When does the AI bubble burst - and what then?

That AI is currently inflating a mighty economic bubble is a commonplace observation.  A vast proportion of US economic growth (as conventionally measured) and stock market value is related to AI.  Every damned company on the planet is trying to portray itself as somehow AI-contributing or AI-powered - and they are frequently getting a gratifying share-price kicker from it[1].  Presumably, the pension industry is pretty addicted by now.

In the real world, the vast and (we are told) exponentially-growing demand for electricity - 100% secure baseload electricity to boot - made by data centres is seriously distorting electric power-system planning for many a nation.  Coming atop the average grid's already torturing itself - and its hapless bill-payers - to accommodate the diametrically opposed demands of a decentralised renewables-based future, this is a serious spanner in the works.  And of course governments everywhere are anxious to play host to new data centres, Starmer's as much as any; and are making this a policy priority.   But the (would-be) data centre builders have twigged that these contortions on the part of conventional grid operators may very probably not prove successful - and thus are talking about joint ventures with nuclear generators and ... sponsoring nuclear fusion development! [2]  Yup, it's a completely irrational bubble.     

But what does that tell us about AI itself?   Not much, beyond the obvious fact that it has gripped the universal imagination to the extent that dollar signs rotate in every businessman's eyeballs.  

Well.  Railways had a mania, and many a railway company went bust.  The technology and much of the infrastructure they built is still evolving and very much in use.  We had a dotcom bubble.  It burst, alright, but it didn't mean the internet was a phantasm.  Enron was a bubble: but it didn't mean the Enron vision for how energy markets should be configured was wrong.  (Even China is trying to figure out how to bring that revolution into its own constipated energy sector.)  Etc etc - these techie-based phenomena are not like Dutch tulip mania: nobody needs tulips, but everyone needs railways / electricity / the www / .... and, probably, we'll continue to want and need the advances that are made under the banner of 'AI'.

So: if history is any guide, it'll be a painful financial collapse; a reshuffle of the runners and riders in the "AI industry" (for those who don't break a leg & are not shot by the vet); and the underlying new tech rumbles on to find a more stable way to become a permanent fixture in all our economies and our ways of life. 

Views?  Predictions?  Timing ..?

ND

UPDATE: a bucket of cold water over certain claims for AI:

________________

[1]  Even Drax, FFS - a floundering, downsizing biomass-burning power company.  

[2]  On the eve of the 2007-09 financial crisis, a high-end energy-specialist VC firm of my acquaintance was looking for opportunities to invest in unsubsidised nuclear powerplant development.  When money is aimlessly sloshing about on that scale, that's when you really know a financial crash is coming soon.

Drax: criminal charges a possibility

Not before time, the FCA is investigating Drax: 

... covering the period January 2022 to March 2024 relating to certain historical statements regarding Drax's biomass sourcing and the compliance of Drax's 2021, 2022 and 2023 Annual Reports with the Listing Rules and Disclosure Guidance and Transparency Rules.

Needless to say, this hasn't done anything for its share price.

During the period under investigation, Drax was found guilty of misreporting by the pusillanimous Ofgem which let it off with a £25m fine.  In the context of literally billions Drax has received in subsidies, that's a bad joke.  And Ofgem's entire approach was pathetic, they had more than enough to throw the book at it.  But it means the FCA has a fairly robust platform from which to commence its own work, 

What's it all about?  Au fond, the issue is that Drax gets subsidised thus because it says it is saving the planet by burning trees for electricity - and it isn't.  The entire business model is built on a lie.  Living a lie is never good for integrity, personal or corporate.   In lay terms the FCA will be looking at something rather different to Ofgem which was, notwithstanding the proven misreporting, limited to whether Drax technically qualified for its subsidies.  In essence, their finding was, "even though they don't provide accurate info, we can't be sure Drax is in breach - so we'll carry on paying".  Pretty lame. 

The FCA will be looking at whether Drax has misled investors / shareholders / the market.  Here, as in the States, this can be a criminal offence.  When I was an FCA-authorised player (well, FSA in those days) it was "up to 2 years, and/or an unlimited fine" for executives involved.  In the USA, they actually do bang people up for this - see this earlier blog story.  

Who knows where the FCA will come down?  My own two-penn'orth is that (a) Drax's dissembling about its supposed CO2-reducing impact, & exactly what trees they burn, is probably of only peripheral concern to the FCA; (b) the Risk Disclosures in successive Drax annual reports look distinctly questionable.  They know how perilously they are placed via-a-vis regulatory risk, but it's not clear to me that comes across in the ARs (see for yourselves).  They've also spoken with forked tongue over whether they would be a going concern without subsidies at all.   And being already proven as prone to, err, *mis-speaking* - some entertaining stuff came out at an Employment Tribunal earlier this year - won't help Drax's cause.

My guess is that the CEO's future could be under scrutiny when the Board gets round to thinking about how they've got where they are.  But Miliband still depends on Drax to keep the lights on in 2030 - friends in high places.  That's just about their only plea in mitigation.  And it wouldn't stop a handful of execs being made an example of.  We shall see.

Popcorn, please ...

ND 

Where do they hide the budgets?

In the foothills-of-apocalypse position we now occupy, this may seem a prosaic concern: but where do they hide the budgets?   Well, this was always conceived of as basically a business blog, so we can't take responsibility for solving Ukraine, Gaza, Taiwan, small boats, climate change etc.  

Here are a couple of examples.  Firstly, the mighty Afghan refugee cockup.  What do they reckon - £7 billion and counting?  How come no canny forensic budget-bore spotted that one on the HMG books?  Clever old Sir Humphrey, eh?

Second, and you'll permit me my local interests here - I give you Drax plc.  Outwardly just a regular UK listed company going about its chosen mission of incinerating the forests of the world using UK subsidies on the pretence this is helping to solve the aforesaid climate change.   But behind the scenes it has to fight legal action after legal action: that's what happens when you are aggressively living a lie which you've determined to brazen out at all costs.  The other day I happened on some evidence that they are spending tens of millions annually in legal fees for litigation, amounts dwarfing what they spend on their annual statutory audit plus associated consultancy.  The latter, you will find laid out in detail in the Annual Report and Accounts: the former you will not.  The ordinary shareholder would never know.

