Renewable Energy – I’m a big fan

 

In a last-minute deal, COP27 established a pooled fund for smaller nations most affected by climate change.

However, for many countries the last hours of negotiations represented a real step backwards in the fight against rising temperatures. Last year’s decision to ‘phase down’ the use of coal did not progress to the ‘phasing out of all fossil fuels.’ News that the UK has so far in 2022 doubled its imports of coal is not a welcome headline and we can expect more ‘Just Stop Oil’ protests. At least the UK is making great strides in developing new technologies such as floating wind power to directly address global warming.

Ten miles off the coast of Aberdeen, is Kincardine and the world’s largest floating wind farm, with five turbines, each 190 metres tall and believed to be capable of supplying 35,000 homes. Each turbine sits on three huge cylindrical floats, each side 67 metres long which are in turn anchored to the seabed. These platforms adapt to changes in both wind and sea conditions so in very strong winds, the turbine ‘heels’ or turns away from the wind. A series of pumps and valves shift liquid ballast between the three cylindrical floats to optimise the position of the turbine blades.

Floating technology is necessary as the seabed takes a sudden dive close to the shore in many places, so restricting the use of conventional fixed wind turbines. Floating wind is forecast to be £400bn-£500bn global market by 2050 according to Offshore Renewable Energy Catapult, a UK offshore wind technology research centre. The UK’s independent climate adviser the Climate Change Committee predicts that half of the 1000GW of offshore wind power to be installed by 2050 will be floating wind. The biggest challenge as with any new technology is cost, as floating wind power is currently estimated to be a similar price to nuclear energy. Forecasters are hopeful this cost will fall significantly as the industry scales up as with conventional offshore wind.

Meanwhile, more challenges for new PM Rishi Sunak who is reported to be under pressure from Conservative backbenchers to drop a ban on new onshore windfarms. The government seems to be facing increasing headwinds from the cost-of-living crisis and industrial action to migration with No.10 warned that Red Wall Conservatives could defect to Reform UK over the migrant crisis.

Rishi could do with a favourable wind or a few more fans.

What have we been watching?

Apart from some major upsets in the World Cup…a quieter week for markets with Thanks Giving in the US.

All eyes were on China as Beijing posted a record number of new Covid-19 cases and mass protests took place across the country after more incidents of deaths indirectly caused by lockdowns. Hopes of China easing its zero-covid policy have been one of the props to markets recently so investors will be watching closely to see what President Xi Jinping does now. If more lockdowns where to hit the Chinese economy, they could disrupt global supply chains and lead to more unrest. Younger Chinese are no doubt frustrated with the rest of the world mixing freely at the World Cup but facing a strict Covid-19 testing regime. Xi Jinping can’t let covid-19 loose amongst China’s elderly population. Open criticism of the Chinese Communist Party is not permitted so if the protests continue will he use the military to clamp down on the dissenters?

This uncertainty about China has spilled over into equity markets this morning as well as some commodities, with Brent oil down to $81. In the US, the Federal Reserve (Fed) published its latest meeting minutes which showed most of its officials backing a slower pace of interest rate hikes. Sterling moved up towards $1.21. In the UK, ongoing strike action across numerous sectors from post to railways made the headlines, although we are not alone in workers protesting at wages being eaten up by inflation. President Joe Biden is facing a potential crippling strike by US railroad unions that could bring rail freight transport to a halt from the 9th of December.    

In Ukraine, both sides continue to accuse the other of being responsible for explosions at the Zaporizhzhia nuclear plant. President Zelensky asked NATO to guarantee the protection of Ukraine’s nuclear power facilities from Russian sabotage. Russia has already damaged nearly 50% of Ukraine’s energy infrastructure and Zaporrizhzhia used to produce more than 25% of the country’s electricity. The lives of millions in Ukraine will be under threat this winter according to the WHO with temperatures forecast to plummet as low as -20C.  Meanwhile, Washington and its allies are planning to finalise a price cap for Russian oil as they seek to cut off a critical source of funding for Putin.

The US and China have sought to ease tensions over Taiwan with a meeting between their respective defence secretaries. However, the political game of chess in the South China Sea continues. US Vice President Kamala Harris visited the Philippine Island of Palawan -to show support for the long-time US ally and counter Beijing’s growing influence in the region. Palawan is the closest island to the disputed Spratly archipelago.

 

In the UK, financial markets now expect the Bank of England (BoE) interest rate to peak at about 4.5% in mid-2023 and have fully unwound from the sharp reaction to the ill-considered September mini-budget. However, there does appear to be quite a gap in the economic outlook by the end of 2025 between the Bank of England and the Office of Budget Responsibility (OBR). Markets hate uncertainty and yet the BoE and OBR appear to be embedding this uncertainty into their forecasting!   At least one short-term uncertainty has been deferred with the Supreme Court rejecting the SNP’s bid to hold a second Scottish referendum vote. Nicola Sturgeon is now looking to turn the next general election into an independence vote.

 

In Europe, PMI manufacturing activity indicators improved in November but remain in contraction. Encouragingly, supply chain disruption appears to be easing. The tone of the European Central Bank’s recent discussions appeared more hawkish than the Fed, with the main concern being that inflation threatens to become entrenched.

 

In the US, the Fed published the minutes from its latest meeting, revealing that a substantial majority of policymakers thought that slowing the pace of interest rate increases would ‘soon be appropriate.’    

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Brent oil dropped to $81. OPEC+ cut its forecasts for global oil demand this year for a fifth time and made a further cut to its 2023 projections. It expects demand to rise to 2.24million barrels a day in 2023 but this is 100,000 barrels lower than previously forecast. Saudi Arabia also dismissed US media reports that it was considering a further increase in output.

Finally, the anacronym WFH – ‘Work from home’ has a new meaning – ‘Watch from home’ as many businesses see workers watching the World Cup from home. A recent survey revealed that for a quarter of fans, their employer will show matches live, while another one-in-five will allow them to watch the football elsewhere. Given we have for the first time a Winter World Cup who will be the winner when it comes to fans spending money? Pubs or supermarkets? One loser already is Budweiser – the official beer of FIFA World Cup Soccer – a Qatari alcohol ban – a spectacular PR own-goal!

Read Last Week’s Alpha Bites – Alright me old China?

 

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