Remember “Nuclear power? No thanks”? That sunny, smiling sticker which was almost standard on the back of every Citroen Deux Cheveaux? How we smiled at such naivety. Nuclear power was the future. The fume-belching little 2CV may have gone the way of the Trabant, but after another grim week for the nuclear industry, it seems those stickers may have been right after all.
A financially viable nuclear power station looks increasingly like a mirage. Even the eye-watering guarantee from the UK taxpayer for Hinkley Point C is insufficient to cover the risk that building it will bankrupt EDF. Toshiba’s woes have claimed the scalp of its president. Hitachi is signalling that its project in Anglesey needs government backing to proceed.
It’s telling that after 60 years of mostly successful operation, commercial viability still eludes the nuclear power industry. Perhaps we have been lucky to have avoided serious accidents, and the decommissioning costs were hugely underestimated, but the combination of ever-rising safety demands and cheap hydrocarbons has destroyed its economics. Appealing for fresh state aid looks like a desperate last throw of the nuclear dice. If an industry cannot finance its own projects after half a century of development, it may be time to try another industry.
Fortunately, other industries are available. The cheapest and quickest fix is to build gas-fired power stations, to tap into worldwide abundance and increasingly diverse supply, even before domestic fracking gets going in the UK. Unfortunately the artificial barriers imposed by today’s energy policy are preventing this subsidy-free solution. For the longer term, the price of solar energy continues to fall and smart meters that really are smart will start managing the demand side of the equation. Even offshore wind looks a better bet than nuclear, as battery technology evolves.
Instead, we have a cat’s-cradle of subsidies to generate electricity and, through grants for electric cars, subsidies to use more of it. This was self-evidently stupid, even before the impact of the seismic changes across the Atlantic, where cheap energy is a cornerstone of Trumpenomics. Subsidising “green” power generation in the UK will not prevent our competitiveness decreasing as America pumps up its output of oil and gas.
Abandoning nuclear means facing reality on the likely path of future carbon dioxide emissions. It means repealing the Climate Change Act, with its arbitrary targets for dramatic cuts, passed near-unanimously by parliament in 2007 in an orgy of self-indulgence. Legislate in haste, repent at leisure.
Cazenove’s star buy
Mining analysts tend to tell their clients to buy at the top (when everything looks wonderful) and sell at the bottom (when prices are depressed enough to threaten bankruptcy). Cazenove’s 51-page tome on the joys of digging fertiliser out of Yorkshire at least avoids this trap, since the price of Sirius Minerals has more than halved in six months. The brokers think the shares could now more than double.
There’s plenty there to mine, but it’s underneath a National Park, so must be spirited out without disturbing the landscape. The proposed solution is a 23-mile underground conveyor, which would be a world first by about 22 miles. The mechanics scarcely bear thinking about.
The financing is almost as heroic as the engineering, with over 4bn shares, a convertible bond, and a royalty deal on top of the debt. Those who paid 20p a share in the last finance round are 2p a share down already, and can only hope that Caz is right, and this is Sirius’ darkest hour.
Quite right, quite meaningless
So, Rolls-Royce. A £4.6bn loss and an unchanged dividend. Something wrong here, surely? Aren’t dividends supposed to reflect what the company earns, rather than some sort of semi-obligation? Ah well, you see, £4.4bn of the loss is a write-down of currency hedging, not cash at all, merely a book-keeping exercise to trim the hedges to their market height after the fall in sterling. It’s as if you had to set a fall in the value of your house against your income. The accounting rules oblige Rolls to do this and thus, as the profit and loss account becomes more and more accurate, it means less and less.
This is my FT column from Saturday