The Investment Bump

Image Credit : Bankside Press

The big problem with re-tooling for the new Low Carbon world is not so much about changing Energy consumption behaviour, although that plays a part.

It’s not even really Energy supply behaviour, although that is probably more significant.

No, the key to the door to the greener future is investment behaviour.

Nobody in their right mind, not even a Chicago School Economist, could believe that the Energy supply sector is a “free market”.

We’re talking about a small group of very powerful companies with the ear of governments, a close-knit brotherhood.

The Energy companies get sweet deals a-plenty, because Energy, and particularly Electricity, is so vital to the Economies.

Subsidies have long underpinned the continuing Nuclear Power shambles. It doesn’t matter which flavour of ideology gets in. New politics, same tax breaks and bailouts (financial re-structuring) for Fossil Fuels and Atomic Energy.

That’s the day-to-day reality that supports the operations and maintenance of our core supply.

But there’s a huge hurdle coming up – new investment.

Governments around the world have followed the “small state” arguments of Milton Friedman and “privatised” Energy. Selling off the assets with in-built sweeteners – promises of continued public finance support.

But are the private companies ready to invest in new infrastructure ?

No. It looks like the privatised Energy supply organisations do not want to take profits from the mouths of their shareholders to do large-scale investment.

In the UK, the Energy companies have been invited to invest in the new much-heralded Carbon Capture and Storage (CCS) and new Nuclear Power capacity that the Government would like, but all that they get is the executives turning up cap-in-hand for state handouts :-

“Being convinced that only with CCS the EU will be able to achieve its emission reduction target, the European Commission has decided to assign special financing for CCS from additional sources. The European Union has also decided to link Carbon Capture and Storage to the GHG regulation by setting aside allowances from the Emissions Trading Scheme (ETS) for CCS project development. ETS should be one of the global instruments aiming at emissions reduction. Economic studies show that so called carbon price stabilizes at the level of 40 EUR for a tone of CO2, the power plants with CSS will then become competitive to those without CCS installation. It is obvious that the price of power for consumers will need to increase. We do not have any other choice if we want to limit greenhouse gases emissions. To make the transition period less nagging for consumers, the European Commission has proposed (in the New Entrants Reserve non paper) to allocate “300 million allowances in the new entrants reserve for the co-financing of CCS and RES demonstration projects which provide for the development of a wide range of technologies that are not yet commercially viable”.”

“Carbon capture viable by 2030 but needs £8bn to begin now : David Gow in Brussels : The Guardian, Tuesday 23 September 2008 : One of Gordon Brown’s pet energy projects – to build up to a dozen pilot plants to capture and store carbon dioxide as power stations burn coal to generate electricity – would require EU subsidies of as much as €10bn (£7.9bn) over the next few years, it emerged yesterday. A study by the consultancy McKinsey into carbon capture and storage (CCS) showed that such plants could be economically viable by 2030 at the latest. But it would require substantial public subsidies to get 10-12 plants running by the EU target date of 2015…”

“Shell project captures $865M : By Dave Cooper,, October 7, 2009 : EDMONTON – Alberta and the federal government laid down their first big bet in the fight to limit carbon dioxide industrial emissions Thursday, promising Shell Canada Energy $865 million in financial support for its Quest project near Fort Saskatchewan. Alberta’s ante is$745 million from its $2-billion carbon capture and storage program, while Ottawa is chipping in $120 million from a fund that supports large-scale CO2 projects across Canada. The money will be paid out over 15 years. For Shell, the long-term commitment will allow it to plow ahead with two more years of engineering work at its Scotford bitumen upgrader and do further research on the local geology, plus undertake the extensive consultations required by regulators. Only then will the project, estimated to be worth $1.3 billion, be formally approved by Shell and construction allowed to begin. Shell Quest will not inject any CO2 until 2015. But it aims to eventually inject up to 1.2 million tonnes each year of CO2 produced by the Scotford bitumen upgrader and its expansion, which is now under construction…”

