A tanker is filled at a Gazprom refinery. Getty

Could the conflict between Gazprom and the European Union become the antitrust case of the decade?

The answer is yes and the argument is spelt out in an excellent paper just published by the Centre for European Policy Studies.

The case could not only make legal history and provide a very timely reminder that the EU is alive and kicking, it could also transform the international gas market, pushing on the fall in prices already underway and undermining to the point of extinction the linkage between the prices of crude oil and natural gas. Read more

Vast onshore wind farms are not a viable option for the UK

Barring a last minute intervention by the Treasury, the UK government will publish its new energy bill within the next few days. As it stands, the bill is a triumph of politics over economics and common sense – a symbolic victory for the Liberal Democrats designed to keep the coalition’s unhappy marriage together.

The problem is that serious investors will not believe a bill that reinforces subsidies to onshore wind, puts no hard numbers on the subsidies necessary for nuclear new build, sidelines the potential of energy efficiency and further technological advances, and completely ignores the issue of energy costs and competitiveness. Read more

President Obama’s victory means that as far as America’s domestic energy business is concerned, very little changes. The real consequences flow from the impact of what is happening in America on the wider global market. But there is also the tantalising possibility of a surprise.

As Joe Lelyveld wrote before the ballot closed, the one sure winner is “dysfunction”. The results, with a divided Congress and a close popular vote, did nothing to remove the risk of gridlock in Washington. Power is so fragmented that the potential for leadership on major policy issues barely exists. Read more

Oil fields in Iraq. Image by Getty

The International Monetary Fund is not well known for its expertise on the energy sector and the oil market. A new paper just published by the organisation on the possible future for oil and the world economy is not likely to correct that impression. Ignoring much of the evidence, the authors try to breathe life into the old theory of “peak oil”.

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Pilita Clark reviews ‘The Carbon Crunch’ by Dieter Helm, an adviser on energy policy

If you had to choose an energy policy for the 21st century, would you prefer a system based on “contracts for difference”, with a single-party counterparty, a levy control framework and a capacity market? Or would you go for “premium feed in tariffs”, with an appropriate tariff degression mechanism and a strategic reserve?

Not sure? Neither are a lot of energy ministers on their first day in the job. So think of their relief when they come across someone like Dieter Helm. This extensively published Oxford professor of energy policy is an economist with firm ideas about how to design an affordable, climate friendly electricity sector that he can readily explain in plain English. Read more

Germany turns to renewables. Image by Getty

The future of the euro and the fate of Greece and Spain are not the only issues on which the key decisions are now taken in Berlin. As Gideon Rachman wrote the other day Berlin has taken its place as the centre of power in Europe, easily eclipsing Brussels.

On energy too, the policy choices made in the German Chancellery will shape what happens to the market across Europe and beyond. The only problem is that as in the case of the euro there is a marked reluctance in Berlin to take hard decisions. German politics work by consensus and reaching that consensus can take a long time. The result is that policy drifts and investment grinds to a halt. That is what is happening now. Read more