The UK's energy policy is not "plausible" and a "crisis" is inevitable. That is the view of Peter Atherton, a respected utilities analyst who works for Liberum Capital, an investment bank in the City.
Atherton is convinced that successive UK governments have grossly underestimated the engineering, financial and economic challenges posed by the planned move from a high-carbon electricity sector to a low-carbon one.
He believes that the cost of switching from largely coal- and gas-fired power stations to a mix of gas-, wind- and nuclear-generated electricity will cost more than £160bn by 2020 and more than £375bn 10 years later.He warns that it means "electricity bills rising by at least 30% by 2020 and 100% by 2030 in real terms."
That would be political dynamite and Atherton knows it. He predicts that there will be three groups of "casualties": the government, consumers and investors.
This apocalyptic scenario – contained in an investment note issued last week – will warm the hearts of many in the City (and possibly some in the Treasury) who believe the green agenda is a giant waste of money.
It will alarm the wider community who accept that climate change must be tackled, and those who believe a "carbon bubble" is developing around fossil fuel companies whose assets are overvalued in a world turning away from coal and oil.
And it is clearly at odds with the ideas of ministers such as Ed Davey, the energy secretary, whose Department of Energy and Climate Change (DECC) calculated last month that "household dual fuel bills are estimated to be on average 11% (or £166) less in 2020 than they would be without policies being pursued."
Those figures do, however, involve some heroic assumptions about energy-efficiency measures being implemented. But Atherton is not the only one in the City asking difficult questions.
Harold Hutchinson, a utilities analyst with Investec Securities, is also deeply sceptical about the UK's nuclear strategy. Britain is waiting to see whether EDF and DECC can agree on plans to construct reactors at Hinkley Point in Somerset – the first new nuclear generation plant in this country since Sizewell B opened in 1995.
The deadline for a decision to be taken has slipped back as the two sides haggle over the financing commitment – we are really talking subsidies here – that the government is willing to give to the French company.
The coalition has set much store on new nuclear but is balking at guaranteeing a price of over £100 per megawatt hour. Hutchinson points out that the last time nuclear was built in Britain there was the state-owned Central Electricity Generating Board to help.
Similarly, the current list of newbuild projects in France, Finland and the Czech Republic all have the state as the major shareholder.
"The real political question is whether the UK has the stomach to underwrite the (very real) cost risks associated with ensuring that nuclear power can flourish.
To date, that remains an open question," he concludes. To make matters more difficult, Britain has sold off the atomic technology group Westinghouse, as well as British Nuclear Fuels, and is now talking of doing the same with its stake in Urenco, the uranium enrichment company.
One suspects Atherton, who encourages the few British-owned energy suppliers such as Centrica and SSE to "limit their future exposure" in the UK, is building a case under which our low-carbon ambitions are junked and we revert to fossil fuels – which only "cost less" because the damage to the environment they cause is currently given no financial value.
This strategy is implausible. Any "crisis" stems from the government's unwillingness to use the power of the state to ensure local companies build a network fit for tomorrow at a cost the consumer can bear.
If David Cameron is looking for a patriotic mission to head off the Ukip surge, then instead of funding a futile war in Kabul, he could start ensuring domestic energy security through the proper funding of the new Green Investment Bank in Edinburgh.
A cooling-off period will stop trackers getting the blues
Shortly before a little-known mining company known as Eurasian Natural Resources Corporation (ENRC) was floated on the stock market in 2007, its directors went on a course to learn about "what it means to run a public listed company".
The details were reported by the Observer's sister publication, the Guardian, last week. A team of big-name lawyers and bankers spouted their advice on how directors should behave once the company was listed in London.
No one in attendance should have been in any doubt that the contents of the awayday mattered. The cachet of a London listing should not be forgotten.
London is regarded as a top-notch place to float shares – and, crucially, has an army of index-tracking funds left with little option but to hoover up stakes in newly listed companies, especially ones that are immediately catapulted into the FTSE 100 blue-chip index. In 2007, ENRC was one of them.
The index-trackers ploughed into a company that is now beset by rows about its boardroom structure and is under investigation by the Serious Fraud Office regarding fraud allegations.
Those index-tracking funds found themselves stuck with an investment in a company where the saga just keeps running and running and where the share price has fallen 80% – seemingly with very little chance of staging a recovery.
Little wonder that the City is facing questions about what can be done to avoid index-trackers becoming involved with unproven companies such as ENRC – or potentially a smaller company such as the one-time shell business Bumi, which won a place in the next tier down, the FTSE 250. How about this for a fast and simple solution?
A moratorium on tracker funds buying up new companies entering the blue-chip index for, say, two years.During that time, all of the skeletons would be blown out of the cupboards – helping the trackers to avoid being dragged into hazardous areas in future.
RBS must be done with musical chairs before a share sale
The starting gun has not quite been fired on a share sale for Royal Bank of Scotland, but it has certainly been cocked. And there is no doubt that last week's talk by chairman Sir Philip Hampton about the possibility of a prospectus being drawn up next year was encouraged by the Treasury.
Before a prospectus can be drafted, however, a number of hurdles must be overcome. One of them is the issue of the top management team. By the time of any share sale, the finance director, Bruce van Saun, is likely to have moved to the US arm, Citizens, and been replaced by insider Nathan Bostock. But what about the chief executive, Stephen Hester?
