Blain’s Morning Porridge – Dec 12 2022 – Weather is a disaster for UK Energy!
“In the bleak midwinter, snow on snow..”
This Morning: It was a disastrous weekend for UK energy strategy as the biting cold and lack of wind demonstrated the fallacy of wind as “the” renewable solution. Energy security requires predictable power. Meanwhile, Central Bank mull rate hikes and implications for dollar strength.
Sorry for the very late comment this morning – but the weather is not my friend…
The weather over the weekend (especially on Saturday) was as bad as Southern England could possibly get. Saturday was a simply glorious day as we walked along the old Hampshire drove roads to a marvellous country pub. A blocking high gave us a Christmas-card perfect beautiful blue-sky, ice crackling beneath our feet, the bliss of a kiss beneath the largest clump of mistletoe we’ve ever seen, as the puppy-dogs played on a freezing crisp winter’s day. Not a breath of wind. An utter disaster for the nation.
Our chums up in the Southern Downs experienced their first blackout of the winter as Sunday dawned grey and freezing. As I warned last week, the UK reliance on wind power does work when it’s cold and the wind don’t blow. This morning the UK National Grid has put the remaining Drax coal-fired plants on standby to “give the public confidence” in energy supplies. Spot energy prices in the UK surged to a record on Sunday – £2,586 a megawatt hour.
Who knew wind power actually isn’t the solution to everything? Freezing weather and no wind… no electric.. Dang.
This morning, trains are cancelled because of the cold and snow – not that it matters.. the railways are on strike for the rest of the week anyway. It’s the road and horseless carriage for me later today… trying to get up to London for meetings this week.. and I’m bringing a spade to dig myself out of the blizzards – when the wind finally kicks in. (Which might not be till Thursday!)
I confidently predict the weather will dominate markets this week, and on the basis the UK seems to do absolutely everything badly these days, then it’s going to get worse. The very first thing I learnt in the City was to buy a pair a good shoes. If you buy cheap ones, they fall apart in the slush and rain of winter. I’ve had one particular pair of Churches since the 1990s – and they are still functional!
Much the same problem with energy. You pay for what you get. There is no point buying shoes that come apart in the mud, and there is no point putting all our energy eggs in unreliable/intermittent baskets. Again, we need to figure what a proper transition plan from fossil fuel to renewable energy will look like – wind and solar can only be a small part of that because of their intermittency unless it can be stored – capacitance. In contrast, Hydro power is very well understood and a good way to store energy – but is a risk in times of drought.
I don’t want to sound like a broken record, but the tide came in and out twice yesterday… it has the potential to power the UK multiple times – but doesn’t attract much funding because harvesting energy from the tide is difficult. Machinery corrodes in salt water, and installations immediately become prime real estate for every kind of sea life. The trick is regular, quick, easy and simple maintenance to ensure complex but highly predictable and reliable tidal generators deliver. Wind is easy and completely unreliable. Wind power is absolutely fine when the wind blows, but wind turbines are not an optimal solution because of their intermittency.
Try explaining that to a climate change protestor. Good luck. They will tell you the solution to a lack of wind is to build more windmills.
The problem is… asset management companies listening to the loudest most strident voices. They know that virtue signalling to garner assets to manage is about sound bites. The biggest investment companies highlight their green credentials by ostentatiously investing in the cheapest, simplest, easiest renewable solution – Wind and Solar – rather than funding the optimal solutions – like tide. (And notice how I have not referenced once the high carbon costs of constructing and recycling wind turbines, or their underperformance in terms of output and maintenance.)
As I said last week… the future of a zero-emissions energy policy for the UK should be based on a broad mix of power that is as secure from the vagaries of the weather as much as from Putin’s legions. That means a mix of renewables that range from easy to complex, investment in capacitance in the form of both batteries and hydro (Electric Mountain tech!) and nuclear!
Gas will have a part to play. Yes, it’s fossil, but it can be mitigated and its less bad than coal. On the plus side, the Germans have managed to build new LPG gas import facilities in record time to reverse their energy dependency on Russian gas.
This morning the Americans announced they managed to get more energy out a fusion reactor than they put in – a first, and that probably means fusion power by the end of the century!! Check out: Fusion energy breakthrough by US scientists boosts clean power hopes.
Back in the immediate world.. this week is going to be an interesting one, with the Fed, The Bank and the ECB all set to hike rates by 50 or maybe 75 basis points. Everyone gets it – inflation is moderating, but now the risk is recession. The number, the comments, the votes, the arched eyebrows, the sweat on central bankers’ foreheads will all be scanned for clues on when interest rates pivot to lower hikes. There was a time before we used words like taper or pivot to describe central bank actions…
I think I shall start to describe what The Bank is likely to do as Snowploughing interest rates – wanting to slow inflation by making snow “Pizzas” (as young skiers are now taught), but keeping the blades just flat enough to keep the economy going, thus using one’s skis to stop!
The increasing dispersion between the likelihood of more aggressive action by The Bank of England and ECB while the Fed is heading for lower rates is going to be most apparent in the weakening of the dollar – that’s potentially an easement for the current economic misery we expect in terms of European recession. The fact the UK economy grew a modest 0.5% in Sept/Oct is hardly booming growth, but the fact it expanded at all is perhaps positive – even though the widening £24 bln trade deficit hints of an economy still in somnambulance!
Finally, last week I got a number of calls from Readers about how they’d missed the story about Thurrock council – the Tory town council that managed to lose over £600 mm investing in dodgy solar energy. If you want the whole sordid tale, there is a great take on Bloomberg. I wonder.. how did it happen…. ?
Five things to read this morning:
Out of time, getting the snow tyres on!
Strategist – Shard Capital