Sir Keir Starmer’s “Clean Energy Superpower”, Seriously?

England’s Not-So-Green And Panelled Land

Labour has pledged to cover public land and housing estates with solar panels and wind-turbine arrays. If the party comes into power, Sir Keir Starmer says he will support all new projects for “clean power” infrastructure, especially where local people benefit by, for example, getting discounts on their energy bills.

He wants to make the UK a “clean energy superpower.” Labour’s new publicly owned utility, to be called GB Energy, would strike deals with devolved governments, elected mayors, local councils and the private sector to build new renewable-energy infrastructure. GB Energy would provide £600m in new grants for local authorities and £400m in soft loans for new renewable-energy projects.

I’m not sure if Sir Keir has spoken to John Pettigrew, the chief executive of National Grid, recently. Mr Pettigrew told shareholders last weekend that it now takes about 10 years for a new cable line to get built – seven in the planning process and three in actual construction. Reportedly, rows have raged over delays to grid connections, with some renewable-energy developers complaining that they have been pushed to the back of the queue and will have to wait until the 2030s to get connected.

National Grid itself is responsible for managing the waiting list for new projects, but says it is forced to deliver them on a first-come, first-served basis − which leaves viable schemes paralysed while other highly speculative schemes are prioritised. This is particularly true of wind-turbine projects which can become unviable overnight, as the government’s subsidy and tariff regimes evolve. In February, National Grid told The Daily Telegraph that it had a backlog of 600 connection requests, even though around 70 percent of such applications will ultimately come to nothing.

The current wave of inflation which first really kicked off two years ago has put a lot of project cash-flow projections in grave doubt. Rising costs and higher interest rates are making planned new projects unviable, not least the array planned by Vattenfall UK (ultimately owned by the Swedish government), off the coast of Norfolk.

Kona Energy is building one of Europe’s largest battery-storage sites near Heysham, Lancashire. Kona has plans for another three sites in southern Scotland, northeast England and London. The Heysham site will be able to store 200 megawatts of electricity. But even after the Heysham site is completed – possibly as soon as next year – Kona will have to wait another two years for the facility to be connected to the grid.

Dieter Helm, professor of economics at Oxford and an energy adviser to the UK government has spoken of the consequences of developing wind power “on a site-by-site basis, with no economic incentives to build in the right places, and the failure to develop the grid in an integrated and coordinated way.” In 2022, UK consumers paid £215m to turn windfarms off because of poor infrastructure, and £717m to buy gas-generated electricity to plug the gap. Most of the so-called “curtailment” of wind energy is from turbine arrays in and off the coast of Scotland.

Labour has similarly conceived a new “pro-building” agenda. Local authorities would be permitted to issue compulsory purchase orders (CPOs) to buy greenfield land on the cheap to build houses. “Back the builders, not the blockers” is a new Labour catchphrase. Labour would have a target to build 300,000 new homes each year.

The Home Builders Federation is unimpressed. The fear is that landowners will seek to sell off land privately before local government intervenes. Some of this land might then be developed for light industrial use which can yield higher returns than housing. Moreover, CPOs do not guarantee that the planning system will approve development. The number of new homes completed in the first quarter of this year was 20 percent below the level of 2022, supposedly because local-council planning departments are overworked and underpaid. Lead times to secure planning permission are said to be at an all-time high.

Labour’s policy is not unique. In Germany, state actors buy agricultural land at market values, and then they resell to developers once planning permission is forthcoming. In the Netherlands, the government has started to buy up entire farms in a bid to take them out of business, in order to reduce carbon emissions.

It’s all very well to argue that we need more green energy and more housing. But what both things have in common is that they both take potentially good agricultural land out of food production, and both actually contribute to the emission of greenhouse gases by removing the carbon sink provided by open grassland and surrounding woodland.

New housing estates built on greenfield land must be connected to the electricity grid and new water mains. Plus, houses built on water meadows, which are natural flood defences, will induce additional flooding. So, the new energy generated by the panel arrays will be used to power homes that consume more energy − while more food will have to be imported, thus increasing our already dire food insecurity. I cannot understand how, in the round, that counters global warming.

I’ll suggest some indirect ways to tackle the housing crisis soon – they include discouraging single-person households, building eco-towers and planning population growth.

