Renewables

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

The German election later this month might seem to be about to produce more of the same. On the eurozone currency crisis – as Quentin Peel wrote in the Financial Times a couple of weeks ago – the expectation of a big reform plan once Angela Merkel wins re-election has given way to the realisation that nothing much will change unless the markets force a radical response. Austerity and crisis management are the watchwords, and only a major event such as a collapse in the credibility of Italian debt repayment will force Germany to address the need for a full-scale resolution of the problem. That could involve the creation of a tighter EU core, or a reluctant acceptance that the euro as designed cannot work without a backstop funding mechanism in the form of Eurobonds. Nothing in the election campaign has provided a clue as to which of these alternatives will prevail.

Similarly on energy policy the election is beginning to look like a breakpoint which could have wide implications across Europe. But the direction of change remains uncertain and dangerously dependent on the precise make up of the next coalition government. Read more

It is always a pleasure to have a good laugh. I am, therefore, grateful to the Scottish National party for announcing their new energy policy. Read more

Price forecasts – particularly for gas – are being used to justify both public policy (including heavy subsidies to renewables in many parts of Europe) and investments in very expensive sources of supply. But when events start to show that the forecasts are wrong, both policy makers and investors can be left stranded.

There are basically three ways of approaching the challenge of forecasting. The first, favoured by non economists, is to project forward recent trends. But which trends? I once produced an oil price forecast based on the trends of the last six days, six months, six years and six decades. Not surprisingly the result was a hedgehog style set of spikes going in quite different directions. As a planning tool it was completely useless.

The second approach to forecasting, much used by those who have over-invested, or want to invest (think of High Speed 2), or want to advance a particular policy response is to reach for a forecast which fits the bill and then to construct a justification.

Both approaches have been used in gas price forecasting, with the result perhaps not surprisingly being a widening divergence between projections of ever rising prices and the reality which is that prices are clearly falling in the short term and look set to keep falling longer term.

Gas prices - data sourced from Knoema Beta
Gas Prices – data sourced from Knoema Beta

 Read more

Month by month, the consequences of the shale gas revolution in the United States are working their way through the international energy market. There has been much discussion of whether the US will permit shale gas exports in any quantity. But even before that is decided the growth of shale gas production in the US is already having an impact. The reduced need for US gas imports leaves supplies from Trinidad, North Africa and elsewhere to find a new home. That means that gas prices in Europe and Asia will fall. And even more important, shale gas is displacing coal from the US power generation sector. Read more

Businesses which rely on continuing public subsidies or particular formulations of public policy always carry added risk. The reality is that public policy changes. For a brief period there is full-hearted support, often driven by a crisis or a sense of looming danger. But the attention span of electorates and policy makers is short. Something else happens, another crisis looms and a new priority takes precedence.

The news last week that Siemens is to close its solar business is just one of many indications that for the renewables sector times have changed. Read more

Those who think that the best responses to the risks of climate change are ever stronger regulation, complex international agreements and higher energy prices should take a look at what is happening in America.

In the US, carbon emissions have fallen by 13 per cent in the last five years and are at their lowest level since 1994. Energy demand is flat even though the economy is growing. The key statistics to watch are oil demand, which is at a 15 year low, and coal demand in the power sector, which is down by more than 20 per cent since 2008.

Furthermore, energy prices are also falling thanks to shale gas. They have yet to stabilise and there will have to be a shakeout within the gas sector. But prices will settle in the range of $4.50 to $5 – sustaining development but also providing a sharp reduction in input costs for consumers including manufacturing industry. Shale gas, however, is not the whole story. Next will come tight oil, which is oil from shale rocks. Then and potentially most important of all will come advances in energy storage. Bill Gates has just made his third major investment in an energy storage technology business. Read more

Ed Davey, secretary of state for DECC

Ed Davey, secretary of state at DECC, outside his ministry

The UK’s Department of Energy and Climate Change is about to publish forecasts suggesting that gas prices could rise by up to 70 per cent over the next five years. This is scaremongering nonsense, and shows just how out of touch the Department is with the realities of the international energy market. Officials appear not to have consulted the industry or the traders. In reality the odds are that prices are just as likely to fall as to rise for three distinct reasons. Read more

If any company knows about the highs and lows of the British economy, it is Merseyside’s Cammell Laird – one of the oldest names in British shipbuilding.

