Every government makes mistakes, but it takes a really special administration to make a massive blunder and then go on to make the same fundemental error again, just months later. The blunder is the £20bn Hinkley Point nuclear power station, which Theresa May bottled out of scrapping, and which will force UK customers to buy some of the most expensive electricity on the planet – an inflation-linked £105 per MWh in today’s money.

Despite this fabulous, guaranteed price, the project is so financially toxic that it threatened to break EDF, its contractor. It seems that Hitachi, which fancies building a £16bn nuclear power station at Wyfla in north Wales, has noticed, and wants us to share the risk. Ominously, it seems we are going to.

The Hitachi design is said to be better than EDF’s, in that there is an actual working example, and the guaranteed price is rumoured to be around £15 per MWh less than Hinkley’s (though still wildly expensive). Yet if even this is not attractive enough for Hitachi to go ahead unaided, is any big nuclear plant worth building? While wind and solar costs are falling, ever-stricter safety rules continue to drive up those for nuclear. Changing patterns of use and advancing storage technology also undermine the “base load” case on which nuclear is built.

Elsewhere in the land of white elephants, here’s the Swansea barrage, optimistically priced at £1.3bn and recently described by business secretary Greg Clark as “an untried technology with high capital costs and significant uncertainties”. Pulling the plug on that would at least avoid a hat-trick of terrible energy policy decisions.

 

He reads the small print

If you have tears to shed for the traders of credit default swaps, prepare to shed them now. Oh, you haven’t? These nifty little financial instruments nearly brought down the world’s financial system a decade ago, but CDSs are so profitable that the banks can’t resist creating them.

Their basic purpose is simple enough: to allow holders of bonds to hedge against not being paid. In practice, there is even more small print in bond prospectuses than in, say, your home insurance policy. That’s the one you haven’t read, and that four-fifths of us wouldn’t understand even if we did so.

It seems that buyers of bonds also bought in blissful ignorance, except that at Blackstone, Akshay Shah read the documents. Blackstone bought CDS contracts for debt issued by a struggling company. Since default looked likely, the debt holders were keen to offset the risk. Blackstone then approached the company to offer finance on condition that it triggered the default conditions on the existing debt.

This default could be as trivial as a slightly late interest payment, if that’s what the documents dictated. The CDSs would then pay out regardless of what happened at the struggling company. This “manufactured default” is being branded insider trading, mostly by those banks who have had to pay out on the CDS contract.

It looks more like fair game between consenting adults. After all, the banks create these dangerous instruments, not the company, and if Blackrock’s financing (and the associated default) is the difference between survival and failure, you could say the company has a duty to take the money. If Mr Shah has irreparably damaged the CDS market, then we’ll all pretend to be frightfully upset.

They’re fleeing from the black stuff

Once the boffins established beyond reasonable doubt that smoking was a bad idea, there would be no new tobacco companies. As a result, the industry has consolidated into a fireproof world oligopoly, and the stocks have ranked among the best performers of the last 20 years.

Something similar may be happening down the coal mine. The mantra is familiar: coal is killing the planet unless the industry is killed first, green-backed litigation is never far away, and investors are sloughing off anti-social assets. Yet as brokers Jefferies point out, rumours of coal’s death are much exaggerated.

Global demand is increasing, while US stocks of coal are falling faster than domestic demand, spurring a “greatly under-appreciated” bull market. The brokers pick Glencore in London and Peabody in the US. Just don’t expect anyone to like you for investing in these particular smokes.

This is my FT column from Saturday

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