Prediction, as Mervyn King once observed, is ‘a stab in the dark’. Who can say with confidence where the wholesale price of electricity will be in ten years’ time, let alone 45 years hence at the end of the contract struck by Energy Secretary Ed Davey with EDF of France for the building of the £16 billion Hinkley Point nuclear station? We can be pretty sure the price will be a lot higher than today’s and it’s not mad to think it might have doubled by 2023, which is the starting assumption of the EDF deal. David Cameron might be right that energy costs will be ‘lower than they might otherwise have been’ thanks to Hinkley, but Davey’s suggestion of a £75 annual nuclear discount on household bills by 2030 takes stabbing in the dark to a new level.
On the other hand, if the pattern of supply and demand changes in favour of the consumer by 2023, we may feel that we were outrageously legged over in guaranteeing the French a ‘strike price’ of £92.50 per megawatt hour. But they can’t possibly know that now, and nor can their Chinese partners, however many bugs they may have planted in the GCHQ switchboard.
So what can be said for certain about Hinkley? The hardest fact is that we urgently need it, because it replaces a chunk — about 7 per cent of total UK electricity demand — of coal and nuclear capacity that’s scheduled to close down. After months of wrangling over the strike price, this deal embeds nuclear power where it needs to be, at the core of UK energy strategy with cross-party support — however much Davey’s Lib Dem colleagues hate the idea — and improves the chance of several other new reactors being built over the coming decades.
We’ll pay top dollar every time, because we have to attract foreign investors and contractors in the absence of British firms with the requisite capacity or appetite, and because there’s no taxpayers’ money on the table. We have a history of bad execution of nuclear decisions, and an appalling record of planning failures in power supply generally. Oh yes, and EDF’s other current nuclear project, at Flamanville in France, is four years late and wildly over budget. But at least a renewed nuclear focus means the numbers of wind turbines despoiling our landscape should also be ‘lower than they might otherwise have been’.
In the end, then, what’s certain about Hinkley is that it is hedged by uncertainty but that it is better than a stab in the dark. Indeed, it’s our best hope so far of staying out of the dark.
A thicker jumper
My belief that prediction is a mug’s game is one reason I can’t be bothered to follow ministerial advice and switch energy supplier in search of a cheaper tariff. Over a five-year period — even if it includes Ed Miliband’s shameless price freeze promise — I bet I’d pay much the same total energy costs however many times I switched, as suppliers continue to leapfrog each other. But that doesn’t mean I believe they’re out to exploit me.
Ofgem figures show them making a net profit margin this month of around £65, or 5 per cent, on annual ‘dual fuel’ bills of just over £1,300. That’s hardly gouging, and their emphasis on dividend growth, which Miliband pretends is an outrage, is just a traditional, well-recognised feature of equity markets: utilities rarely generate exciting capital gains, so set out to attract investors by offering decent and growing income streams. If they can’t attract investors, they can’t commit capital to projects that will keep consumers competitively supplied in future. It’s a simple equation in which the wholesale price of power, over which suppliers have no control, is by far the biggest element. But the other variable is the cost of the government’s renewable energy and climate change policies, which account for 15 per cent of household bill rises since 2010.
That’s a tax most of us didn’t even know we were paying — and now the nuclear programme is moving forward, it’s a tax that should be swiftly scrapped. The only measures worth keeping are those that help the nation use less power through better insulation. And that reminds us that the only ministerial advice on this subject worth hearing last week was a soundbite Ed Davey backed away from as fast as he could: turn your heating down and wear a thicker jumper.
Filling Pesto’s shoes
Robert Peston’s sideways shuffle to fill the vacancy left by Stephanie Flanders as economics editor at the BBC opens the possibility of a bold pick to follow him as business editor. Let’s face it, most of Britain consumes no financial journalism at all, deriving what little it knows of the world of business from BBC bulletins. So it’s important that the holder of this post combines enthusiasm for good entrepreneurship with a searching eye for the bad and a gift for simplification. Jeff Randall, the incumbent from 2001 to 2005, did all that, but it never came naturally to Peston: his questing intellect and depth of analysis carried him well above the Beeb’s habitual anti-capitalist, pro–consumer bias, but there was always a hint of disdain for grubby commerce. He’ll be much happier talking to Treasury officials with his new hat on.
Meanwhile, I was thinking of sending in my CV until a News Centre mole told me the appointment will almost certainly go to a woman. Names in the frame include Laura Kuenssberg, who covers business for ITN, and the hugely well qualified Linda Yueh, the BBC’s ‘chief business correspondent’, who not only has degrees from Harvard, Yale and Oxford but also once worked as a corporate lawyer in Beijing. But in a corporation tortured by correctness, I’m sure even gender definitions are open to challenge: so my hot tip is cross-dresser Grayson Perry, whose first Reith Lecture last week was a brilliant dissection of the art market and whose tapestry series ‘The Vanity of Small Differences’ says more about 21st-century greed, fear and financial folly than a six-part Pesto documentary ever could.
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