Labour has not specified exactly how much new generating capacity it is likely to achieve over the next parliament; nor has it defined what non-renewable backup capacity would be required when the sun does not shine, and the wind does not blow. Current plans require the UK to have up to 248 gigawatts of electricity generation capacity by 2035 − more than double today’s 104 gigawatts, as domestic heating and vehicular transport go electric. It is not at all clear that GB Energy alone would be up to the challenge.

How The Irish And The Germans Do It

In the Republic of Ireland, the Dublin government has set up a chain of 12 “one-stop shops” dotted around the country to organise building work by accredited contractors to equip homes with heat pumps, solar panels and insulation. The shops either carry out the work in their own right or subcontract to local specialists whose work is regulated by the Sustainable Energy Authority of Ireland (SEAI). Such work is directly subsidised by grants from the national government. The target is to retrofit 500,000 Irish homes by 2030, or about 30 percent of Ireland’s housing stock, to a building energy rating of B2 (roughly equivalent to a UK energy performance certificate (EPC) rating of B).

The Irish framework offers three things that are currently missing in the UK environment, but which I think a Starmer government would wish to emulate. First, the SEAI has set out clear standards about what is required and how to undertake the work. Second, the grants available are clearly stated and easily accessible. Most households receive around 40 percent of the cost of work undertaken, though the lowest paid do not pay anything. The money is sourced from a fund financed by 55 percent of Ireland’s carbon levy on all fossil fuels. Third, contactors are licensed – so, hopefully, no ‘cowboys.’ In contrast, the UK’s home retrofitting programme, the Green Homes Grant, was cancelled six months after it was launched, although there are still green homes funding schemes.

Ireland’s main challenge thus far has been a shortage of the necessary technical skills on the ground to install heat pumps. That is also the case in the UK where the number of trained plumbers is actually falling.

In Germany, however, there is widespread scepticism about the efficacy of heat pumps. A new federal-government law going through the Bundestag effectively bans the installation of new gas boilers in the country from 1 January next year. From thereon in, newly installed central-heating systems will have to be at least 65 percent powered by renewables. Naturally, millions of Germans are worried about the cost and disruption of switching from gas and oil-powered boilers to heat pumps.

Predictably, many Germans are now seeking to install new gas and oil boilers before the deadline. About 168,000 new gas boilers were sold in Germany in the first quarter of this year – and I note that Bosch’s share price has been doing well. The German industrial giant had sales of nearly €90bn last year. The German opposition party AfD (which I wrote about last week) has expressed doubt that the German grid has enough capacity to power a heat pump in every home − especially given the recent closure of the country’s three nuclear-power plants.

Under German federal-government climate targets, CO2 emissions from buildings are supposed to fall from around 112 million tonnes a year now to 67 million tonnes by 2030. The government argues that the cost of running gas and oil-powered boilers is sure to rise substantially in the years to come as the EU Emissions Trading System is extended to buildings. People will have to pay for the CO2 generated by their homes. The German government will offer grants to cover up to 30 percent of the cost of a new heat pump, which comes in at around €25,000-€35,000.

Making The Same Mistakes…

Heat pumps provide houses with lukewarm radiators and tepid water unless accompanied by adequate insulation; thus, they are expensive to install and to run, especially in older houses. The UK has an older housing stock than either Ireland or Germany.

They are also noisy – external mounted heat pumps can emit a constant hum of between 40 and 60 decibels from the whir of the fan, the hum of the motor and the buzz of the condenser unit. And ground-source heat pumps can even contaminate the water table.

Yet one element of the Energy Bill now going through the UK parliament – the so-called Clean Heat Market Mechanism – will penalise conventional-boiler manufacturers if they do not install a sufficient number of heat pumps each year. Another problem is that, while most oil and gas boilers installed in the UK are manufactured here by companies such as Worcester Bosch, most heat pumps are imported.

Those who argue that we should favour hydrogen-powered boilers for homes received a setback this week. The energy minister, Lord Callanan, announced on Twitter on Monday that plans to make Whitby near Ellesmere Port into the UK’s first hydrogen-powered village would be scrapped because of a lack of support from local residents. Cadent Gas (owned by a consortium) and British Gas (owned by Centrica PLC) had proposed to install and trial hydrogen heating systems in 2,000 homes in the town for a period of two years.