Founded nearly 200 years ago, its sprawling yards across the river from the city of Liverpool have launched more than 1,350 vessels, from a US Confederate raider to the steamer built for Dr Livingstone’s Zambezi expedition.

 Read more

The growth of wind farms and other renewable energy projects is heading for a sharp slowdown after 2020 according to official forecasts, despite ministers’ claims they want the UK to become a global centre of green power.

Figures from the Department of Energy and Climate Change predict a tenfold increase in the amount of new renewable power capacity added between 2012 and 2020.

 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

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

Why are renewables losing out? According to the International Energy Agency, renewables, excluding biomass but including hydro, currently provide just 8 per cent of global electricity supply and 3 per cent of total energy demand. By 2035 on the IEA’s main scenario those figures will rise to just 15 and 7 per cent respectively. That represents some serious growth but not a breakthrough. Hydrocarbons on all the IEA scenarios will still be providing well over 60 per cent of final energy. The figure could be higher if shale gas and tight oil developments spread from the US and if coal prices fall further.

This limited achievement comes despite a decade of high spending on research – especially in the US, and despite a variety of generous subsidies – ranging from direct grants and feed-in tariffs, to protected market shares. In the UK, the support is entrenched in legislation requiring the government to produce long-term plans for reducing emissions over the next four decades. Renewables have benefitted over the past few years from concerns about rising energy prices and energy security, as well as from the desire to tackle climate change. Read more

Mitt Romney has given Barack Obama a free pass when it comes to energy and environmental policy.  Obama needs only to point to Romney’s energy plan - with its proposed demolition of federal controls on new energy developments and its omission of any mention whatsoever of climate change to claim the votes of the environmental lobby.

Even those most disappointed by the last 4 years can hardly fail to back Obama when the alternative is someone who used his acceptance speech last week to mock Obama’s commitment to the environment and to contrast Obama’s aim of helping to save the earth and the oceans with his own commitment to helping ordinary American families get jobs.  But what won’t be said this week at the Democratic Convention in Charlotte is that the American energy outlook for the next four years at least is already very largely set, and won’t be much altered by whoever is elected in November. Read more

Short of appointing Jessica Ennis as head of government relations it is hard to think what more EDF could have done to get the UK government to give them the go-ahead to develop new nuclear power stations in the UK.  But still no decision has been taken on the crucial issue of pricing structures.  Almost every other potential investor has tired of waiting and pulled out of the game.  How much longer will EDF wait ? Read more

 

Mitt Romney speaks during a campaign rally at American Energy Corporation  in Beallsville, Ohio

Mitt Romney speaks during a campaign rally at American Energy Corporation in Beallsville, Ohio

The Republican presidential candidate Mitt Romney published last week his plan for Energy Independence for the US by 2020.  Critics immediately dismissed the plan as unachievable. But while parts of it certainly look unlikely, many of the proposals could be delivered and by including Canada and Mexico in the calculation, Romney has made “independence” technically possible.   The real challenge, however, is the mindset and beliefs revealed by the plan and its implications for the rest of the world. Read more

Although we hear a great deal about national energy policies it is important to remember that this is a global sector. Prices are set internationally. So are patterns of investment and developments in technology. Emissions and climate change are international issues.  National policies can protect, subsidise or tax different elements of energy production and consumption – but they are essentially local responses to external, global developments.

I think it is therefore worth looking at what is shaping the global market. It would be silly to reduce a complex system to a single answer but what stands out at the moment and for the foreseeable future is the absolutely critical role of China. Read more