He wants to stay on until a sale is achieved – and so he should. But he will face questions about long he should hang around afterwards. It is time for RBS to be more transparent about its succession planning.
guardian.co.uk
Atherton is convinced that successive UK governments have grossly underestimated the engineering, financial and economic challenges posed by the planned move from a high-carbon electricity sector to a low-carbon one.
He believes that the cost of switching from largely coal- and gas-fired power stations to a mix of gas-, wind- and nuclear-generated electricity will cost more than £160bn by 2020 and more than £375bn 10 years later.He warns that it means "electricity bills rising by at least 30% by 2020 and 100% by 2030 in real terms."
That would be political dynamite and Atherton knows it. He predicts that there will be three groups of "casualties": the government, consumers and investors.
This apocalyptic scenario – contained in an investment note issued last week – will warm the hearts of many in the City (and possibly some in the Treasury) who believe the green agenda is a giant waste of money.
It will alarm the wider community who accept that climate change must be tackled, and those who believe a "carbon bubble" is developing around fossil fuel companies whose assets are overvalued in a world turning away from coal and oil.
And it is clearly at odds with the ideas of ministers such as Ed Davey, the energy secretary, whose Department of Energy and Climate Change (DECC) calculated last month that "household dual fuel bills are estimated to be on average 11% (or £166) less in 2020 than they would be without policies being pursued."
Those figures do, however, involve some heroic assumptions about energy-efficiency measures being implemented. But Atherton is not the only one in the City asking difficult questions.
Harold Hutchinson, a utilities analyst with Investec Securities, is also deeply sceptical about the UK's nuclear strategy. Britain is waiting to see whether EDF and DECC can agree on plans to construct reactors at Hinkley Point in Somerset – the first new nuclear generation plant in this country since Sizewell B opened in 1995.
The deadline for a decision to be taken has slipped back as the two sides haggle over the financing commitment – we are really talking subsidies here – that the government is willing to give to the French company.
The coalition has set much store on new nuclear but is balking at guaranteeing a price of over £100 per megawatt hour. Hutchinson points out that the last time nuclear was built in Britain there was the state-owned Central Electricity Generating Board to help.
Similarly, the current list of newbuild projects in France, Finland and the Czech Republic all have the state as the major shareholder.
"The real political question is whether the UK has the stomach to underwrite the (very real) cost risks associated with ensuring that nuclear power can flourish.
To date, that remains an open question," he concludes. To make matters more difficult, Britain has sold off the atomic technology group Westinghouse, as well as British Nuclear Fuels, and is now talking of doing the same with its stake in Urenco, the uranium enrichment company.
One suspects Atherton, who encourages the few British-owned energy suppliers such as Centrica and SSE to "limit their future exposure" in the UK, is building a case under which our low-carbon ambitions are junked and we revert to fossil fuels – which only "cost less" because the damage to the environment they cause is currently given no financial value.
This strategy is implausible. Any "crisis" stems from the government's unwillingness to use the power of the state to ensure local companies build a network fit for tomorrow at a cost the consumer can bear.
If David Cameron is looking for a patriotic mission to head off the Ukip surge, then instead of funding a futile war in Kabul, he could start ensuring domestic energy security through the proper funding of the new Green Investment Bank in Edinburgh.
A cooling-off period will stop trackers getting the blues
Shortly before a little-known mining company known as Eurasian Natural Resources Corporation (ENRC) was floated on the stock market in 2007, its directors went on a course to learn about "what it means to run a public listed company".
The details were reported by the Observer's sister publication, the Guardian, last week. A team of big-name lawyers and bankers spouted their advice on how directors should behave once the company was listed in London.
No one in attendance should have been in any doubt that the contents of the awayday mattered. The cachet of a London listing should not be forgotten.
London is regarded as a top-notch place to float shares – and, crucially, has an army of index-tracking funds left with little option but to hoover up stakes in newly listed companies, especially ones that are immediately catapulted into the FTSE 100 blue-chip index. In 2007, ENRC was one of them.
The index-trackers ploughed into a company that is now beset by rows about its boardroom structure and is under investigation by the Serious Fraud Office regarding fraud allegations.
Those index-tracking funds found themselves stuck with an investment in a company where the saga just keeps running and running and where the share price has fallen 80% – seemingly with very little chance of staging a recovery.
Little wonder that the City is facing questions about what can be done to avoid index-trackers becoming involved with unproven companies such as ENRC – or potentially a smaller company such as the one-time shell business Bumi, which won a place in the next tier down, the FTSE 250. How about this for a fast and simple solution?
A moratorium on tracker funds buying up new companies entering the blue-chip index for, say, two years.During that time, all of the skeletons would be blown out of the cupboards – helping the trackers to avoid being dragged into hazardous areas in future.
RBS must be done with musical chairs before a share sale
The starting gun has not quite been fired on a share sale for Royal Bank of Scotland, but it has certainly been cocked. And there is no doubt that last week's talk by chairman Sir Philip Hampton about the possibility of a prospectus being drawn up next year was encouraged by the Treasury.
Before a prospectus can be drafted, however, a number of hurdles must be overcome. One of them is the issue of the top management team. By the time of any share sale, the finance director, Bruce van Saun, is likely to have moved to the US arm, Citizens, and been replaced by insider Nathan Bostock. But what about the chief executive, Stephen Hester?
He wants to stay on until a sale is achieved – and so he should. But he will face questions about long he should hang around afterwards. It is time for RBS to be more transparent about its succession planning.
guardian.co.uk
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