Renewables

Meet EVA — the latest racing car. EVA has an elegant shape, with aerodynamics worthy of any of the cars which race in Formula One. The difference is that EVA is solar powered. Read more

Wind turbines in Peitz, Germany.

Wind turbines in Peitz, Germany © Sean Gallup/Getty Images

Forget Opec. If cartels can’t control output, they can’t control prices and in due course they fall apart, usually with a great deal of ill will in the process. The evidence of the last six months is that Opec can’t control the market — ask yourself how many Opec members want to see a price of $60 a barrel for their oil. Some in Saudi Arabia think a low price can squeeze out competing suppliers, but that feels like a justification after the fact of a fall which they can’t control. The question now is how the process of adjustment to the new price level will work. Read more

One of the most exhilarating aspects of working in the energy business – at least for a humble economist such as me – is that companies think and act on a timescale measured in decades. Projects are built to last for 30-40 years, and often longer still. This is in sharp contrast to the government where timescales are measured in hours and where long-term means the not-too-distant horizon of the next election. It is also in contrast to sectors such as telecommuications where the pace of change is so fast that thinking more than five years ahead makes no sense. But, as the current slide in oil, gas and coal prices demonstrates, a long-term perspective does not make investment judgments easier.

Most oil and gas fields, coal mines, nuclear power plants, wind farms and other energy sources are designed to last for decades. The construction time can be long: a liquefied natural gas plant can take six or eight years; a new nuclear power station a decade or more especially if the technology is unproven or excruciatingly complex. Payback only comes when the plants have been on stream for several years. Beyond that, however, the operating costs are usually low and the cash flow is strong and secure. Or, at least it should be. Read more

  © Johner Images / Getty Images

The deal reached at last week’s European summit on climate change will satisfy no one. The non-binding Europe-wide targets place no responsibility on national governments and provide none of the confidence necessary for the essential investments in supply and infrastructure that are yet to be made. Poland may be the short-term winner – reflecting a clear shift in European decision-making to the east – but the summit failed to address the hard reality that current policies are not working. A new approach is needed.

The fractious debate which led up to the summit should be understood as marking the end of the “consensus” on energy policy established in 2008. Anyone wanting to understand the details of the debate should read the excellent summary produced by Carbon Brief which spells out the positions of the key states on major issues. Read more

Last week I wrote about the forthcoming independence referendum in Kurdistan. To move from events there to what is happening in Scotland is a surreal experience. In Erbil the vote will be a deadly serious matter which could create a new country for a nation which as they say has no friends but the mountains having been a victim of international betrayal and cynicism for centuries. There is no knowing whether the Kurdish referendum will end in triumph or tragedy. In Edinburgh what should be an equally serious debate about breaking the relationship with the rest of the UK is now close to a farce. Read more

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Why are renewables moving so slowly? Of course the output of renewable energy is growing in absolute terms and in terms of market share in most countries in the world. But the growth starts from a very low base. On the International Energy Agency’s latest numbers, renewables provide just 13 per cent of total global energy needs at the moment, and will provide only 18 per cent by 2035. If traditional biomass is excluded the figures are 7 per cent and 14 per cent.

The problem is cost. Electricity produced from offshore wind and solar costs somewhere between 50 and 100 per cent more per MW/hr than power from natural gas and, with some variations, will continue to do so for the next decade unless one makes the assumption that gas prices are going to increase. Onshore wind is cheaper and in the US in particular is the closest of all the renewables to being competitive without subsidies. Read more

France has a new energy policy. Although some saw the statement presented for debate in the National Assembly ten days ago as simply political rhetoric designed to draw green support behind the Government, beyond the fine words and long term aspirations some of the tough immediate steps being taken suggest that the shift could be more serious. If so the statement will mark the beginning of a gradual but inexorable run down of the French nuclear business. Read more

A 220-page document entitled “Commission Staff Working Document: In-depth study of European Energy Security” is hardly designed to be a best-seller. Few outside Brussels will read the European Commission paper in full, which is a pity because it is an excellent piece of work. It also provides the basis for a series of proposals contained in an accompanying document, which if accepted and carried through could create a common energy policy for the EU comparable in scale, scope and cost to the Common Agricultural PolicyRead more

Energy storage has long been regarded as something close to a holy grail. Of course, there are ways of storing some forms of energy – using pumped water or compressed air for instance. There are conventional batteries – and there have been advances in their capacity over the last few years. But the search for storage systems which are simultaneously economic and practical for use at scale in the modern energy market has long been a source of frustration.