“Families face nuclear tax on power bills : Industry promised subsidy if market price fails to encourage new plants : Tim Webb : The Guardian, Monday 19 October 2009 : Government officials have drawn up secret plans to tax electricity consumers to subsidise the construction of the UK’s first new nuclear reactors for more than 20 years, the Guardian has learned. The planned levy on household bills would add £44 to an annual electricity bill of £500 and contradicts repeated promises by ministers that the nuclear industry would no longer benefit from public subsidies. There is mounting pressure on the power industry to show it can keep the lights on, with fears growing of an energy gap as ageing nuclear stations are retired and plans for new coal plants attract hostile protests…”

“Nuclear power: The consumer always pays : Model for new UK reactors reveals damaging disagreements between Finland and French contractors : Tim Webb : The Guardian, Monday 19 October 2009 : From the outside, there is nothing unusual about the warehouse by the offices on Finland’s Olkiluoto island, site of what should have been the world’s first modern nuclear reactor. But inside, stacked on five kilometres of shelving, are 160,000 documents. “If a valve for the reactor is changed, it comes in a small box and a van full of documents,” complains Jouni Silvennoinen, project director for Teollisuuden Voima (TVO), the Finnish utility that ordered the plant from the Franco-German consortium Areva-Siemens. The paper mountain helps explain why the reactor, which should have cost €3bn (£2.72bn) and been working this year, will now miss its revised completion date of mid-2012 and will cost at least €5.3bn. In the latest delay, Finland’s nuclear safety regulator halted welding on the reactor last week and criticised poor oversight by the sub-contractor, supplier and TVO. Areva claims TVO does not trust it to modify the fiendishly complex design as it sees fit, demanding documentation and approval from regulators for every change, however small. TVO says Areva is treating the new reactor as an R&D project in which the Finns are guinea pigs. TVO and Areva are now locked in arbitration over the cost overrun and damages. If TVO loses, Finnish consumers will pick up the tab. Worryingly for the UK, Areva intends to build at least four of these reactors in Britain. The government wants to replace those being decommissioned as well as provide a secure and low-carbon supply of electricity. The project was supposed to be a model for how modern reactors would be built. The industry’s history of massive cost overruns, government bailouts and subsidies have provided ammunition to campaigners who claim the economics of nuclear power do not add up. The construction of the new generation of reactors would be different: this time, nuclear power would pay for itself. Yet already cracks are appearing in these claims, especially in the UK. Nuclear plants are far more expensive to build than coal or gas but have lower fuel costs. The economics of all three vary according to the prices of the fuel and increasingly, of carbon. When coal prices are high, gas plants become more cost effective, and vice versa. When both fuels are costly – which also drives up the wholesale price of electricity – nuclear can undercut coal and gas. Gambling on unpredictable energy markets is risky. To make the huge upfront investment needed for a nuclear plant – upwards of €4bn compared with just €600m to build a slightly smaller gas plant – the stakes go higher still. The UK energy market is particularly unsuited to nuclear investors. Unlike less liberalised markets such as Finland’s, UK energy producers are more reluctant to sign long-term supply contracts to support investment in a new reactor. And because of full competition in the UK energy market, if EDF Energy makes a loss on building reactors, it is much harder to pass its costs on to its consumers, unlike its parent company in France, which dominates supply there. Since the government began reconsidering its position on nuclear four years ago, the economics have become more unfavourable. The cost of building a reactor has soared, partly as a result of the Finland debacle but also because of higher steel and other construction costs…”

“IEA wants $3.4 trillion spent on carbon capture : Paris-based energy agency says 3,400 projects needed : Tuesday, October 13, 2009 : CBC News : The International Energy Agency has called for as much as $3.4 trillion US in global spending on carbon-capture technology by 2050. The Paris-based IEA, the main energy policy adviser to 28 oil-consuming industrialized countries, made the call in a 46-page “road map” released Tuesday. Carbon capture and storage would divert carbon dioxide from refineries and the oil sands.Carbon capture and storage would divert carbon dioxide from refineries and the oil sands. Carbon capture technology would extract greenhouse gases from power plant and factory emissions, move them by pipeline to areas where they could be injected and stored deep underground. The IEA said governments and business need to invest in 3,400 carbon-capture projects worldwide as just one measure to cut fossil fuel emissions by half from their levels in 2005. Even that would cover only about six per cent of the investment required to meet that target. Trillions more would be needed for investment in nuclear power, renewable energy and increased energy efficiency. The agency said it’s recommending more than a strategy for “clean coal.” It said that carbon capture “must also be adopted by biomass and gas power plants; in the fuel transformation and gas processing sectors; and in emissions-intensive industrial sectors like cement, iron and steel, chemicals, and pulp and paper.” Another analysis done in 2008 by the IEA predicted that carbon dioxide emissions from the energy sector would increase by 130% above 2005 levels by 2050 without policies or constrained supply…”

