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George Osborne is saving green pennies, but spending nuclear pounds George Osborne is saving green pennies, but spending nuclear pounds
(about 3 hours later)
In the world of renewable energy, they are still reeling from the budget shocker – the removal of the climate change levy exemption, a source of revenue that had seemed secure for at least another half-decade.In the world of renewable energy, they are still reeling from the budget shocker – the removal of the climate change levy exemption, a source of revenue that had seemed secure for at least another half-decade.
To see the value of these exception certificates, look at the effect on the share price of Drax, which qualified by virtue of converting two of its six units to burn biomass rather than coal: down 28% on the day, followed by a rebound of only 7% on Thursday. The company calculates the change will cost it £60m next year, prompting analysts to cut their profit forecasts by about a quarter. To see the value of these exception certificates, look at the effect on the share price of Drax, which qualified by virtue of converting two of its six units to burn biomass rather than coal: down 28% on the day, followed by a rebound of only 7% on Thursday. The company calculates that the change will cost it £60m next year, prompting analysts to cut their profit forecasts by about a quarter.
“We are surprised and disappointed at this retrospective change to a support regime which has been in place since 2001 specifically to encourage green energy and support renewable investment,” said Dorothy Thompson, the Drax chief executive.“We are surprised and disappointed at this retrospective change to a support regime which has been in place since 2001 specifically to encourage green energy and support renewable investment,” said Dorothy Thompson, the Drax chief executive.
She’s not the only one to feel that way. “We are disappointed by the several recent changes to the regulatory framework which will disincentivise long-term investment in the build-out of new energy infrastructure in the UK,” said Eric Machiels, boss of Infinis, which is big in onshore wind and suffered a Drax-style share price fall.She’s not the only one to feel that way. “We are disappointed by the several recent changes to the regulatory framework which will disincentivise long-term investment in the build-out of new energy infrastructure in the UK,” said Eric Machiels, boss of Infinis, which is big in onshore wind and suffered a Drax-style share price fall.
Why did George Osborne do it? The official answer is to stop “taxpayer money benefiting electricity generation abroad”. Well, okay, but the share prices show he is also stopping a benefit to companies that very definitely generate in the UK. However it’s dressed up, it seems to be an old-fashioned grab designed to keep a lid on the government’s projected bill for encouraging renewables. Related: Green energy sector attacks chancellor's changes to climate change levy
Why did George Osborne do it? The official answer is to stop “taxpayer money benefiting electricity generation abroad”. Well, OK, but the share prices show he is also stopping a benefit to companies that very definitely generate in the UK. However it’s dressed up, it seems to be an old-fashioned grab designed to keep a lid on the government’s projected bill for encouraging renewables.
But if cost is the worry, the chancellor ought to look elsewhere. How on earth does Hinkley Point, the £24bn nuclear power station planned for Somerset, continue to escape the Treasury’s scrutiny?But if cost is the worry, the chancellor ought to look elsewhere. How on earth does Hinkley Point, the £24bn nuclear power station planned for Somerset, continue to escape the Treasury’s scrutiny?
When up and running, Hinkley Point will generate 3.2GW of energy. For £24bn, you could build enough gas-fired stations to produce 50GW, calculates Peter Atherton, analyst at Jefferies. The economics of Hinkley Point only make sense if the oil price is somewhere around $200 a barrel, as opposed to $60 currently.When up and running, Hinkley Point will generate 3.2GW of energy. For £24bn, you could build enough gas-fired stations to produce 50GW, calculates Peter Atherton, analyst at Jefferies. The economics of Hinkley Point only make sense if the oil price is somewhere around $200 a barrel, as opposed to $60 currently.
And, if the chancellor really has an objection to paying foreign generators, he should reflect that, while Hinkley Point is on British soil, the biggest financial winners from the generous inflation-linked contracts underwritten by UK taxpayers will be EdF, part-owned by the French state, and its Chinese partners.And, if the chancellor really has an objection to paying foreign generators, he should reflect that, while Hinkley Point is on British soil, the biggest financial winners from the generous inflation-linked contracts underwritten by UK taxpayers will be EdF, part-owned by the French state, and its Chinese partners.
Hinkley Point may good for security of energy supply but, in financial terms, the chancellor is pinching pennies from conventional renewables while squandering pounds on nuclear. The government should look again at Hinkley Point. Hinkley Point may good for security of energy supply, but, in financial terms, the chancellor is pinching pennies from conventional renewables while squandering pounds on nuclear. The government should look again at Hinkley Point.
Magic McFarlane?Magic McFarlane?
