Year: 2016

V is for Venture, E is for Enterprise

V is for Venture, E is for Enterprise

The Financial Times recently ran a very interesting article (‘The great pensions tax squeeze’, September 2) on the impact of changes to pensions and Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) regulations. Definitely worth a read but, if you are not a subscriber, the salient points were as follows:

  • – The tax-free amount that savers can contribute to their pensions has been significantly curtailed
  • – The investment criteria applicable to VCTs and EIS funds have been tightened such that they must look for earlier-stage companies in which to invest (and some hitherto popular investments, such as management buyouts and renewable energy schemes, are now no longer eligible).

It was posited that the above changes are creating a situation in which:

  • – There is increased demand for VCT and EIS funds from savers who would previously have directed their investment into pensions
  • – However, VCT and EIS funds are taking in less money because they cannot find enough suitable opportunities to invest in.

VCT and EIS funds benefit from tax incentives (on income, capital gains and/or inheritance) which are not available on investments in general. The justification for this kind of public subsidy is to encourage investment in early-stage (i.e. risker, higher-return) business ventures that might otherwise receive less attention from fund managers. The aim is certainly not to provide tax-enhanced returns on investments that would be made in any event. Of course, markets will always try to find a way to maximise return whilst minimising risk. As a result, historically, many VCT and EIS funds have sought investments that can be portrayed to their investors as ‘safe’ whilst generating an attractive tax-adjusted return.

Examples include VCTs that invested the majority of their capital in asset-backed, interest-bearing securities in order to ‘guarantee’ the return of investors’ capital whilst reserving only a small portion of the fund for genuine risk investments. More recently, EIS funds sought renewable energy investments that benefited from ROCs or feed-in-tariffs, thereby taking advantage of two layers of public subsidy in the same investment. When VCTs did invest in company shares, one of their preferred investment targets was long-established businesses that were undergoing a management buyout. By doing so, they were effectively investing in a (relatively) low-risk business venture that happened to be going through a change of ownership rather than backing business expansion or diversification.

Interestingly, in Turquoise’s experience, direct EIS investments made by ‘sophisticated’ individual investors (as opposed to via a fund) do tend to be in genuinely new businesses whose risk/return profile fits much better with policy objectives of creating intellectual property, new employment, new industries, etc. In principle, individuals should have a lower risk appetite as they are likely to have much less diversified portfolios than a professionally-managed fund; however, in practice, many funds appear to be more focused on loss-avoidance than high returns.

Over time, policymakers have recognised that the market has distorted the way in which tax incentives were intended to operate and, as described in the FT article, have tightened the rules applicable to VCT and EIS funds. It is disappointing to hear that this is expected to result in fewer investments being made due to lack of opportunity. Our experience at Turquoise is quite the opposite – there are more opportunities in the venture capital space than funds available for investment. This suggests that the issue is more to do with some VCT and EIS fund managers being reluctant to move outside their comfort zone.

The tax reliefs made available by government for VCT and EIS can only be justified if such funds are invested in early-stage business ventures that involve real risk and the potential for high returns. If the fund management industry does not deliver that outcome then the rules should continue to be tightened until the policy objectives are achieved. Even though some of the measures used to govern these schemes are relatively crude (e.g. limits on the ‘age’ of eligible companies), it may be that they will have to be even more prescriptive to ensure that investment flows as intended.

Let’s remember that VCTs are supposed to invest in Venture Capital and EIS funds are for backing Enterprise


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Three reasons why Hinkley Point should be built

Three reasons why Hinkley Point should be built

I work for Turquoise investing in and raising funds for Energy, Environment and Efficiency companies that in the main are in competition with Nuclear Power. In my previous career, I have never worked on nuclear projects. So why am I making a case for Hinkley?

Let’s start at the beginning. The UK has now adopted the Fifth Carbon Budget, limiting our emissions of pollutants such as CO2 to a level 57% less than that recorded in 1990 en route to a target of 80% reduction by 2050. We have, as the UK (note: not as the EU), made this the law of the land; in theory it would be an illegal act for any Government to fail to deliver on this commitment.

Science tells us that, during this century, we will probably need to stop using any form of fossil fuel in our heating, transport and power systems unless we capture the pollutants and store them.

So far we have met the early carbon targets because we have been lucky, not through any particularly brilliant and consistent energy policy intervention. Gas became cheaper than coal in the 1990’s, we have quietly become more energy efficient and the 2008 crash reduced industrial activity. All of this would have happened with or without a carbon budget. Of course, we have made significant progress in wind power and some other nascent areas but basically we have not really begun the task of decarbonisation in its own right in earnest.

The carbon budgets are for ALL energy use: heat, transport and electrical power. It is clear that in heat so far we have done nothing, in transport practically nothing and in power quite a lot. In most forecasts the power system will be the first (by miles) to become 100% decarbonised and that will be necessary to compensate for the lack of progress in the other two sectors. So, how are we going to do it?

