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DISTRUST WILL CONTINUE TO SPREAD

No denying it. Fukushima has changed the ground rules for the wonderful world of electricity. Forever.

 

There may be some who studiously deny the importance of the implosion of the Daiichi  nuclear plant to the north of Tokyo. Manifestly, few died - immediately. Undeniable, but in realpolitik terms, an irrelevance. Nothing can alter the impact of the weeks of incessant TV pictures, all emphasising the dangers of nuclear power, is having on public opinion throughout the OECD.
Yes, I know that now all-too familiar phrase ‘nuclear meltdown’ is just a technical term, that really should bear little relation to the perception of Armageddon caused. But that is simply no longer relevant.
It is already plain there are approaching one quarter of a million people who face the prospect of never being able to return to their homes. The fact is none of these homes were in some third world backwater. Rather these people live – more accurately lived – within easy travelling distance of one of the world’s most important cities.
They are citizens of one of the most sophisticated and prosperous countries in the world. Always billed as ‘too big to fail’, nonetheless one of Japan’s largest companies, TEPCO, has lost 80% of its stock value: this alone affects millions of people’s savings. Millions more in Japan are understandably anxious about the possible impact of what will  for some time be an uncertain exposure of their children to radiation. And many others, well beyond Japan, are worried about the total disruption caused to their job prospects.
An entire articulate country, traumatised by memories of radiation in Hiroshima and Nagasaki, now does not trust nuclear power. That distrust has spread, is spreading and will continue to spread. Witness what has already happened in Germany, in Switzerland.

CAST IRON COMMITMENT

Remember the 2003 UK Energy White Paper? That was the first such policy paper issued by any government for over 30 years one. It was launched in the  House of Commons by the then secretary of state, Patricia  Hewitt, with this cast-iron commitment: “We are not going to build a new generation of nuclear power stations” describing any such power stations as “foolish”.  That was the much reported sound-bite at the time.
She went on later to explain why she felt such a policy to be “foolish”. It wasn’t just that building new nukes distracted from other more cost-effective options.  It wasn’t just because nobody had any idea then, any more than they do today, what to do with nuclear waste. And it wasn’t that she thought those in Britain  likely to blow up.
The reason for her rejecting the option as a “foolish” one was very simple. It was she was concerned that she would be placing too much political credibility in an option that was only ever as strong as its’ weakest link. She was concerned an accident half a world away could overnight denude any such programme of political credibility.
At the time, the worries might have been about a possible problem in Central or South America, in eastern Europe or in the former Soviet Union. It never occurred to any body that what is now deemed the Black Swan – the wholly unexpected event that alters everything – would emerge from one of the world’s most technologically advanced countries.
Subsequently that 2003 Energy White Paper was superseded within four years by one that made new nuclear its’ centrepiece. This was much to the chagrin of those who had fought hard to create the new thinking behind the 2003 publication. I gather that for some years there has been an unofficial dining club meeting in London clubland, called Friends of the 2003 White Paper. My bet is, shortly everybody will want to join that club. Hope the dining table is big enough.

BETTING ON THE OUTCOME

After the budget we have finally  got our carbon floor price. Just as the government pledged would happen, in its much trumpeted Coalition Agreement signed a year ago. Or rather, we will have one in 2013. The new “floor price” is going to begin, according to George Osborne’s  Budget speech, at “around £16’.
So what is the current traded price of carbon under the European emissions trading scheme (EU:ETS)? Around €19 per tonne of CO2 is the answer. What does that translate at, with existing exchange rates? Er, just over £16. So, as we stand, in a couple of years time, the impact upon UK electricity prices will be? And the answer looks like a big fat zero.
But wait. The Treasury has also published an accompanying tome, explaining how this much trumpeted mechanism will work. In that tome is some very small print. This blandly states that the starting ‘floor’ is to be £4.94 per tonne, in the form of a ‘tax’ levied by removing the exemption on upstream fossil fuel production under the Climate Change Levy (CCL). I suspect therefore we must add this mysterious £4.94 to the current EU ETS price, to get what the real carbon price is likely to be in 2013. Which adds up to approaching £21 per tonne.
Three results: it raises approaching a £1bn a year for the  Treasury.  It  gives the ‘legacy’ nuclear power generator, Electricite de France,  a £billion plus windfall on electricity sales. But above all it creates an artificial difference of almost £5 per tonne, between UK and continental electricity trading prices. Raising an interesting question on how imports and exports via interconnectors are going to work.
One outcome you can bet on. Developers will be rushing build new gas plant in the Netherlands, in order to sell into the UK via the Britned interconnector at a substantially better price than building and bidding in the UK. See if I am not right.

SUMMING UP

To sum up Fukushima, the Financial Times published an 18th Century aphorism. I commend it to you:
"And who would run, that's moderately wise,
A certain danger for a doubtful prize?"
Rev. John Pomfret (1667-1702)