Wednesday 15 October 2008

Watching The Lights Go Out (2) - Energy & the Crunch

This entertaining graphic is the EU’s official triad of energy policies. The environmental strand is wittily nicknamed ‘Kyoto’; the competition component ‘Lisbon’ (the energy liberalisation edict, not the Treaty); and the security-of-supply axis ‘Moscow’ (I think we can guess why …).

Notwithstanding the EC’s assertion that these are ‘balanced, integrated and mutually reinforced’, the triad was always under severe tension, and the twin events of Russian action in Georgia and the credit crunch are now stressing it to probable breaking-point.

In particular, security of supply has zoomed into pole position, with gas supplies in particular looking even less comfortable than after the Ukranian spat of 2006. Competition is only really being promoted now by the UK (and the pro-competition hardcore within the Commission itself), which sees itself being stranded at the end of a very long pipeline system.

So – what of the environmental strand ? Didn’t they insist at the Brown-Barroso love-in just this morning that it won’t get forgotten in the excitement ?

As we’ve often noted before, implementing the full “20:20:20” vision would cost a mint. Until recently, energy projects were still able to leverage heavily: but finance is now drying up, in energy as elsewhere.

At the same time, costs of steel, turbines etc have been going through the roof. We can predict that lending may over time become easier; that some costs will fall as the down-cycle kicks in; and that demand for energy will fall for the same reason, making some of the targets easier to hit by default.

However, at best there will now be an investment hiatus of months, perhaps years. And then the lights will start flickering: we are on a ‘just-in-time’ schedule for new electricity generation development, and there is no leeway. And there are only two emergency solutions. In the short term, there will be rationing and removal of environmental constraints. In the medium term there could be hasty commissioning of the only type of large-scale plant that Europe can be sure of building in a hurry and fuelling securely: coal-fired plant, perhaps as part of a Keynsian public spending splurge.

Or, there is the possibility of a major industrial downturn, on the scale suffered by Eastern Europe post 1989. It would help solve ‘Kyoto’ and ‘Moscow’. But probably not the solution the EC has in mind …



Anonymous said...

very interesting post, thanks

Old BE said...

Once commodity prices finish collapsing, the generating industry will be able to invest in new-build cleaner coal. Everyone's a winner.

The greenies will have to get used to the idea that consumption cannot be cut overnight and that 20% less carbon is better than a return to the dark ages.

Nick Drew said...

well thank you, Sammy

yes I think the greens have a disappointing time in front of them, BE - interesting to see all the special interests (unions, charities, greens) crowding in to re-state their claims for priority in these straitened times, I am waiting for the arts lobby to chime in any time now

it's not wrong, there are so many cherished projects in the firing line

I still think people know broadly where to direct their ire !

Anonymous said...

from the blog of the Peston:

"the British government is being forced to think about something new: a substantial and sustained increase in public spending to offset the contraction of spending by the private sector (there may be little point in cutting taxes, since nervous consumers and businesses would probably hoard any extra cash that went into their pockets).

A rise in public spending would increase the burden of public-sector debt, which is already - on one measure - above the government's self-imposed limit.

And paying off the increased debt would limit the growth of the economy as and when the economy turns.

There's also a risk of downward pressure on sterling and upward pressure on the cost of borrowing for the government, if the UK's balance sheet were perceived to be weak by international standards."

roym said...

excellent energy post as ever, yet worryingly i hear not one comment from those in charge or in opposition about what the strategy is.

ps. greens will never be happy unless we're wearing paper and felt shoes!

Bill Quango MP said...

roym said...
"greens will never be happy unless we're wearing paper and felt shoes!"

Paper! Paper! Think of the trees you monster.And as for wearing shoes at all!! You sir, are worse than Hitler!

Anonymous said...

I believe unthinking enthusiasm for all things green is going to disappear along with people's livelihoods. Environmentalism, like other wacky religious cults, is mostly confined to those rich enough not to have any real problems like, say, having something to eat or fuel to ward off death from exposure.

We are already too late to stop the lights going out if we have a tough winter. Today's nonsense announcement about reducing greenhouse gas emissions by 80% just confirms this government has no ability to do any critical thinking. I wouldn't trust these people to sit the right way round on the lavatory.

In case anyone is wondering, I'm a professional engineer. So I tend to think "the solution to pollution is dilution" and chuck everything into the sea. It works quite well, except for excreta & mercury.

Nick Drew said...

sammy - some while ago, Sackerson over at Bearwatch linked to a piece suggesting that investing in pointless renewables was the prime candidate to be the next (government-encouraged) bubble

(they could even promote it as Keynsianism)

roy - thanks: yes everyone is just paying lip-service at the moment and for much of the time this includes the Conservatives (though as with many other topics they have been fairly quiet on energy)

Mr Weetabix - it's just a matter of time, and maybe not very much time at that

(BTW I've met 'diluters' like you before ! you and your chums, the 'stick it in the furnace and send it up the chimney' brigade...)

Anonymous said...

well, the trouble with most incineration is it just isn't hot enough. Make the furnace nice & hot, well above 1000C - there's nothing cleaner than that flue gas! No dioxins, no furans, nada. But naturally the greens won't let us build any.

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