Not in my back yard

Currently, the UK has the highest cost of electricity amongst leading developed nations. This is again driving up the cost of living and is not helpful in attracting new manufacturing capacity or meeting affordable future energy demands.

To compound the current electricity supply issues, UK electricity consumption could double by 2040. To help resolve the energy crisis, the government recently announced plans to make it easier to build mini nuclear power stations throughout England and Wales. It said it will reform ‘archaic’ planning rules in a bid to limit local opposition and ‘nimbyism’ towards planned new Small Modular Reactors (SMRs), a technology we have featured in earlier Alpha Bites.

Nuclear power currently provides around 15% of the UK’s electricity, but eight of the country’s nine ageing reactors are due to be decommissioned over the next decade, leaving just Sizewell B operational. New nuclear capacity, such as Hinkley C, was supposed to have been completed by 2020 at a cost of £12bn, but has seen building costs rise to over £40bn and will not be operational until at least 2030. Meanwhile, Sizewell C could cost £40bn, nearly twice its estimate, with no guarantee of a start date or backing from EDF. Compared with these far more expensive and very long lead time, large-scale nuclear reactor projects, SMRs, if the technology can be made affordable, would be a practical fit in a more intermittent, renewable-heavy future energy system.

While Greenpeace and Friends of the Earth are against nuclear, the GMB Union’s general secretary said, ‘There can be no net zero without new nuclear.’ A new Nuclear Regulatory Taskforce will be established to speed up approval of new reactor designs and streamline how developers engage with regulators. Sir Keir Starmer said that Britain’s energy security has been ‘held hostage’ by Putin for ‘too long.’ The SMR plan would also fit well with the government plan to boost UK economic growth.

A few 300MW SMRs could provide a more flexible option to plug gaps in the energy network compared with the behemoth 3.2GW plants currently under construction and planning. The government hopes to have the first wave of new SMRs up and running by 2032 and has shortlisted four bidders– GE Hitachi, Holtec, Rolls Royce and Westinghouse.

However, is Sir Keir’s nuclear plan easier said than done?

In an example of archaic bureaucracy, Hitachi’s £20bn Wylfa nuclear project on Anglesey was recently blocked on grounds that it could adversely affect Welsh language and culture!

 

What have we been watching?      

 

Trump continues to overshadow markets with threats of reciprocal tariffs and currency manipulation while his talks with Putin over Ukraine have sounded alarm bells across Europe. Markets are continuing to assume that Trump’s threats are no more than that and drive conciliatory measures from those threatened and so will avert a full trade war. For example, Trump wants European NATO members to increase defence spending. The ‘penny seems to have dropped’ with a series of emergency defence meetings, but have European governments got the cash? The risk is that if countries don’t give Trump something he can sell to US voters, then more tariffs are imposed and that does spark a global trade war! From Trump’s perspective, it’s all about ’The Art of the Deal,’ so let’s hope his ‘bark is worse than his bite!’        

Trump’s ‘giant game of tariff chicken’ continued last week with a 25% tariff on all steel and aluminium imports, which will come into effect on March 12^th ‘without exceptions or exemptions.’ Meanwhile, Trump has vowed to impose ‘reciprocal tariffs’ in retaliation for the taxes American companies have to pay worldwide, particularly VAT. While it is the EU that is being targeted, the UK risks being caught in the crosshairs. Analysts warn that if implemented, this might lead to a 20% tax being imposed on the UK, which would be equivalent to a £24bn hit to the economy! Sterling rallied to $1.26 on media reports that the US Treasury said Trump is also considering currency manipulation to weaken the Dollar as a potential bargaining chip.  

As we featured in last week’s ‘Alpha Bites Within a Whisker,’ European gas prices have continued to climb and are up more than 100% over 12 months, which has fed across to UK gas prices. Indeed, some analysts are now suggesting that higher energy prices could push UK inflation above the Bank of England’s (BoE) recently upgraded guidance of 3.7% in the summer.

Trump said he had a long and productive call with Putin about Ukraine and will be meeting ‘very soon,’ which has got alarm bells ringing across Europe. While Trump wants an end to the war, he also wants NATO members to increase defence spending to 5% of GDP! How many can afford that? Only Estonia and Poland are anywhere near this level, with the UK at 2.3% and Spain the lowest at just 1.3%. Meanwhile, Sir Keir Starmer has said he is ready and willing to put UK troops on the ground in Ukraine to help guarantee its security as part of a peace deal. President Zelensky no doubt realises that without a US security guarantee, a peace deal would be worthless with Putin likely to rearm and strike again to take the remaining 80% of Ukraine it would not own under any peace deal. Trump also wants something in return for the military aid the US has provided to Ukraine, mainly its valuable rare earth minerals to counter China’s dominance in this area. Will he really leave this at risk of Putin and NATO’s European armed forces?

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In the UK, Chancellor Rachel Reeves no doubt breathed a sigh of relief as the UK economy grew by 0.4% in December. However, the UK economy is still flatlining with fourth quarter growth of just 0.1%.  

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US inflation came in ahead of expectations and Federal Reserve (Fed) Chair Jerome Powell said that the Fed is in no rush to cut interest rates. Headline CPI for January increased to 3%, while core inflation, excluding food and energy, was also higher at 3.3%. Meanwhile, US retail sales were very weak in January partly due to the freezing weather across the country. The question is how much is due to the US consumer starting to run out of ammunition? Trump is also creating growing uncertainty with his policy mix.

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Brent oil held at $75 as the Gaza ceasefire continued to just about hold and Trump tariff uncertainties remain.

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Finally, Elon Musk’s cost-saving DOGE in action. President Trump has stopped the production of one-cent coins after the US Mint reported it cost 3.69 cents to make and distribute! He said, ‘Let’s rip the waste out of our great nation’s budget, even if it’s a penny at a time.’ In the UK, the government said it had no plans to change 1p and 2p coins. Meanwhile, the Royal Mint ‘does not reveal how much it costs to make specific coins, as such information could be used to our competitors’ advantage.’ Can you see the horde of competitors rushing to produce our 1p and 2p coins? No, neither can we!

Last of all, we are proud to have been nominated, once again, for the COLWMA Best Market Newsletter.

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Read Last Week’s Alpha Bites – Within a Whisker

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Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.