Finally, and this one won't be even remotely surprising, I've had some correspondence that invites me to believe there is a fairly substantial renaissance getting underway of our nuclear deterrent.  Yes, there are indeed project line-items in the MoD budget for some of this.  But I'm being told it's a fraction of the true total.  Still, this probably goes back at least as far as the two Harolds, Macmillan and Wilson ...  (Maybe those two aircraft carriers didn't cost quite as much as we'd thought?)

Somebody signs off on all this stuff, supposedly with great solemnity and a straight face, with liabilities theoretically involved.  Where's an honest accountant to be found?  On the job market, I suppose. 

ND

Weekend Reading: Drax / Womens Rights vs Trans

Couple of worthwhile MSM press articles here - unusually good; and for the final one, an unusual source, too.

Drax - the papers are full of Drax at the moment as Miliband has partially caved in to the Starmer / Reeves growth-fixation.  OK, he's reduced the annual amount of subsidy for the Yorkshire tree-consuming monster, but he's extending our payments to undeserving Drax by another 4 years, on spurious grounds ("TINA": well, Ed, there are better alternatives), all for the sake of keeping options open for Drax to build a 'BECCS' plant, maybe, some time in the future of its own choosing, if it gets given even more £££, no commitments made at this time.  That's one helluva costly option, without any certainty of ultimate delivery.  Madness.

Several of the MPs taking a broadly anti-Drax line in Parliament of late, have actually screwed up in what they've said on this fairly technical topic; and the press have not been much better.  Even the FT is all-too-frequently disappointing in such BAU matters, silently and implicitly siding with, errr, BAU (and ad revenues?)  This, though not 100% accurate, is many times better than usual.  Oh, and quite a neat, perky little snipe from Nils Prately in the Graun, too.

Trans - also from the Graun is this, from the increasingly confident feminist pen of Sonia Sodha.  Here's a flavour (my emphasis): 

No woman should be forced to change her clothes in front of a male colleague... Peggie shared her account of what happened with the tribunal last week ... Dr Beth Upton, the [trans] male doctor in question, walked into the [changing] room while she was partially undressed... Upton put in a formal complaint, and Peggie was suspended for bullying and harassment... The greatest responsibility lies with Peggie’s employer, who, instead of making separate accommodations for Upton, expected female colleagues to ignore the fact he is male [sic!]... The attempted justification is that everyone must adopt the minority belief system that someone’s sex is not a scientific fact but a matter of their gender identity, or some sort of gendered soul.  As a personal worldview, that’s someone’s own business, but it is wrong – and, in a work context, unprofessional – to try to force it on others in relation to single-sex spaces, services and sports...

The idea that a man who identifies as female is literally a woman, and must without fail be treated as such, has become a cherished principle for some progressives. Politicians and women’s rights activists speaking against this have been excommunicated from the left. Slowly, but surely, this is starting to change ... Abandoning basic common sense for unpopular policies that put women at risk does not go well for the left.

'Misgendering' the doctor, by name, in print!  Go Sonia, Go Graun!

ND

War to the knife with Greens: Starmer going for broke

Going for growth?  There's every sign Starmer is going for broke - a slew of deeply controversial decisions either made already, or being readied, all in a rush.  Someone's told him it'll be a compelling, critical-mass message for all those would-be investors in UK plc that he's really open for business and will trample down all nay-sayers into the building-site dust.  (And presumably McSweeney has told him that 'all at once' is the best tactic.)

• Support for Heathrow third runway (already signaled explicitly)
• 'Nothing to stand in the way of new nukes' (yesterday)
• 'Likely to grant Rosebank etc oil/gas production licences' (yesterday)
• Extension of subsidies for Drax (Monday, by all accounts)

Everyone has their favourite 'hate' - mine is Drax; & I approve of Rosebank - and there is many a Green (and Red-Green) who hates them all with equal passion.  Perhaps there is someone other than Reeves who loves them all?  The construction industry, I guess, although they get nothing from the Drax announcement because Drax won't be committing to it's putative, ridiculous next-phase project "BECCS" in the near future - in fact, maybe never.

Wow.  Has McSweeney decided there'll be a month of massive sound & fury, followed by the usual amnesia?  Are the lefties who've just had the Whip restored so pathetically grateful, they'll take the required vow of silence?  Will the construction unions come swinging in with big support?

And Miliband ..?  Ah yes, we've mused about him several times.  He's swallowed LHR3.  He is in favour of nukes, and can probably swallow Drax (with much sophistry).  But Rosebank?  Lots of pundits are tipping him to quit over this, but I reckon otherwise: check his performance at the ESNZ Select Committee last month (linked to in an earlier post) - he very studiously repeated the exact wording of the Labour manifesto pledge: no new exploration licences.  Rosebank et al don't need an exploration licence, just a production permit.  I reckon he's swallowed it already, but we may soon find out.  His substantial cred with the greeny-lefties is going to be stretched to breaking-point soon.  What spectator sport this is!

Interestingly, only the nukes on that list above involve government money - and even that has (thus far) been limited to the ill-judged, probably ill-fated Sizewell C.  Everything else will either be private money and/or subsidies levied on energy bills.  So none of these 'announcements' is anything more than permissory.  Performative policy, on the cheap.  May never happen (aside from Drax grabbing the new subsidies with both hands, of course).

So:  let's see if there's a lasting political cost.  Maybe, maybe not.

ND

_________

Sorry, no links on this post - not easy from a 'phone.  You'll need to google it all yourselves!

Miliband, China, & the feasibility of government plans

Last week Miliband published his risible "Clean Power 2030 Action Plan", piling on yet more nonsense atop the supposedly supportive NESO report of a couple of weeks ago which ostensibly provided cover for his & Starmer's disingenuous retreat from "100% decarbonisation by 2030" to "100% always meant 95%".  That's a lot of reading there, if you're so minded.  Don't expect much[1] intellectual consistency, though.

