Carry on cooking as normal, the energy minister said. This is how the market works, said industry experts, as the wholesale price of gas rocketed 200% in the wake of National Grid’s warning on Thursday that the country was facing a gas shortfall. In other words, don’t panic, nothing to see here.
To an extent, they’re right. In the short term the UK was fine, despite huge demand fuelled by cold weather coinciding with a series of interruptions to supply. No domestic gas supplies were cut off and neither was National Grid forced to ask industrial users to stop using gas.
Unions and energy-intensive companies have used the episode to call for an urgent re-evaluation of the UK’s gas storage capacity, given that 70% of it was lost with the closure last year of the ageing Rough facility in the North Sea. But a new facility would cost up to £2bn, and industry watchers say the economics of building one don’t stack up.
Moreover, energy minister Claire Perry made it unequivocally clear that taxpayers’ money won’t be used to make the numbers work. “Government has no plans to directly support an increase in UK-based gas storage,” she said last week, insisting that there was enough flexibility available through ships and pipelines.
So what next? We don’t need a kneejerk response to an event that had little impact beyond the energy markets. But last week’s events should kickstart a national conversation about how the UK keeps warm and tackles climate change.
Successive ministers and officials have kicked the issue of how to decarbonise heating down the road.
That’s partly because it has not yet become entirely clear which technological approach is best, be it electrification of heating, the use of greener gases such as hydrogen, district heating schemes, or some combination of all three.
It’s also partly because, at a time when the debate about energy is fixated on the cost to consumers, no minister wants to stand up and be honest with billpayers – telling them they will need to cough up for a new hydrogen boiler in a decade’s time.
One thing last week has clarified, though, is that shifting most of our heating needs off gas and on to electricity through low-carbon options such as heat pumps – which the government was weighing up just five years ago – now looks increasingly fanciful.
Gas normally provides around half of the UK’s electricity but this week has regularly dropped back to around a quarter, due to the demand for heating. The gap has been filled partly by windfarms but also by coal plants, which won’t be there in 2025 because the government is rightly phasing them out.
Electrifying heating also looks almost impossibly hard to do at the same time as electric cars begin to have an impact on demand. Experts think the cars will begin to really take off in the 2020s and make a tangible difference to electricity demand, just when we would need to be greening our heating system.
For a national solution, we are left with greener gas options, such as hydrogen produced with carbon capture, or biomethane produced from food waste plants. But it’s early days for such technologies, and big decisions will need to be taken on infrastructure.
While a serious conversation starts on the longer term, there is a short-term solution that is affordable and should leave no regrets.
When the last government scrapped its green deal insulation scheme and regulations for new homes to be zero carbon, it said it would work up a new plan. That was three years ago. There is still no proper, ambitious policy on energy efficiency – a situation that not only looks socially unjust, because the poor spend more of their income on energy than the rich, but looks bad for energy security.
Unlike many in government, the recently promoted Perry “gets” energy efficiency. She put new insulation targets for 2035 in the UK’s climate-change masterplan last year. The minister should use last week’s gas furore to cook up some serious action on efficiency now.
Amazon isn’t solely to blame for UK’s retail chill
The worst week for the retailing sector in years? Quite possibly. The UK end of Toys R Us went into administration. So did Maplin. Carpetright warned on profits for the third time in four months. New Look said it wanted its landlords to cut store rents by 60% as part of a rescue plan. Mothercare, with its share price down by two-thirds since the start of the year, said it expected to breach borrowing covenants and may seek fresh funds.
Blame Amazon and the internet brigade? Or is this the knock-on effects of the post-referendum fall in sterling, with consumers now feeling the squeeze? Well, both factors are plainly present and important. But they are not the whole story.
First, there are always losers in retailing. If there weren’t, C&A, Do It All and Woolworths would still be on our high streets. In the case of Toys R Us, there was general amazement that the chain had lasted so long. The stores look as if they belong in the 1990s, and even with Amazon taking a chunk of the toy market, rival chains such as Smyths and The Entertainer have prospered.
Second, some of these companies don’t help themselves by attempting to carry enormous debts. Toys R Us, Maplin and New Look all have private equity owners with an appetite for financial leverage. Maplin reportedly paid £12m of interest last year on a £63m loan from Rutland Partners at a rate of 15%. And was it sensible for New Look’s owners to load up with debt when the competition includes Primark, owned by Associated British Foods, one of the UK’s most conservatively funded, long-termist companies? Meaningful investment at Toys R Us in the UK was impossible while the US parent was carrying $5bn of debt.
Third, there are inflexible property costs and business rates, which don’t hit internet rivals to the same degree. On property, high street retailers know what they have to do: shorten their leases so they are able to close outlets sooner or negotiate better deals with landlords. On business rates, they can redouble their lobbying of government. And here they’ve got a good case: this industry could do with some help.
Wising up to the perils of cryptocurrency
Bank of England governor Mark Carney is anxious and yet also relaxed about the popularity of bitcoin and cryptocurrencies in general. In a speech last week he revealed that his anxieties about the sector stem from a fear of criminals hiding their ill-gotten gains in bitcoin. There is also the prospect of unsophisticated investors becoming swept up in a mania that destroys some or all of their savings.
He is, at the same time, relaxed about the situation as long as the number of people involved, and the sums of money invested, remain small relative to the vast resources of the global financial system. And that is why he won’t be making a fuss at about it on the international committee he chairs – the Financial Stability Board – and currently sees no need to introduce draconian global restrictions.
Nonetheless, it was interesting that only two days before Carney said bitcoin, Ethereum, Litecoin and others were having enough impact for some special rules to apply, his opposite number in New York was saying much the same thing.
The Securities and Exchange Commission (SEC) confirmed that it had been firing out legal warning letters to firms and individuals connected to new coin offers that might not be legal. It is understood that almost $9bn has been raised in the US to support rivals to bitcoin, and the fear is that many may be fictional and therefore without value.
The SEC’s chair, Jay Clayton, told Congress last month that regulation of cryptocurrency exchanges was an urgent matter. “We are supportive of regulatory and policy efforts to bring clarity and fairness to this space,” he said, which is code for a full-frontal attack on what has become the new frontier – or, to some, the wild west – in financial services.
This intervention, while it might not be coordinated, shows that the chief regulators of the world’s largest financial centres are manifesting a welcome concern; fresh regulations for cryptocurrencies are the next step.