Page 6 - ISQ UK_October 2021

INVESTMENT STRATEGY QUARTERLY

When Rubber Hits the Road

Jeremy Batstone-Carr, European Strategy Team, Raymond James

The United Kingdom is facing an energy crisis. This goes well across Europe too. This has resulted in the collapse of some
beyond the terrible optics associated with petrol stations energy providers and forced activities from steelmaking to manu-
facturing to shutdown during peak hours to avoid having to pay
running out of fuel. The country has recently experienced a excessive energy fees. The situation has been exacerbated, argue
400% spike in natural gas prices and a 250% increase in the some critics, by the U.K.’s drive towards a “net-zero” carbon
price of electricity. The subject was touched upon, albeit emissions policy. Over the past 50 years, the U.K. has reduced its
obliquely, by Bank of England Governor, Mr Andrew Bailey, dependency on coal power and become increasingly dependent
in the wake of the conclusion of the most recent Mone- on gas as its primary source of electricity generation, most of it
imported from Europe. Furthermore, heavy investment in renew-
tary Policy Committee meeting. “The shocks that we are ables over the past ten years has boosted wind output which now
seeing are restricting supply in the economy relative to the contributes around 24% of total power generation.
recovery in demand. This is important because monetary At this moment in time the global economy, not just that of the
policy will not increase the supply of semiconductor chips, U.K., faces some very testing economic challenges. The squeeze
it will not increase the amount of wind, and nor will it pro- on the availability of energy supply is contributing to an increase
duce more HGV drivers”. in inflationary pressure, exacerbated by the fracturing of supply
lines across a wide range of goods and services. Yet the tempta-
It is certainly true that the domestic energy generating industry tion to blame everything on the after-effects of the Covid-19 crisis
has been hit by a confluence of unforeseen factors serving to really ranks alongside “the dog ate my homework” in terms of
throttle-back supply, including extremely low wind levels, a fire credibility. After all, global GDP fell by just 3.3% last year, poor but
at an important France – U.K. electricity interconnector, nuclear hardly catastrophic.
power outages and a gas shortfall sweeping not just Britain but

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