Anyhow, whatever target he finally declares to be what he really meant all along, one of Mili's ideas is for some kind of 'bonus' to encourage developers to use UK supply chains instead of, as at present, importing just about everything including the workforce.  I can report that would-be new renewables developers are all very keen to be given this bonus, in whatever shape or form it materialises - to the point where they are putting their plans on hold until they learn the details!  Unfortunately, even the fingers-crossed "endorsements" of Mili's breakneck 2030 timetable state that there isn't a nanosecond to be wasted (code for "it's impossible, matey") - so this new cause of delay (among very many one might list) could prove to be a pretext for yet another volte face.  Most likely, I guess, the ditching of the UK Supply Chain thing[2].  By way of support for this cynical view: FID has just been announced on Phase 1 of our very first Carbon Capture & Storage project[3] - and the developers have announced a "non-binding ambition" to source 60% of their stuff from UK supply chains.  How very amusing.

And of course the same goes for the building industry - in spades!  (see what I did there?)  1.5m new houses (sorry - homes: we now learn a significant % will be converted office blocks) cannot remotely be built with nothing but indigenous supply & labour.  Nor the building standards that so many activists believe they were promised would be imposed on housing developers - for energy efficiency / heat pumps / solar panels / disabled access etc etc.  There's another target ripe for downwards revision.

In amongst all this oh-so-cynical realism, we learn that in the New Year ... Mili is off to China!  - that well-known "developing country" (for COP purposes) which is the source of almost all solar panels and much else besides.  What, do we imagine, is the purpose of his mission?  To tell them they must locate their factories in Sunderland, & stop burning coal?  To lecture them on human rights?  To demand the return of Hong Kong?  To stop sending weapons components to Putin?  Do tell us, Ed - what will constitute success for your mission?  We only ask because we want to know.  

ND

___________________

[1] I was about to say "any / whatsoever" there: but in fact there is a thin strand of consistency detectable.  Having not formally decided whether or not to extend the wretched Drax's baleful biomass subsidies beyond 2027, Miliband pays lip-service at least, to the possibility Drax stops generating thereafter.  Personally, I'd be very surprised if he held his nerve against the blatant subsidy-farmers at Drax - but this formal reserving of the position is at least a modest positive sign.  

[2] See, for example, the sad little story of the Vestas Isle of Wight turbine blade production / job losses.  How are those "650,000 good new jobs" shaping up, Ed?

[3] Obviously this announcement of "CCS" at Teesside came with a great fanfare.  Look closer, and you'll notice that its primary sponsors, BP and Equinor, are committing only to the new gas-fired power plant at this stage.  That's the low-hanging fruit, of course, and in any event, CCS or no CCS, is likely to have a role as part of Mili's "fleet of gas-fired back-up" which he now realises he always meant to retain.  We'll believe the commitment to the actual CCS aspects when we see it, Ed ...

Budget: what a damp squib GB Energy is

Fireworks night coming, and £125 million is all the Budget can muster for GB Energy in '25-26.  What a pathetic little squib.  £100m for a handful of lame investments and £25m for setting up an office in Aberdeen.  

I'm warming to the Tory energy woman Claire Coutinho (MP), who is showing signs of becoming a good Opposition tactician.  A year ago she was the newly minted energy secretary at DESNZ, which represented meteoric promotion for a very new MP.  But she had no time to make a mark, really, because by then it was a lame duck administration.  Since the election, she's laid down two clever markers that I've noticed:  the first was coming out against Drax - which is Good Politics.  (She never liked it, unlike the moronic Shapps, her predecessor at DESNZ).  Drax is going down, and will take Miliband's 2030 decarb target with it, hoho.  And aside from those who benefit from the employment it provides - fair enough - nobody likes it.

Next, she put down a clever amendment to the GB Energy Bill, seeking to commit GBE to fulfilling the Lab manifesto promise of lowering everyone's electricity bills - £300 p.a. reductions for residential customers was the final manifesto offer (having been a pre-manifesto promise of a completely, transparently ludicrous £1,400 p.a. reduction before the immediate run-up to the GE).  Even that £300 ain't gonna happen.  So not only has Miliband carefully stopped talking about it, he whipped Labour MPs to vote against CC's motion.  Trivial stuff, but adding another twig to the birch with which to flog Labour.

Open thread - your views on the Budget

ND

Drax: long-overdue turning-point

The Drax farce has dragged on for a very long time (several threads here), but there are signs that it might be reaching a crisis point.  Not before time.

Last week, the FT put out a rather tame story that internal Drax emails exist proving Drax knew it was at fault in essentially the ways alleged (some would say 'proved') by the Beeb's Panorama back in 2022.  You can bet that's only the tip of the scandalous iceberg, that has only remained hidden, more or less, because successive governments have become hooked on the (purely notional) boost Drax gives to the "renewables" and "net zero" numbers.  Their addiction is an expensive one, measured in billions of subsidies.  It causes them to parrot the Drax lies in official pronouncements.

Following Panorama, Ofgem was set on to check where Drax was getting its fuel.  They did a crap job, ending with a derisory £25m fine for Drax not having proper records.  The NAO have also found that HMG itself can do no better in justifying the Drax claims of sustainability (on which their entitlement to all those billions rests).  Until now, this seemed to be water off the two ducks' backs.

The FT was Wednesday.  On Friday the Times joined the bandwagon, hosting a belated confession by Claire Coutinho (the last Tory energy secretary) that time should have been called on the whole farce ages ago.  Is a bandwagon about to hit the road?  I know for a fact there are several very strategic short positions in Drax: and you don't have to go very far in energy sector gatherings to meet lobbyists who've clearly been hired to badmouth the company (alongside all those with the exact opposite brief!)  OK, some of the 'anti' is from US environmental NGOs, appalled at the impact Drax's ravenous appetite for their forests is having; but some of it is from altogether more hard-nosed quarters.  Incidentally, we don't do investment advice here.

The timing of all this is critical because Drax has two big asks on Li'l Miliband's desk right now.  (1) It wants approval (and a heap of public money) for the ridiculous 'BECCS' scheme; and because it isn't ready to go ahead with this for a while yet, it wants (2) a heap more public money to keep it in luxury until BECCS money comes rolling in.  I won't bore you with how this all works in their warped minds, and how utterly ludicrous it all is on every rational score: suffice to say there are civil servants who support it, and also politicians.  

