First published in the Quoted Cleantech Newsletter - January 2010. Copyright Cleantech Investor Ltd. 2010
by Nigel Hawkins
Undoubtedly, the very high-profile Copenhagen Climate Conference failed to achieve many of its key objectives. The cherished hopes of the environmentalist lobby were certainly not met, and recriminations continue.
In particular, China, whose electricity generation is highly dependent upon coal-fired plant, has been singled out as the prime cause for the lack of a binding agreement on greenhouse gas reductions. The US was clearly – together with China – the other key player at Copenhagen. Despite its efforts to achieve a lasting agreement, success proved elusive.
In fact, much of the driving force for tackling climate change has emanated from the European Union, where disappointment about the outcome has been obvious.
Since China and India have both been industrialising at a rapid pace, it was hardly surprising that their priority was sustaining good economic growth domestically. It is the case, too, that both these countries are currently very short of base-load generation capacity.
More generally, the Copenhagen Climate Conference took place at a time of global economic recession, with public borrowing soaring in most of the leading world economies. At the height of the economic boom some years ago, spending public money to redress the serious problems resulting from climate change was generally seen as very desirable. But the credit crisis, brought about by highly irresponsible bank lending, has radically changed that viewpoint.
Instead, leading economies now have to grapple with an ongoing recession – in some countries, a deep one – soaring public borrowing and real concerns about sovereign credit ratings. Hence, investing in clean technology, with substantial public subsidies often being involved, is now less politically attractive.
This trend is all the more relevant given that most renewable sources are unable to provide base-load electricity, which is now the priority: security of supply concerns have moved rapidly up the political agenda in recent years.
Importantly, too, the oil price has fallen back sharply from its peak of $147 per barrel in 2008, although it has recovered from its low point which was reached just a few months later.
The reality, though, for most advanced countries with security of supply concerns is to build new gas-fired plant, despite the long term gas supply risks. The fact that gas prices are nowadays less correlated with oil prices also suggests that gas will continue to be the most popular source of new generation.
Coal-fired plant, despite efforts to deal with the carbon emission issue, remains environmentally unsatisfactory to many. And, whilst discernible technical progress has been made in designing carbon capture and storage (CCS) plants, scaleability is probably a decade away.
Lower oil and gas prices have also dampened the prospects for new nuclear-build, which offers its own environmental benefits in terms of carbon reductions. Given that it takes a minimum of five years to build a new nuclear plant – irrespective of the time needed for plant design and the securing of planning approval – it is clear that investment in new nuclear-build carries major risks and uncertainties.
It should be added that the pronounced time and budget overruns at Olkiluoto in Finland are profoundly unhelpful for the cause of new nuclear-build.
For the major electricity generators, most notably EdF, ENEL and E.On, the current priority of all three is to reduce their very high net debt figures, which have soared on the back of high investment and the negative impact of the recession.
Perhaps, given these many recent developments, it is no surprise that the Copenhagen Climate Conference turned out to be something of a damp squib. The recession has served to refocus many minds back to short and medium term financial issues rather than to long term environmental benefits.
Nigel Hawkins ( \n
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
) is an investment analyst at Libertas Partners in London as well as being a Senior Fellow of the Adam Smith Institute and a regular writer for Utility Week magazine.
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