John McFarlane, the new Barclays chairman and its even-newer stand-in chief executive, is an ambitious chap. He told staff this week he is aiming to double the share price in the next few years. That implies getting back to 520p, last seen in late-2007, just after the fall of Northern Rock. John McFarlane, the new Barclays chairman and its even-newer stand-in chief executive, is an ambitious chap. He told staff this week that he is aiming to double the share price in the next few years. That implies getting back to 520p, last seen in late 2007, just after the fall of Northern Rock.
The quickest way to put a rocket under the shares would be to sell the investment bank for a princely sum. Investors don’t trust the division and it is dragging down Barclays’ share price.The quickest way to put a rocket under the shares would be to sell the investment bank for a princely sum. Investors don’t trust the division and it is dragging down Barclays’ share price.
But that’s not the plan. McFarlane told the FT he’s committed to having a strong investment bank and will unveil his ideas soon. In other words, he wants to take another crack at making the numbers work. Good luck, but almost nobody is making consistently strong returns in investment banking these days – apart from the bankers themselves, of course, which is half the problem.But that’s not the plan. McFarlane told the FT he’s committed to having a strong investment bank and will unveil his ideas soon. In other words, he wants to take another crack at making the numbers work. Good luck, but almost nobody is making consistently strong returns in investment banking these days – apart from the bankers themselves, of course, which is half the problem.
Another problem is that UK regulators – understandably – are more suspicious of investment banking than their US counterparts. Clawback rules on bonuses, we are constantly told, are stricter here, creating recruitment headaches when Wall Street banks are on the prowl. If McFarlane thinks he has discovered a magic formula, we’re all ears.Another problem is that UK regulators – understandably – are more suspicious of investment banking than their US counterparts. Clawback rules on bonuses, we are constantly told, are stricter here, creating recruitment headaches when Wall Street banks are on the prowl. If McFarlane thinks he has discovered a magic formula, we’re all ears.
Just don’t expect shareholders to applaud instantly a strategy of being less conservative. Wasn’t that how it all went wrong for Barclays in the first place?Just don’t expect shareholders to applaud instantly a strategy of being less conservative. Wasn’t that how it all went wrong for Barclays in the first place?
HSBC hotseatHSBC hotseat
Thank goodness somebody in parliament has remembered there is unfinished business with Stephen Green. Lord Green of Hurstpierpoint, chief executive and then chairman of HSBC from 2003 to 2010, will give evidence to the House of Lords economic affairs committee next Tuesday and, let’s hope, will be asked questions that should have been posed in the last parliament. Thank goodness somebody in parliament has remembered that there is unfinished business with Stephen Green. Lord Green of Hurstpierpoint, chief executive and then chairman of HSBC from 2003 to 2010, will give evidence to the House of Lords economic affairs committee next Tuesday and, let’s hope, will be asked questions that should have been posed in the last parliament.
For example: why did HSBC, seemingly, ignore warnings from US authorities that its operations in Mexico, acquired in 2002, were a hotbed of money laundering by local drug cartels? HSBC eventually paid a fine of $1.9bn in 2012 and agreed a five-year deferred prosecution agreement with the US Department of Justice. For example: why did HSBC seemingly ignore warnings from US authorities that its operations in Mexico, acquired in 2002, were a hotbed of money laundering by local drug cartels? HSBC eventually paid a fine of $1.9bn in 2012 and agreed a five-year deferred prosecution agreement with the US Department of Justice.
And: how much scrutiny did Green, as the boss, apply to the Swiss unit? Did he think he had any direct responsibility for ensuring customers were paying their tax bills and complying with money-laundering regulations? And how much scrutiny did Green, as the boss, apply to the Swiss unit? Did he think he had any direct responsibility for ensuring that customers were paying their tax bills and complying with money-laundering regulations?
And: did HSBC bosses ever have any hope of knowing what was happening in their empire? In 1998 the bank had 25m customers; by 2003 it had 110m. If the place was too big to manage, why did Green say in 2009 that rivals had “profoundly damaged the industry’s reputation” if he couldn’t be sure HSBC’s record was clean? And did HSBC bosses ever have any hope of knowing what was happening in their empire? In 1998 the bank had 25m customers; by 2003 it had 110m. If the place was too big to manage, why did Green say in 2009 that rivals had “profoundly damaged the industry’s reputation” when he couldn’t be sure HSBC’s record was clean?
The advance notice from the economics affairs committee suggests all these subjects will be covered. Don’t hold back, Lord Hollick, committee chairman. The advance notice from the economics affairs committee suggests that all these subjects will be covered. Don’t hold back, Lord Hollick, committee chairman.