Miliband?  Actually, I detect no enthusiasm on his part - most people with half a brain-cell see through the Drax nonsense - but he has his own "notional net zero" agenda (see those earlier Drax threads), and Labour as a whole has its "growth / investment at any cost" agenda, too.

So let's see.  More popcorn, please, for this particular sideshow.  If we now see a serious anti-Drax bandwagon forming, it'll make his decision(s) quite awks.  As the young people say.

ND

The nonsenses that are Drax - and police priorities

In amongst all the nonsense on the streets, somehow PC Plod managed to muster sufficient force outside Drax power station to arrest 22 protesters and disperse a would-be protest camp.  This was under the terms of a draconian court order obtained by Drax, the terms of which would make you think the Crown Jewels were contained therein.

As it happens, in winter months Drax is a pretty essential part of the UK power fleet, the biomass it burns being a significant source of despatchable power.  And the group organising the protest has in the past pulled off some fairly intrusive coups at power stations.  The reason for the protest is a good one, though: outrageously, Drax - the biggest emitter of CO2 in the UK by a country mile - is subsidised by the billion for being a zero emitter.  This is on the wholly fallacious, indeed laughable basis that somehow the trees it burns magically regrow instantaneously, sucking back all that CO2 from the atmosphere.  It's so crazy, it makes you blink with astonishment and yet, by an outright perversion of some arcane IPCC carbon accounting principles (which have nothing to do with the matter at hand, and indeed by the IPCC's own edict shouldn't be used in this way), Drax - and HMG - are allowed to get away with this fiction for the purposes of recording "decarbonisation".  And of course for justifying paying out those billions. 

Without this longstanding carbon-accounting trick, the UK would be even further away from "decarbonisation" than it already is.  And the Drax subsidies expire in 2027.  The shameless rent-seekers are of course demanding new subsidies to commence that year, until they are good and ready for their next shameless fraud, BECCS (= "biomass electricity with carbon capture & storage").  Because, of course, if you emit zero CO2 (on paper) and bury (some of) the actual CO2 you emit, tadah!, you have conjured up "negative emissions" - even more useful for the national CO2 account.

A shame this is all the merest bollocks.  And costly bollocks, too, in terms of both greatly reduced energy efficiency and cash subsidies - all for our electricity bills, naturally.  The decision as to whether this monstrous BECCS proposition will be allowed to fly (and of course the "bridging" subsidies for keeping Drax going between 2027 and, errr, "whenever") falls to Miliband.  He's really in a jam because, as every authority reporting on the matter has made clear, his crazy plans absolutely hinge on everyone believing the Drax story in all its blatant falsity.  AND it puts up electricity bills!

Whatever will little Mili do?

ND

Biomass & litigating against Drax's costly little game

As noted here before, there's something ludicrous and indeed ultimately dangerous in governments making targets that are "legally binding" - particularly targets of the purely aspirational / virtue-signaling[1] kind - thereby inviting lawsuits when somebody can find an argument that the target won't be met.  My earlier observation was that governments will soon tire of this costly game, and will find ways to imunise themselves against it.  The best thing is not to set "legally binding targets" in the first place, because the alternative remedy against endless litigation is to put government beyond the law, a very dangerous step indeed.  

Anyhow: someone has seen fit to litigate against HMG for its ridiculous "BECCS" policy - bioenergy with carbon capture and storage.  For those unfamiliar with the notion: some kinds of bioenergy may fairly reckoned to be (almost) carbon neutral.  If one captures this energy output (e.g. as electricity), and permanently sequestrates the CO2 emitted in the process, one may with equal fairness be reckoned to have achieved "negative emissions" (subject to having accurately reckoned on the extra energy, emissions etc needed for this entire operation). 

Even on its own terms[2], there's a gigantic flaw in this logic (along with some smaller difficulties).  In practical terms and with existing technology, to do this on the industrial scale required to be useful, the range of biofuels that may be employed is essentially confined to rather high-quality wood, which only comes from the trunks and boughs of mature trees.  But using these as fuel is far from carbon neutral over anything like a sensible timeframe.  Even with perfect counterfactuals the resulting "carbon debt" is measured in decades or even centuries; or maybe it's outright irrecoverable.  Drax - the world's biggest tree-burner, likes everyone to believe they are burning bits of old bark and sweepings from the carpenter's floor - but that's utter bollocks.  The bio-stuff that genuinely doesn't incur much carbon debt when it's used as fuel (e.g. the aforesaid crud; the products of coppicing; fast-growing reeds etc) just can't be used by Drax - it simply ain't the right quality to be used by their kit.

But.  The UK's plans for achieving NZC 2050 are wholly dependent on BECCS - just as indeed are the UK's credentials as regards its current CO2 performance significantly dependent upon Drax and a handful of other industrial-scale tree-burning power stations, whose contribution to the UK's numbers (not to mention whose subsidies) depends upon a "carbon accounting" sleight of hand which allows them to ignore the carbon debt they run up when burning high-quality timber.  Drax isn't reducing CO2 emissions right now (as it is being subsidised to do), it is in fact increasing CO2, because burning biomass with long carbon debt is even more CO2-intensive than coal-burning; and twice as much as burning gas, which in the UK is nowadays the only practical alternative[3].  

The whole thing is a multi-billion pound scam that consumes our money and whole forests every year; and should never have seen the light of day (courtesy of the two successive LibDem energy secretaries, Huhne and Davey, the former of whom has benefitted financially from the biomass industry, post his other disgrace).  We're stuck with it until 2027 (when the subsidies run out), but there is absolutely no need to extend Drax's scam beyond that date and allow it to be the pioneer of BECCS, as it intends - and as HMG seems intent on encouraging.

Why is it tolerated?  Easy: as well as the spurious CO2-reduction credits for both Drax and HMG, the electricity is flexible ("despatchable"); the fuel can be obtained from friendly nations; and there are lots of UK jobs involved - the logistical side of shifting millions of tonnes of wood pellets every year has become quite an industry, not to mention the jobs that are envisaged for building the BECCS set-up.  

The parties bringing the litigation with the aim of calling a halt to all this, are drawing the High Court's attention to the total lack of scientific logic behind the BECCS concept in practice.  

