Saturday, 7 February 2009
Watching The Lights Go Out (3)
"Green light for 3 new power stations to power 4 million homes"
What's this, I hear you ask, are we saved ? Was Drew just doom-mongering (again) ?
4 gigawatts of lovely new capacity !
Calm down dear, it's only a government press release. 'Section 36 Consent' is permissive, but doesn't commit the holder to do anything - any more than EDF is committed to building new nukes (sorry Gordon, but they ain't - ask your brother). It's valid for 5 years and is, in effect, a free option to start building a power station in that timeframe. So even if any of these go ahead, with a typical 3 year construction period they could be starting up as late as 8 years from now. The crunch comes a lot sooner than that.
All these permits betoken is that the three putative developers like free options (as do we all), and anticipate (as do we all) that the price of gas is going to fall, but the price of power won't fall by nearly as much, if at all - because generating capacity margins are declining.
And worryingly so. The government (when it isn't totally absorbed by sourcing new mobile phones for Brown) knows perfectly well that renewables and nukes are a bad joke, and are hoping upon hope that [a] developers will rush through the only things that can provide reliable electricity quickly and plentifully enough, viz gas- or coal-fired plant; and [b] it will mostly be gas, because the greens (wrongly) hate coal - see the lame rider at the end of the press release ("gas fired power stations produce less than half of the carbon emissions of traditional coal fired stations" - true but irrelevant).
But isn't there an optimistic angle - mightn't they start developing right away, so the new 4 GW is available by 2012 ? Certainly, the government would hope so - they are already planning 2012 power-cuts in the London area to ensure the Olympics get an uninterrupted supply !
But there's a strong reason to believe these 3 permitted stations won't be built any time soon. The prospective developers can't hedge their energy price expectations - i.e. they can't lock in declining forward gas prices and more robust forward power prices; and they'd need to do this in order to secure finance. That they can't is partly due to the credit crunch; but also because, when the government allowed EDF (Gordon's brother again) to buy BE, they accelerated the malign trend towards vertical integration in the electricity sector. This has trashed liquidity in the power markets, making long-term hedges as rare as hens' teeth.
So - the French get BE; they commit to precisely nothing; a power crisis looms; the power market is hobbled. Ah, what it is to have a financial genius at the helm.