Recent advances made by scientists in the US suggest, however, that real progress is now being made and that major breakthroughs are close. The whole of the energy sector should be watching because any such breakthrough could transform the economics of the whole industry. Read more

Week by week Scotland seems to slip away. The reaction to the fiasco at the CBI demonstrates just how sensitive business is to involvement in politics. But the future of the United Kingdom is a matter on which business should have a strong and clear voice. In its absence the momentum behind the cause of independence will grow. Read more

The subtle redesign of Germany energy policy agreed by the government in Berlin last week sends some important signals not for the German market but for the rest of Europe. Far from damaging the renewables business the move could be the salvation of the sector. Other countries, the UK included would do well to adopt similar measures. This would be the most effective way of responding to the urgency expressed in the latest IPCC report. Read more

The first and easiest prediction arising from the continuing crisis in Ukraine and the deterioration of relations between Russia and the EU is that natural gas prices will rise. After all half the gas Europe imports from Russia comes through Ukraine. Very little of that supply can be replaced from other sources in the short term.

Russia has announced a sharp (44 per cent) increase in prices for the gas supplied to Ukraine – in part as a punishment for past unpaid bills. Surely Europe must be vulnerable to either a cut-off of supplies or a forced price rise? And yet in the real world actual gas prices have fallen over the past month and now stand at a three-year low. Is the market mad? Read more

What happens now for the numerous companies, led by the oil majors, who have chosen to invest in Russia? The surprising answer may be that the short-term risks are less serious than the longer term prospects of disengagement as energy consumers, especially in Europe, reduce their dependence on a supplier they do not trust. Read more

The energy business is unstable. Investors and consumers are unhappy. Returns are too low and slow to arrive. Prices seem too high, especially in Europe. Market structures are under political scrutiny. A sector which has been producer led for as long as anyone can remember is ripe for change. One element of that will be forced by the geography of energy demand – most of the growth is now in Asia. But there will be other significant changes – not least when someone harnesses new technology to produce a completely new offer for consumers. Read more

In a provocative paper published by the Institute of Economic Affairs just before Christmas Professor Colin Robinson, one of Britain’s most senior energy economists, says that the energy sector in the UK has been “effectively renationalised”. The language is strong and the case overstated. The claim is not true in any literal sense. Companies are not being taken over or expropriated by any Government agency. There has been no transfer of ownership. But behind the rhetoric is a real trend. There has been a transfer of effective control, the consequences of which are pushing large parts of the sector back under Government authority.

Professor Robinson’s paper focuses on the UK. But the trend is not restricted to Britain. In different ways a similar shift is taking place in Germany, Japan, and even to a limited extent in the US.

In what has always been a hybrid sector built on a mixture of public policy and private capital the balance of power is shifting year by year. In each of these countries and many others Government is now determining outcomes to a degree unseen since the wave of privatisation in the 1980s. Read more

Is energy policy made in Brussels ? The obvious answer would be no. The EU may have an energy commissioner but he has little real authority. Energy policy is still under the control of individual national governments and as a result there are 28 very different approaches and outcomes. France is supplied by nuclear power. Germany by contrast is phasing out nuclear in favour of renewables. Much of Eastern Europe still depends on coal. There is cross border trade, of course, but most countries have their own distinct energy market.

A series of announcements over the last few weeks, however, suggests that the European Commission which is in its last year in office wants to assert its authority over energy issues by indirect means, using environmental and competition policy to create a de facto Common Energy Policy. A Commission policy statement on energy will be published before the end of January. The issue promises to become more visible and part of the continuing debate about the balance of power between Brussels and the member states. Read more

Energy policy is a serious problem which won’t be solved by gimmicks or slogans. Most of the debate in the UK over the last few weeks has focused on the prices being paid by domestic consumers. Now, though, the focus is set to shift to the competitive burden on businesses and jobs not just in the UK but across Europe. With yet more price increases to come, the need for a new and serious policy covering both supply and demand is becoming urgent. Read more

Do renewables represent the future of the energy business or a minor contributor in a sector which will continue to be dominated by hydrocarbons? That will the underlying question at the FT Renewables conference this week. The answer looks to be the latter but financial engineering or a major technical breakthrough could yet change things. Read more

At a painfully slow speed the consensus on climate change is building. There is a human impact on the climate as a result of greenhouse gas emissions. Those who seriously question this view are now reduced by the sheer weight of the evidence in the new Intergovernmental Panel on Climate Change report to the level of the eccentrics who maintained that the earth was flat long after the reality had been proved. Read more

Ed Miliband’s comments on energy in his Labour party conference speech on Tuesday have profound implications for policy. The immediate focus will be on the suggestion of a price freeze lasting until 2017. The industry will no doubt focus on the implications of cutting profits and the question of what happens if world prices rise. Some might also suggest that a hard freeze will not only deter new investment, but also lead to some companies exiting the business with the net effect of reducing competition. Mr Miliband clearly believes there is profiteering but he has not published the evidence. The Labour leader should and there needs to be a full competition inquiry. It may well be that if there is profiteering a price freeze is not the only nor the best solution. Read more