Arguably, better insulation and temperature controls would save huge amounts of carbon being pumped into the atmosphere, even if gas and oil boilers were retained. Note that King Charles has ordained that thermostats be set at 19 degrees Celsius in Buckingham Palace in occupied rooms and at 16 degrees in rooms which are empty. My own regime in my country residence was 18 and 14 degrees respectively last winter. Let’s face it: people waste gas, just as they waste food. But we don’t cite food waste as an argument for banning food.

Under current legislation, it will not be permitted to replace oil-powered boilers with similar boilers after 2026 – so many families suffering from the cost-of-living crisis will be faced with a financial catastrophe to keep their homes warm. But impoverishment is apparently a price worth paying in the pursuit of net zero.

Moreover, an estimated four million households which are not connected to the gas grid and rely on oil boilers will not have the option to install heat pumps because the local electricity supply is unequal to the challenge – this is already an issue in remote villages in Norfolk such as East Ruston. The part of the British Isles with the highest proportion of homes heated by electricity is Jersey, at 50 percent. But then nearly all Jersey’s electricity is provided by French nuclear power.

Last year, about 40,000 new heat pumps were installed across the UK, as compared with 1.7 million new gas boilers. The Conservative government’s target is to install 600,000 heat pumps a year – and the failure to achieve that was excoriated earlier this month in a progress report to parliament by the independent Climate Change Committee. It will be interesting to see if Starmer quietly drops the 600,000 target − just as Labour has now discreetly (but sensibly) binned a pledge to provide £11.6bn to the world’s poorest nations to fight climate change.

Opportunities For Investors

There are numerous investment trusts listed on the London market which specialise in investing in renewable energy, directly or indirectly. But this week the unconventional but popular analyst Dominic Frisby, on Substack (The Flying Frisby), revealed that some of these trusts calculate their net asset values (NAVs) in questionable ways.

One example he gives is that of VPC Speciality Lending which lends directly to renewable-energy projects. This week the share price was around 71 pence and the NAV around 90 pence. The share price generally trades at a discount to the NAV because there is a degree of opacity about the trust’s activities and the shares are not traded every day.

Scottish Mortgage is also an active investor in disruptive technologies. This trust regularly traded at a premium of about five percent above NAV in 2019; but it now trades at a discount nearly 20 percent below NAV. The main reason was that it bought some unlisted assets in, amongst other countries, China, further increasing uncertainty about its long-term value.

Brookfield Asset Management, the asset manager chaired by Mark Carney, former governor of the Bank of England, runs a portfolio worth about $800bn, focused mainly on renewable energy and ancillary sectors. Last year it paid £4bn for the UK home-repairs specialist and boiler installer HomeServe. An arm of Brookfield also bought the German heat-pump installer Thermondo. In addition, Brookfield has a stake in the UK gas-pipeline operator Scotia Gas Networks.

Yesterday, we learnt that Tesla is planning to register with the UK industry regulator, Ofgem, as an electricity provider and to launch a “retail electricity product.” There is speculation that Tesla will offer households the opportunity to power their homes with EV-type batteries and to then sell stored energy back to the grid at times of peak demand. Tesla’s Powerwall home batteries have enabled their owners in Texas to earn as much as $150 a day by selling surplus energy to the grid. Powerwall batteries, which currently cost around £9,500 to install in the UK, are particularly favoured by people who have installed solar panels on their roofs.

There are undoubtedly parties who will make money out of Starmer’s Clean Energy Superpower. But don’t expect domestic electricity charges to fall; and whether generation capacity will increase in pace with demand is still an open question.

Afterword

I must start packing. I’m off this weekend to a Greek island for a wedding – and several days of festivities beforehand. The godchildren all seem to be graduating, getting engaged or marrying, these days. I bask vicariously in their happiness.

It now turns out the nuptials will be on a beach: a sartorial and footwear challenge, surely. Why can’t young people get married in churches, like their parents did?

I do hope they don’t expect me to make a speech in Greek. But, if they do, I’ll just a raise a glass and say: “Yamas!” Please excuse me if I don’t appear in this distinguished publication next Friday.

Listed entities cited in this article which merit analysis:

• National Grid (LON:NG)
• Centrica PLC (LON:CAN)
• VPC Speciality Lending Investments PLC (LON:VSL)
• Scottish Mortgage Investment Trust (LON:SMT)
• Tesla (NASDAQ:TSLA)