The Death of Coal Mining and the Nuclear Alternative

Boris Johnson has said that the Glasgow climate deal is a “game-changing agreement” which sounds “the death knell for coal power”. Let us hope so. My father worked down a pit in Nottinghamshire in his early life and was all for replacing coal power stations by nuclear power. Coal mining is not just a great creator of pollution but is also positively dangerous for the miners.

China is one of the largest consumers and producers of coal and in 2019 there were 316 deaths of coal miners in that country. That was an improvement on previous years but it is still a horrific number.

Nuclear power is considered to be dangerous by some people but in reality it is remarkably safe. For example the Fukushima event in Japan in 2018 only directly caused the death of one person. For a very good analysis of the safety of various energy sources go here: https://ourworldindata.org/safest-sources-of-energy

One problem with nuclear power is that it tends to be produced in plants that have very high capital costs and take many years to build. They are also vulnerable to faults when in operation. This often results in very expensive costs in comparison with coal or gas. But that might be solved by the development of small modular reactors (SMRs) where Rolls-Royce (RR.) has a potential technology lead from their experience in building nuclear reactors to power submarines.

They have recently obtained more funding from the Government and from partners to develop this business – see the Rolls-Royce press release here:  https://www.rolls-royce.com/media/press-releases/2021/08-11-2021-rr-announces-funding-secured-for-small-modular-reactors.aspx

Will that enable Rolls-Royce to recover from the dire impacts of the Covid epidemic on its aero engine business? Perhaps but not for some years in the future I would estimate. Developing new technology and new production methods is always vulnerable to hitches of various kinds which tends to mean that it takes longer than expected.

There are of course alternatives to nuclear power such as wind power, hydroelectricity and solar. But wind power is intermittent thus requiring investment in big batteries to smooth the load and in the last year there was less wind that normally expected in the UK. This has impacted the results of companies such as The Renewables Infrastructure Group (TRIG) and Greencoat UK Wind (UKW).

Which technology will be the winner in solving the clean energy problem is not at all clear but I would bet that coal is definitely on the way out for electricity production although it might survive for use in steel manufacturing. UK coal fired power stations are scheduled to be closed down by 2024 and already the UK can go for many weeks without them being in operation.

Whether you accept the Government is right to aim for net zero carbon emissions by 2050 or not, we must surely all welcome the replacement of coal power generation by other sources.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Crown Place VCT AGM Report and AIC Survey of ESG Interest

I attended the Crown Place VCT (CRWN) Annual General Meeting today via the Hopin platform. This worked well with no technical hitches.

I have held the shares in this company for a very long time. It was one of those VCTs with a difficult history originally when it was formed from three Murray VCTs. After Albion took over management it has had a good track record. Total return in the last 5 years has been 14.0%, 14.6%, 11.2%, -0.6% and 15.9% last year.

Emil Gigov, representing the manager, gave a useful presentation. Like some other VCTs I hold, it has been focussing on late on software, fintech and digital health companies which now comprise 77% of the portfolio (excluding cash) and has been selling off its asset-based investments such as care homes. It is holding a large amount of cash in the portfolio (35% of assets) and this raised a question from the audience. Why so much cash? Answer was primarily because they need to keep that to exploit future opportunities, particularly follow-on investments to existing holdings.

I asked a question which I submitted in writing during the meeting which was: “What do you think of the Chancellors announcement that all listed companies will have to state how they expect to achieve net zero, enforced by regulation?”. But I did not get an answer.

All resolutions were passed with over 90% of support. In summary there seemed to be no contentious issues at this VCT and charges are reasonable (although raised to 2.6% of assets last year due to a big performance fee).

Note that an interesting aspect on the question I posed was revealed in a survey that the AIC has published of private investors. This is what it said: “When asked what was important to them in choosing an investment, respondents ranked ESG as the least important of five factors. Among all respondents, the most important consideration was an investment’s performance record, followed by fees and charges, the fund manager’s reputation, and the asset management company’s reputation.

But one female respondent aged 59 said: ‘In my personal life I do give consideration to these things, I drive an electric car, I have a plant-based diet, I definitely have quite strong feelings about that – but hand on heart when it has come to my investments, the first thing I would look at is returns.’

