4 CCS Projects Through to Next Stage

DECC today announced that 4 CCS projects have been shortlisted for the next stage of their competition. Having had a small (very small!) part to play in one of those bids I am really quite excited. I must admit that I had thought that the shortlist might be one project shorter - for this technology £1bn doesn't actually go all that far - but I also thought that we'd see the 2Co project up there - and it isn't! Just shows how wrong one can be.

Hitachi Got It

Interesting. So Hitachi will be purchasing Horizon. As per a previous post it was down to one of two (or none at all) but it is a significant point that this will introduce yet another reactor type into the UK - a BWR. It is, a least, a tried and tested system. Gone are the days of 3 different AGR designs being constructed simultaneously (thank goodness).

Also interesting to note the name of Rolls-Royce cropping up here when they also have an MOU with Rosatom.

So, now it's down to Hitachi to complete the deal and get on with having their design fully tested and certified. It all means that we are unlikely to see one of these beasties in action before the early 2020s. So the risk of several years of tight capacity margins in the middle of this decade remains. Start saving your pennies now - electricity is going to become more and more expensive.

EdF Throws Down Gauntlet

There was a very firm statement from Vincent de Rivaz of EdF at the Commons Energy and Climate Change Committee yesterday. "The responsibility is on the Government and us to deliver the CfD and transitional arrangements" he said. It was very obvious that the sub-text was a need for sufficient certainty on EdF's behalf to allow them to proceed to investment. However, interestingly he said that EdF did not expect consumers to take on construction risk - i.e. it should not explicitly feature in the CfD. It's difficult to buy this. Construction risk should be part of business as usual for EdF but it must feature to some extent in the CfD stike price because it is only through these revenues that EdF will make any margin on it prospective investment. Rupert Steele of Iberdrola/Scottish Power was somewhat more open on this question. Probably the most telling comment was de Rivaz's "If there is not clarity we will not invest". This was all about the need to have long-term certainty behind the CfD. Over to you Government - and in particular DECC!

What was he thinking?

So David Cameron wants to force energy companies to put customers on the lowest tariff. Or does he? What the Prime Minister said was, of course, utter tosh. But is that what he meant to say? My betting is not. I suspect that the policy being considered is something along the lines of giving customers the option to move onto the cheapest tariff - or perhaps the other way around, the option to stay as they are rather than be moved onto something that the company considers to be cheaper, having done some analysis on usage patterns etc. Thereby hangs an interesting sting - until we get smart metering that analysis is just a little tricky.

There's also the problematic push-me-pull-you of wanting people to reduce energy consumption against playing to the cheap energy gallery.

And politicians don't seem to think through the fundamentals of energy issues. Take natural gas, for instance. It's a commodity. All the energy companies buy from the same sources in the same market place. All that is going to distinguish them as far as costs are concerned is the ability of their traders to time their deals cleverly, and their on-going non-product cost base. Frankly there ain't going to be much of a differential between the companies. So, surprise, surprise, competition is at the margin. Ditto for electricity.

What the country needs is to create a situation within which companies have the confidence to invest - especially electricity generators. Who would build a nuclear power station with huge up-front capital costs if there was a strong likelihood that some ill-informed politician would be forever fiddling with the market?

Did Anyone Notice?

October 13th was Disaster Risk Reduction Day. Did anyone notice?

Into Mervyn's Shoes?

Last Thursday Adair Turner used his Mansion House speech to pitch for the role of Governor of the Bank of England. Is he the man for the job? Very early on in the speech there's a "not me, guv" piece where he argues that he was not party to the failure of the FSA in the run-up to the financial crisis (he took the helm very shortly after Lehmans collapsed). Fair enough, although one might note that it was the Americans, not the FSA under Turner's watch, that spotted the Libor debacle. However, there is one big issue that he cannot avoid. That's his long term campaigning to get the UK to adopt the euro. He now admits he was wrong but that's one awful bad call (bad judgement). Should someone who got that so wrong be the next incumbent of Threadneedle Street? I'd say not.

Euro Chat

Angela Merkel's recent visit to Greece is a reminder that the Euro crisis rumbles on. I've mused before on the likelihood, or otherwise, of the Euro surviving - with my "man-in-the-street-no-I'm-not-an-economist" hat on. My untutored view has been that the Euro zone was an economic backdoor to an, at the time (and still now), unachievable political aim - i.e. political integration of Europe quite probably as some sort of federation.

Recently a kind colleague has suggested that I educate myself in this area and look up the "Theory of Optimum Currency Areas" so I have, indeed, turned to that fount of all knowledge Wikipedia. I'm struck by the four conditions for a successful currency union:

• labour mobility
• openness with capital mobility with wage and price flexibility
• a centralised risk-sharing fiscal policy
• broadly symmetrical business cycles within each participating region or country.

So how does the Euro zone stack up?

Well, labour mobility is enshrined in law but there are language and cultural barriers which means that Europe looks nothing like the much more mobile US.

How about wage and price flexibility? Well, if that really existed Greek, Spanish and Irish wages would be pushed down to restore competitiveness. If that's happening then it's a slow process (and, inevitably, a painful one).

Centralised risk sharing? No. There's no central policy. The Stability and Growth Pact was widely ignored. Germany (or individual Germans, at least) are very wary of cross-subsidising southern Europe.

Symmetric business cycles? Very clearly not. Europe's core and periphery have very different economies. Right now Germany is still growing through its export-led policies; many of the southern countries are close to being basket cases.

My conclusion? I go back to my opening paragraph. The Euro was a political project which tried to ignore the clear economic problems it engendered. There either has to be closer fiscal integration or an admission of rather expensive defeat.