Powerless in the face of the water companies, powerless in the face of the cable companies and in fact shortly - just powerless altogether.

We can all argue about the price of oil or gas until we are blue in the face – which is what we will be unless the nation addresses a far more immediate concern for our economic structure. We are running out of power generating capacity. You may have as much carbon fuel as you want but if you can’t generate power – you have a major problem with or without climate change issues.

Unfortunately power is one of those commodities we don’t normally think about – that is until we haven’t got it. It is a bit like the provision of water which we all take for granted until your local water company cuts you off. In fact my water just has been cut off – as yet again they dig up the road to replace the Victorian water pipes. Ah yes, those Victorian water pipes they were supposed to replace back in the 1980’s with the money raised from privatisation, except that they didn’t. Now they have to raise water charges again to pay for their replacement again! I am sorry but someone has been “somewhat economical with the truth”.

Just to add to my litany of domestic tribulations, the local cable company has announced that they will dig up exactly the same road two weeks after the tarmac has been flattened along the entire street by the water company. No doubt they will add to our local deforestation project by yet again killing the trees. The last time they attempted this act ten years ago; they not only killed the trees but drilled through the water main. Now this time they will have new trees to kill and of course a new water main as well! Now that is what I call a true economic cycle.

However, let me return to my main point this week which is that Britain may be about to find itself exposed to suffering significant power shortages. I am indebted to the excellent information provided to me by Dr Batchelor, Managing Director of the highly respected research company GeoScience. It seems that of the UK’s sixteen nuclear reactors (seven of which are currently off line) all except Sizewell B will be closed by 2015-2020. This will mean that we will lose about 18% of UK’s generating capacity. The current shortfall is being met by the older burning coal plants like Didcot and Radcliffe on Soar but they are also somewhat mature and there hasn't been 'big plant construction' for years.

Over the past twenty years governments from both parties have done away with the concept of energy security as a state function and replaced it with a tradable market to try and provide greater pricing efficiency. What the ignorant politicians and civil servants forget is that saving money by just sweating generating ageing power assets may seem like good value but failing to invest for future capacity returns with new plant is not. Thus as little investment has been made in the power system we may now be coming close to “rolling brown outs” in a way that hasn't been seen for two generations. Who said we were becoming a third world nation!

There is a fundamental question here is whose responsibility is our energy security and generating capacity? Surely a crucial strategic issue for the nation. Perhaps we are going to need some serious power cuts to shake off the complacency. Not long to wait?

In fact last week the National Grid formally warned of a shortfall in capacity and issued a “system transmission warning”. Some may recall that some manufacturers had to shut down capacity only 2 years ago.

Oh yes and if we did decide right now to build some new nuclear reactors it would appear that there are some significant constrictions. Currently there are I understand 440 reactors around the world with a further 38 either under construction or about to be started, and another 280 under active consideration. As there are only four commercial companies in the world that can make the necessary reactor vessels, AREVA in France, Toshiba (which took over Westinghouse) and Mitsubishi Heavy Industries in Japan and GE working in partnership with Hitachi, there is already a backlog. The UK complacent approach is that this supply restriction will be eased because the market will respond with increased capacity – as we can see this is now somewhat unlikely. Right now we are at the back of possibly a 318 long line of orders.

And finally... news comes in that a former Australian prisoner liked his jail cell so much he has decided to buy it.

Graeme Alford, a former failed bank robber and inmate at Melbourne’s Pentridge prison has decided to buy his old cell, number 43.  Pentridge, one of Australia’s most notorious prisons and site of the country’s last hanging, is being redeveloped into a wine “cellar” that will eventually house £22 million pounds worth of rare wines.  What a perfect use – after all where else would you keep something that needs locked away for a long time.

Have a good week,

Justin A. Urquhart Stewart
Director
Seven Investment Management