It will be interesting to see what the justices make of it.  Much as I dislike the "lawfare" phenomenon, on this occasion I reckon the lawsuit has merit.

ND

___________________

[1] Nobody will do anything about this before the next GE: and we then run the risk of a Starmer government legislating for "legally binding targets" on a range of ghastly woke social-engineering goals.  Plenty on the redistributive / reparationist left will welcome this with open arms.

[2] There is absolutely no point in arguing against it on other terms.  You may like the sound of your own voice but otherwise you'll not get a hearing.

[3] Incidentally, there's evidence Drax may not even be living up to the crazy low standards of "sustainability" they are obliged to meet now, sleight-of-hand and all, let alone any stricter ones that would be appropriate in terms of the genuine science and logic of the situation.

To Whom the (Energy) Spoils? A Genuine Puzzle

There's an interesting dynamic rumbling in the energy sector and associated financial elements, the dialectic of which is as follows:

1. We can't use fossil fuels in future, oh dear me no.  Perish the thought.  Put my pension into something else.  Let me believe that the ambulance runs on pixie-dust and electricity comes entirely from wind.  Don't allow any more production of North Sea oil & gas.  Make Shell's life hell if it even thinks about such a thing.  I might even start to feel very strongly about all this.
2. Actual disinvestment starts apace: actual pension funds switch out of fossil fuels by the billion.  For the BPs and Shells, the Centricas and even the EDFs (see below), the cost of capital starts to rise.  They actually sell some of, maybe all of, their hydrocarbon-related assets.  
3. But in the world outside of all those tightly-shut eyes & heads-in-sand, the ambulance still runs on diesel and electricity is still generated using fossil fuels.  
4. In fact, the market for fossil fuels right now is pretty tight (see previous post) AND, what with all this wind in the power fleet & other kinds of uncertainty, prices are exceptionally volatile.  They are likely to stay that way, even if in absolute terms they subside from today's level.
5. Some people are making a Great Deal of Money from this - right now.  And the scope for a great deal more to be made in the coming years is huge: particularly via assets (and managements) that are responsive enough to make hay from all that volatility - e.g. efficient & flexible gas-fired power units.  Even just the continued supply of simple gas to western consumers (whether the green-woke like it or not) has a lot of mileage still in it (at least two decades, I'm guessing).
6. But the 'traditional players' seem to feel themselves unable to make the usual response to an economic reductio ad absurdum, in terms of investment (long term) and arbitrage (short term) to take advantage of the mispriced assets etc.  

For present purposes, let's put aside the amusing cognitive dissonance that ought to be (though probably isn't) increasingly wreaking havoc with all those who like to mouth "we don't need fossil fuels" but still like to be warm etc etc.  It's the economic & commercial dissonance I'm interested in.

We can easily spot little Volodya Putin and other traditional upstream players making pots of money out of the situation.  They probably hope to make yet more.  China, though essentially an energy importer right now, will probably benefit in relative terms (that is, relative to the West) by being untroubled by 'green' scruples.  All this is easy stuff.  

But what of other business models?  Can 'western' firms somehow thrive in this crazy market?

Exxon:  it's been clear to me for a long time that Exxon, that ailing, blinkered and sluggish beast, is basically hoping it can quietly get on with not changing much at all, and not go down the costly, guilt-stricken route of Shell et al.  But is there anywhere to hide for a US stock-exchange listed firm of Exxon's prominence?  Can any others of its kind, smaller and perhaps less exposed to the limelight, pull off that trick?  

The big commodities players:  there are plenty of these big players - you all know who I mean, but slander is slander - who, if they have any scruples whatsoever, well I've never noticed.  (Ditto their shareholders: well they couldn't, could they?)   Some of these cos are indeed buying up fossil fuel assets: the energy version of money launderers and sanctions-busters.  Are the unscrupulous to be the big western beneficiaries?

A.N.Other Corp: this is where it gets really interesting.  Case study:  EIG Partners - ("Over the past decade, EIG has thoughtfully developed a quiet yet purposeful commitment to integration of ESG factors throughout our business")  - whose website homepage would encourage you to believe they are essentially investors in wind farms and solar.  But lo!  Earlier this year they quietly bought West Burton B, one of the UK's biggest, most modern and efficient gas-fired power plants, from EDF which is busily trying to reposition itself as 100% green.  And what magnificent timing: EIG has already made an absolute ton of money at WBB from the extreme market conditions of the second half of 2021.  

Here's another example: Vitol, who've also bought UK gas assets recently - this time from none other than Drax (who have problems of their own) -  and are likewise minting it this winter.  Here's how they brand this venture ('VPI'):  "We are part of the UK’s pathway to Net Zero, complementing the increase in renewable energy to power homes and businesses. Our portfolio includes hydrogen and carbon capture projects to help lower emissions and develop a future for decarbonised, dispatchable and flexible generation in the UK."  Oh and, errrr, gas-fired power plants.

So: is it all simply about greenwashing?   Maybe you just need the right "communications" firm in tow.  Good old capitalism at work:  assets change hands from those who don't know what to do with them, to those who do.  At distressed prices, if the former are panicky enough ...

Well, maybe.  I think Shell was hoping they could pull this one off, too.  Do we think it's all about shuffling the western-owned assets into less prominent, more media-savvy hands?  Or is it destined to be yet another massive transfer of wealth from the naive & decadent West to the hard-nosed East?   

ND

Ian Botham - Who'd Have Thought?

Here's something that surprised me greatly: the Thoughts of Ian Botham in the DTel (paywall) on those persons deserving plaudits for having the "biggest impact on climate change".  The runner-up in his caustic awards is Chris Packham, "Travel Hero", for his paid promotion of costly & exotic holidays in faraway places - holidays with large carbon footprints, naturally.  Turns out Botham has a longstanding feud (or 'beef', we might say ...) going with Packham - I didn't know about that, either.

But Botham's top award goes to Drax, as well it may, for its extraordinary and deeply counterproductive consumption of trees in its furnaces - subsidised royally by ourselves at around a billion £££ a year.  He even quotes - near enough - from a C@W of 4 years ago ...

This is a man after my own heart.  Top bloke, Botham!