ESG is more important to women than men, and more important to investors under 45 than those over 45”.

The AIC don’t give the actual numbers who responded so as investors tend to be male and over 45 perhaps this affected the outcome. Such investors are less likely to adopt extreme life styles I suggest.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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COP26, Regulatory Arbitrage and Greenwashing

COP26 finished last week and many readers may have lost interest in the issues it discussed long before it closed. There is just so much one can take from the scaremongers of global warming when most of us have more immediate concerns about health and wealth. But there was one announcement by Chancellor Rishi Sunak that could be seriously damaging to your wealth in the next few years.

This was his announcement that the UK will be the world’s first net zero financial centre. This will not just be political gestures but he is proposing the following to quote from his Treasury statement: “Under the proposals, there will be new requirements for UK financial institutions and listed companies to publish net zero transition plans that detail how they will adapt and decarbonise as the UK moves towards to a net zero economy by 2050”.

“To guard against greenwashing, a science-based ‘gold standard’ for transition plans will be drawn up by a new Transition Plan Taskforce, composed of industry and academic leaders, regulators, and civil society groups”.

In other words, this will not be another “greenwashing” exercise but impose specific obligations on companies. The fact that meeting net zero carbon is an impossible task for many companies in any realistic timescale it seems is likely to be ignored. Even attempting to meet that target will impose enormous costs on companies even those who are not big generators of carbon emissions. If you extend it to Scope 3 emissions (those include all indirect emissions that occur in a company’s value chain) then the reach will affect all sectors of the economy.

This will certainly put the UK in the lead in the attempt to restrict global warming whether you believe it is practical or not. But if such regulations are introduced in the UK one can imagine exactly what will happen as it seems unlikely that other major economies will follow that lead. China, the USA, Russia and India are very unlikely to impose such draconian measures. As many UK listed companies have an international focus they have no great need to be listed in the UK. They could just as easily be listed in the USA or other countries with more friendly or easy-going regulatory frameworks.

You might think this is just an attack on oil/gas and mining companies but it will have a much wider impact in reality. For example, one of the big consumers of oil are ships transporting goods around the world so anyone importing products for sale, such as retailers, would need to persuade the shipping companies to avoid using oil.

One thing is certain. Companies such as BP and Shell may simply consider that it is easier to move their listing to another jurisdiction or accept a bid from a private equity player who does not have concerns about their environmental credentials.

This is what Jeremy Warner had to say in the Daily Telegraph: “However much we might wish it otherwise, oil and gas will long remain our primary source of life enhancing energy. And yet the industry is being driven underground by politicians and regulators too cowed to stand up to the hysteria of the climate change activists. The enemy within is almost as bad as the holier than thou pressures from without; oil company boards, together with those of their bankers, are these days stacked with well meaning do-gooders more focused on bowing to the campaigners than the demands of shareholder value”. If you are a shareholder in BP or Shell (I am not) you may sympathise with such comments.

Such moves of listing may already be evident from the decision of BHP to move to a single listing in Australia rather than the dual listing at present.

Unfortunately with such companies being the bedrock of the dividend paying FTSE-100 companies there are few alternatives for some investors such as big pension funds to choose.

Personally I have been investing in alternative energy generating companies and battery companies because the latest announcements from the Government tell me that the hysteria over achieving net zero is now so widespread that it will have a big impact on the financial world. In addition the Government plans to spend many billions of pounds in financing green initiatives and not just in the UK. We have already contributed £2.5 billion as the biggest donor to Climate Investment Funds. Such funding imposes a heavy burden of taxation which will add to the above woes of companies domiciled in the UK.

The irrationality of the general public over climate change in the UK has no bounds. For the last 30 years the young have been taught in schools an extreme agenda which has also been promoted by the national media, particularly the BBC, and politicians are now pandering to the mood of the public. This scenario is going to make the UK a poor location for investment funds in comparison with other countries. Private investors should surely rebalance their portfolios to have less emphasis on the UK. At least that is the case while the mania continues.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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