The news surrounding the announcement of the “Low Carbon Transition” on 15th July 2009 in the United Kingdom contained hints that state financing of new Nuclear would be made public in November 2009.

Why are we as consumer-citizens being forced to pay for such expensive Energy supply technologies ?

Do we get to vote on which technologies we think will make the grade (or not) ?

And why can’t we have a truly Green Energy future ?

Carbon Capture plans have a number of problems, including the fact that nobody’s been testing pumped sites for longer than five years.

Carbon Capture is always going to be expensive. The best and most efficient way to clean up Coal is to stop burning it in the first place.

And Nuclear Power ? In the United Kingdom, the proposals for new Nuclear are merely to replace the old reactors that must shut down by 2023. There’s a considerable wait before any new Nuclear can be operational in the UK, and if the programme is only to replace old stations, then there will be no fresh capacity, and so no extra contribution as regards emissions reductions.

And Nuclear Power – when has it even been built tidily, safely, and when has any of its radioactive waste ever been properly disposed of ?

There are a couple of facts looming up fast :-

1. In the developed countries, we need lots of new Energy supply capacity, and in the developing countries, we need lots of first-time Energy supply capacity.

2. We have to start on the road to de-Carbonisation of Energy really rapidly :-

“World must shift to low-carbon economy by 2014 or face dangerous climate change, says WWF : Delay in low-carbon technologies will make it impossible to cut CO2 quickly enough to avoid worst impacts of global warming : Press Association :, Monday 19 October 2009…”

Are we going to be obliged to accept these ham-fisted attempts to buy a new green Energy supply in the form of stealth taxes ?

The International Energy Agency (IEA) says that we could need to spend $45 trillion on new Energy by 2050.

“Additional investment needs in the BLUE Map scenario are USD 45 trillion over the period up to 2050. They cover additional R&D, larger deployment investment in technologies not yet market-competitive (even with CO2 reduction incentives), and commercial investment in low-carbon options (stimulated by CO2 reduction incentives). The total is about USD 1.1 trillion per year. This is roughly equivalent to the current GDP of Italy. It represents an average of some 1.1% of global GDP each year from now until 2050. This expenditure reflects a re-direction of economic activity and employment, and not necessarily a reduction of GDP. While there will be impacts on global GDP, these are hard to predict and beyond the scope of this analysis…”

The International Panel on Climate Change (IPCC) concluded in their Fourth Assessment Report from the Working Group 3 in 2007 that the biggest gains in the next decade or so wouldn’t come from investment into Carbon Capture or new Nuclear.

The big gains would be in fuel switching and Energy efficiency. Fuel switching means taking power plants from Coal to Natural Gas, from Natural Gas to Biogas, and so on. Energy efficiency would need to be implemented across the board, turning down Energy demand.

The IPCC also recommend quick-to-grid Renewable Energy in the race to de-Carbonise.

The work of the McKinsey corporation in producing “cost abatement curves” show that there are many cheaper options, and sooner, than Clean Coal and New Nuclear :-

A good deal of making this happen would need state funding, because the corporations who are stuck in the Fossil Fuel Age would not be able to adapt.

We need to have policies of ER + RE = Energy Reduction + Renewable Energy, but this will be so much cheaper than chasing Carbon Capture and new Nuclear.

If the IEA says we need to spend these huge amounts of money anyway, why don’t we spend them on the things that are cheapest and quickest ? I can envisage the creation of nationally-owned, state-managed Energy companies, whose profits would belong to the people, just as the expenses would. This would cancel any subsidies paid from the public purse to do the investment.

This is probably the best way to get over that hurdle, that barrier between us and a Green Energy future. The Investment hump on the road doesn’t need to shake us up, or raise our taxes.

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