ND

"Energy is Big and Sexy" - BBC. Well, Yes

As you will imagine I have been idly watching the Beeb's Powering Britain, not in the hope of learning much, but rather to see how prime time TV covers - or dodges - some meaty issues.  Needless to say, for the most part the four episodes have been lavishly-photographed tourist guides, our breathless reporter always being gushingly overwhelmed by the scale and sheer sexiness of the whole thing.  Big Engineering always has that effect - if you steer people away from dirty, leaky old kit and fix their gaze firmly on the shiny new stuff.  Helicopter rides are generally quite fun, too (on a day when the weather's ok ...)

All in all, a massive PR opportunity for the firms involved (SSE, Drax, Spirit and EDF) which naturally they've seized with both hands and immense gratitude.  Can't have done the whole industry any harm, either - give folks an idea of the scale of what it all means; romance of engineering & commerce, etc.  Indeed, if a similar series had been run on commercial TV or a newspaper, you'd assume it was paid-for advertorial stuff.   

And not a Green in sight!   Dear me no - we're all quite green enough without letting Swampy or Greta come on with their whingeing and wimpering.

Controversy has barely been acknowledged: just the once, really, over Drax.  The SSE episode was about the world's biggest offshore windfarm and its onshore receiving station - including the merest hint (which probably passed unnoticed to most) about what's fast becoming a cause célèbre, the culpably chaotic business of digging big cable corridors, generally through highly sensitive coastal geography & habitats etc, with no obvious sign of planning / coordination on the part of National Grid.  Otherwise, it was just 100% jaw-dropping Big Kit on display in breathtaking marine vistas.  And no mention of what happens when there's no wind? ...

The Spirit episode featured their huge Morecambe Bay gasfield and its onshore gas processing plant.  (If you haven't heard of Spirit, it is a Centrica spin-off, one of the many new 'end-of-field-life' specialist O&G producers who manage upstream assets when development risk is long since past and the original developers - in this case British Gas - have better uses for their capital.)   Big offshore installations are pretty mind-blowing, so no shortage of gawping to be done here.  What controversy might have been expected?  Well, there are some people for whom even mention of fossil fuels in any other sentence than "we are closing this thing down as fast as humanly possible, ideally tomorrow morning".  But the Spirit PR team had put clever words into the mouth of the plant manager, who simply said that we'll need gas for a few more years on the path to Net Zero Carbon (tacitly answering part of the question left by the SSE programme), and that they were there to do their bit.  The Beeb felt no need to qualify that with any sort of counterpoint voice-over.  

The last episode was on EDF's nukes at Heysham, and the nuclear fuel plant at Springfields down the road.  They didn't explicitly use it to answer another part of the unasked SSE / wind question.  Obviously, they could have filled the entire slot with nothing but controversy (see, for example, the Public Accounts Committee report published today); so they ran with more-or-less none whatsoever.  Fair play, it had to be that way, really: though arguably they might have mentioned the cracks in one of the boilers and some of the fuel bricks ...  So it ended up quite pedestrian to my view.  I was, however, entranced to hear engineers talking in "thousandths of an inch" (it was the same in the Drax episode) which jars a little.  Then again, I imagine they run the plant on Windows 98 or some such.

So what about Drax, then?  Yet again, they didn't use it to answer the SSE / wind question (- it actually contributes to both parts, in fact); but, yes, they really couldn't - and they didn't - fail to mention that burning trees to generate electricity is controversial.  Which it bloody is - an outright scandal, in fact, compounded by the risible official "green" carbon-accounting convention which allows Drax to ignore CO2 emitted at the point of combustion, and hence to qualify for 9-figure sums in annual "renewables" subsidies despite emitting more CO2 than in the days when it was burning coal (and vastly more than if the same electricity was generated instead by gas) with the distant prospect of maybe that CO2 being maybe absorbed by replacement trees (maybe) 50-100 years hence (maybe).

They've got me started now.

Anyhow, all four episodes are labelled "Series 1" so perhaps they'll follow up with more later.  There's no shortage of energy companies with big PR budgets, interesting stories to tell, and photogenic kit to display.  One thing we may predict: there will be a lot of Greens who are furious at the easy, glossy ride the Beeb has given the industry in these programmes, and will be pressing to get more *balance* into any subsequent series.

ND

A strange shade of Green

The ins and outs of the Green Party don't usually interest me; but just lately they've had an eye-catching scandalette, plus a tiny fanfare as their new two-headed leadership was announced.  So I had a cursory look at their website and assorted pronouncements.

(Declaration of interest: notwithstanding my long-term engagement in the energy industry, as a fairly reactionary conservative I consider myself an enthusiast for what I consider *green*, am an active proponent of energy conservation, and an active opponent of crazy 'renewable' schemes such as biomass for electricity.  Energy industry?  "Civilisation is energy-intensive" - Lovelock.)

Well.  What has 'green' to do with the Greens?  Environmental concerns doesn't get any more airtime in this piece than do Brexit, or Windrush.  "we will always campaign with others to oppose Brexit, we think it’s time to say loudly and clearly that the Green party will never be part of any vapid centrist blob ... we proud to say migrants and refugees are welcome here".  Not much doubt - and no surprisies - over which side of centre they take up their stand.

But what green ground, exactly, do they stand on?  Anti-fracking, of course: and pro unicorns & fairy-dust.  But, to invoke one of my touchstones, nothing I can find on their entire rambling website (complete with Philosophical Bases in 50 numbered sections) suggests they have set their faces against the tree-burners at Drax.  This, by the way, is in clear contrast to FoE, Greenpeace, RSPB et al who have long since recognised the 'renewable biomass' nonsense for what it is.

The other one that always bears checking up is Nuclear.  They offer pro forma hostility: "fundamentally opposed to nuclear energy, which we consider to be expensive and dangerous"; but in contrast to (e.g.) many continental greens there is no hint of pressing for anything like Germany's policy and actual programme of rapid closure of nukes.  "Will be phased out" is all we get from our Greens.  

In this, they are much like FoE and Greenpeace UK, who similarly say that nukes are expensive (no, really?) and in the long run should go.   This actually puts them in opposition to many heavy-duty environmental activists who reckon the risks of fracking are nothing compared to those of nukes; want a German-style policy ASAP; and despair over the timidity of their leadership.

I suppose we should politely wish the new Green 'co-leaders' a happy time in office.  But if Windrushery is their idea of carving out a distinctive policy platform, there will still only be one Green MP ten years from now.

ND

Drax and a Climate-Change Tipping Point

HNY, C@W readers everywhere!   Mine's off to a good start as I got round to reading this piece in the Observer:

Burning wood for power is ‘misguided’ say climate experts

Well yes; some of us have been saying this ever since the UK biomass thing really got going (click 'Drax' thread below).  The science is easy, the conclusion a no-brainer.  Then again, no-brain is exactly how the 'green' debate proceeds, as a glance at many of the CiF comments BTL under that story will confirm.  At the same time, there are even more anti biomass comments there too - which wouldn't have been the case even a couple of years ago.  2017 probably marks the year the biomass issue turned around in public discourse.

This whole thing exemplifies neatly a phenomenon one can often identify.  Something, somehow, becomes 'received wisdom' - in this case, that burning trees for electricity is carbon-neutral.  Anyone suggesting otherwise gets deluged with derision and disdain (or, in less advanced societies, gets lynched).  Then, one day, the penny drops and the cry goes up: why did no-one ever warn us about that?  And to the obvious answer: well actually, they did - the response is: yes, but those people are nutters.  (I recall Roy tub'o'lard Hattersley deploying this logic after the financial crash a decade ago.)  It's an interesting cognitive trap: you can't pay heed to the lone voice in the wilderness - because, by definition, he's obviously bonkers - but ...   

But what?  I suppose the only real rationalisation could be:  ... but someone (the 'experts', maybe?) ought to have listened on our behalf, and carefully considered the nutter's arguments, and told us to change our views.  Ah yes, the experts.  I think we know the fallacies in such an argument.  Ho hum; that's the way of the world.  You can get pretty cold and bitter, out there in the wilderness.

The Lie

The 'carbon-neutral' biomass thing was always a demented view, given the lie by two centuries of science and technology: but it wasn't just a batty green opinion.  No, it forms the basis of gigantic 'renewables' subsidies for woodpellet-burning electricity in the UK (almost £1 billion p.a.) which in turn has spawned a substantial new industry: the felling of tens of millions of trees a year in North America;  conversion into wood pellets;  shipping to northern England (we are the world's biggest wood pellet burners, oh yes);  and storing / onward trucking thereafter to the powerplants.  Several port authorities, and firms like Eddie Stobart, have become pretty well hooked on the trade; not to mention Drax and its smaller peers.

We've wondered before how long Drax plc - up to its eyebrows in biomass subsidies that must surely be in question - can survive when it becomes increasingly obvious the biomass game is up.   To be fair, Drax has been diversifying as fast a big company can - which isn't particularly fast but it is fairly purposeful.   They know the score.

Bottom?

My guess is, the government has decided it can continue to brazen out the carbon-neutral nonsense: nobody actually cares about CO2 when push (GHG) comes to shove (GDP).   But air quality is a new-ish issue that really does exercise people.  It's for that reason, not CO2, the Chinese are trying to cut back on coal.  The government will find it harder to ignore the appalling particulates spewed out from wood-burners.  Yes, as well as being worse than coal in terms of (a) energy efficiency and (b) CO2, wood-burning is (c) very much worse as regards genuinely harmful particulates.  (Have a watch of this Drax-plume-tracker - unless you are prone to epilepsy ...)   

So Drax is still in trouble, long-term  That graph may not yet have found the bottom.

ND

Biodigestion

One of our anon's asks:   Off topic I guess, but what are your thoughts on biodigesters for small scale generation? 

We never mind a bit of off-topic.  I have a template for looking at these ‘renewable’ sources, anon.  First of all we should park the whole (C)AGW controversy because there’s no point: if you reject the AGW concept you don’t go on to discuss the finer details of one scheme vs another. 

So: (1) does the source of electricity actually contribute to reducing CO2?  Answering this requires looking deeper than just the official line; we have the ghastly example of large-scale biomass burning (wood pellets for electricity by the millions of tonnes) which actually increase CO2 emissions, even vs coal - and the "carbon debt" may not be repaid for decades or even longer.  This all happens (and nearly a billion £££ in subsidies paid annually to Drax and the like) because the regulations simply - and erroneously - deem biomass burning to be CO2-neutral at the point of combustion.   It's actually pretty outrageous.

(2) Where does the scheme sit on the Marginal Abatement Cost Curve?  Logically speaking (*huh!*) there is no point pursuing more expensive approaches when there are cheaper, or indeed self-financing approaches still to be fully exploited.  Of course, it happens all the time but it's crazy. 

(3) What are the *unintended consequences*?  Biomass sources of all kinds are seriously prone to this, from appalling deforestation to direct competition with food crops etc etc.  Tree-burning for electricity is among the worst: the 'particulates' emissions are very bad, much worse even (again) than coal.  I reckon air quality will be a major new front against biomass soon. 

Which brings us to your precise question and biodigestion - which we did once take a pot-shot at before.  (1) There is a reasonable case to be made that it can actually reduce CO2 (and methane-escape) though this depends on the detailed counterfactuals, as always.  (2) It's not very economically-placed on the MACC - worse than many, but better than some (don't get me started on the Swansea Tidal Lagoon).  It's "dispatchable" to some extent, too (i.e. can fire up on demand, more or less), which counts in its favour compared to wind, solar and tidal.

(3) is interesting.  What you find is that, even in rural areas, you need to cast your net quite widely to get enough pigshit, soiled straw etc to fire up even a small anaerobic digestion plant.  So a large number of diesel-miles are required to round it all up - which ought to be factored into the CO2 equation.  (To be fair, they do include a bit of allowance for this in the reporting, though prob not enough.)  Secondly, these plants, though not particularly vast to look at, do require extensive foundations to sit on, and a large area of proper concrete hardstanding for the constant arrival and turnaround of shit-laden trucks.  Again, this makes it CO2-intensive (and cost-intensive generally) to set them up in the first place - not any old corner of a farmyard will do.  But sometimes you can find, e.g., a suitable patch on a disused RAF airbase that fits the bill nicely.

I haven't looked into the particulates in detail, but my general understanding is that while the raw material is foul, it's methane that is being burned (= 0 particulates, of course).

Finally, a cow's stomach is more than 20 times more efficient at producing methane than the most advanced biodigester currently available!  This alone suggests the technology is not suitably advanced yet for it to be a Good Idea in the abstract.  But when did that ever influence a lobby-pandering politician?

So there you go.  I wouldn't allow any of them until the cheaper schemes have been fully exploited - but what do I know?

ND

Endgame for Drax?

Drax is a great name for a villain:  and for anyone who gives a toss about the way 'green' subsidies are thrown about, Drax plc can certainly be cast as one of the villains of the piece.  Drax and its fellow industrial-scale wood-chip burners receive nearly £1 billion a year in subsidies for generating electricity that way, and are not required to proffer CO2 emission permits or pay the carbon tax - on the pretext that wood-burning reduces CO2 emissions.

Except, it doesn't - it increases them, even by reference to coal (which is the obvious comparator, since it is coal-fired power generating capacity that is essentially being replaced by biomass-burning).  It's basic physics, plus a little logic.  A perfect example of crass policy-making at its most perverse - whatever view you take on (C)(A)GW.  The way they get away with it, BTW, is under the utterly demented 'carbon accounting rules' which allow them to account only for the CO2 emitted in the manufacture and transportation of the wood-chips - and to ignore the CO2 emitted during actual combustion, which is nowhere recorded.  To repeat, wood-chip burning generates more CO2 than coal burning: and in answer to the riposte that eventually, if you replant the forests, it all balances out, the answer is that 'eventually' is several decades at best, but maybe 100 years or more.  Meantime, all this is happening by the many millions of tonnes of mostly North American forest per annum.

There have been a number of people saying this patiently for quite some time, mostly from the green side; although of course the hatchet-faced subsidy-farmers and their 'green' lobby the REA are all in favour.  Well, after all, a billion is a billion ... 

Yesterday, the fairly universally-respected Chatham House has published what everyone knows to be the truth (here and here).  Even the Beeb has picked up on it (though silence from the Grauniad at the time of writing).  The REA's response is risible.

Why does the government (which, by the way, knows all this too) continue to load up our electricity bills with these subsidies?  Easy.  (a) the UK depends on biomass to meet its 'binding' EU renewables targets; (b) in a world of windfarms and ever decreasing coal, it depends on the reliability of biomass (inter alia) to keep the lights on in winter; (c) Drax and its smaller confreres are up shit creek without the subsidies, which greatly exceed their profits.  I don't know whether Drax - a FTSE 250 company - would go under without the subsidy (and remember, if that is withdrawn then by the same logic Drax should also be paying the carbon tax which would compound their woes).  But withdrawal of the subsidy would certainly impact massively on its fortunes.

I can't see the status quo continuing indefinitely.

ND

A Bloody Great Bale of Straw in the Wind

... for Drax, that is.  Here's a telling slip by Amber Rudd.  Writing to defend the indefensible Hinkley Point in the Graun, she says:

"new nuclear is the only proven low-carbon technology that can provide continuous power, irrespective of whether the wind is blowing or the sun is shining"

 - i.e. what we in the trade call baseload.

Oooh.  What about biomass then, lady?  What about Carbon Capture & Storage, that *indispensable* adjunct to the gas plants necessary to balance the intermittent and random output of wind?   Both, like nukes, capable of continuous power and much better still, both what we call dispatchable ...

They know, really.  Biomass mostly isn't low carbon; and CCS is a fantasy.  They know, really.

ND

Government Hits Panic Button

The government has, predictably, panicked over the possibility of the lights going out in the next couple of winters.  The story is evidently a bit recondite for many - indeed, at the time of writing only the Daily Mail (sic) has picked it up amongst the learned ranks of the MSM - but DECC is rushing through a "Consultation on further reforms to the Capacity Market".  The rather technical details don't need to concern us here but, take it from me, that's the Big Red Panic Button alright. 

Early comments are that Drax will be a big beneficiary, and indeed their share price has ticked up more than 5% this morning.  An early return for their scaremongering blackmailing lobbying.

Like we've always said, chances of the lights going out are slim because - when the lights go out, the government goes out.   Mark you, the way the EU thing is rumbling at the moment, they may be going out anyway ...

ND

PS:  oh and, well done, the Daily Mail! 

UPDATE:  so - is this the pro-CCGT measure I predicted here in January?  Could be.  A bit too soon to say definitively, some detailed analysis required. 

Generating Electricity by Fantasy-Power

Towards the end of last year, as part of the Green Crap Purge George Osborne Amber Rudd withdrew the £1 billion pot allocated for encouraging the development of Carbon Capture & Storage, one of the great moonbeams-from-cucumbers schemes of our time.

Now it so happens that all scenarios for achieving the UK's official daydream of Full Decarbonisation by 2050 depended upon a chain of reasoning as follows:  "most heating needs to be electric", followed by "most transportation needs to be electric", followed by "there must be lots of genuinely CO2-neutral** biomass power generation";  then - because as eny fule kno we will needs a heap of gas-fired power plants, and maybe even some coal plants to generate those quite staggering quantities of elelctricity "there needs to be lots of CCS": and all finally, triumphantly anchored by "the residual CO2 from non-electric transportation - you know, aircraft and such - needs to be offset by biomass-PLUS-CCS",  which is of course CO2-negative! ('net negative emissions' in the jargon).

Thus, our 'decarbonised' energy future was being built on some inescapable logic plus the manifestation, well before 2050, of the unicorn of CCS.  Economically viable CCS, to boot.

So, the government having cruelly withheld the billion, they can be blamed for the disintegration of the entire chain!  And they will be, from now until 2050, I should imagine.

When do we get to register that CCS is a non-existent deus ex machina for *solving* an insoluble problem?  That it is an ontologially-challenged concept?  That it is a pure fantasy? 

ND

__________
**as opposed to burning mature trees a la Drax, which is anything but CO2-neutral as the greenies are slowly coming to realise.  Sorry, Drax