Now we could build gas fired CCGT at a cost of £47/MWh but that assumes they run for 15 years or so and a lot of the time, as above we are not allowed that freedom by the simple fact that the fails in heat and transport require power to do all the heavy lifting. If you try and pay for a new CCGT in say a 5 year period to avoid this conundrum its cost of power goes up in a material way and certainly above the Hinkley price.

I’m Chair of the Energy Research Partnership Steering Group analysing how a utility might look in 2050 (we call it #Utility2050 – genius). If we wish to watch TV and drive our Teslas ‘whenever’ whilst not freezing ‘ever’, we need to balance a growing power demand with a shrinking power supply and to do that every 1/50th of a second (as is the grid requirement). Not an easy thing, so we look to energy storage and demand side management to help.

OK batteries are here and getting cheaper but the long term stated targets are $50/MWh all-in (compared to around $400/MWh for Tesla Powerwall currently) and then you have to add the cost of power itself on top of that so $50/MWh to store and £115/MWh to make (using wind) is an all in costs of say £141/MWh; are we sure it’s not cheaper to just dump abundant renewables if we can’t use them or ship them somewhere that can and use an old coal station converted to biomass use and revamped to cover the gaps? Demand side could make a huge difference but we have to explain that to consumers as it’s probably going to involve giving something up, most likely the ‘whenever’. What seems clear from the initial #Utility2050 work is that we don’t know a lot more than we do know.

HMG is the buyer of all new capacity in the market, no one invests in what we used to call merchant power, and it is all CfD or Capacity market fed. So if you are the buyer of all new electricity capacity in the market what power would you buy on behalf of the nation? Well here are three reasons why, given the above, you would buy from Hinkley:

  1. Hinkley is cheap: forget all the baloney about the world’s most expensive power station, we are only paying for the power at £92.50/MWh (and if it doesn’t work we don’t pay). Compared to, say, intermittent offshore wind at £115/MWh (which by the way I think as an industry has a massive future, so relax if you’re in wind defence mode) it looks attractive. As mentioned long term and hard running gas CCGT is cheating on our carbon aims.
  2. Hinkley is baseload: it runs all the time, can be turned up and down more than you think and I, for one, will sit eating a mince pie on December 25th in the mid-2020s at about 16:30 with the TV on hoping it is a dark crisp winter’s night outside and confident that Hinkley Point at least is blasting out electrons full tilt.
  3.  Hinkley is consistent: we have had 14 Energy Ministers since 1996, we have flipped and flopped from Carbon pricing ON/OFF to competition ON/OFF to state buyer models to feed in tariffs ON/OFF and ROCs ON/OFF and I don’t know what else. HMG has spent considerable time attracting investors into Hinkley and changing its mind for no good reason (and there are none) would be a very bad step for meeting the funding needs of an energy system in unprecedented state of transformation. Note that we are not increasing our nuclear fleet in the UK, just replacing old stations (something that good old engineers like me would have quietly done in the past without fanfare).

The energy industry needs to come together to explain to society how we are going to meet our decarbonisation targets in the medium and long term. It’s not Nuclear v Renewables or Low Carbon v Fossil; we will need all concerned working to a common goal to transform the system whilst keeping the lights on at a cost we can live with in 2050.

Hinkley should proceed with confidence from investors, owners and customers that it is a useful part of the bigger and harder-to-solve jigsaw puzzle. Politicians should man (or woman) up and say so.


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Não Joga Lixo!

Não Joga Lixo!

The simple act of compelling larger retailers to charge 5p on plastic bags in England at the end of 2015 has had a dramatic effect on people’s behaviour – you now see shoppers emerging from supermarkets with trolleys filled with an assortment of reusable household bags rather than the one-off sort. The insistence of the industry that this was unnecessary regulation proved groundless and shops and their customers adapted remarkably quickly! It’s amazing what a small levy can do to change behaviour, although it only goes so far.

 

Sales of SUVs are booming once again in America and elsewhere, presumably in response to the fall in the price of gasoline. More alarming still, one reads accounts of the discontinuation of small car lines by well known manufacturers. Meanwhile outside the forecourt, plastic bottles and cans proliferate on the sides of urban thoroughfares and country roads. It’s not clear to me whether the Herculean task of cleaning up this mess is the responsibility of the Highways Agency or of the local councils, but it’s clearly a huge financial burden.

 

Either way, it seems that there are limits to what enforcing existing rules or creating new ones can achieve in encouraging all of us to be more respectful of our environment. Surveys have shown that in many countries, people consider littering normal behaviour or, at the most, a very minor transgression. Of course there’s a very wide variation in what is considered acceptable; in some parts of the world there is little public tolerance of this kind of thing.

 

Perhaps there is another way to tackle the problem. No so long ago, the milkman collected empties and the famous cantilevered Coca Cola bottle had a deposit! Lynyrd Skynyrd even wrote a song about it:

 

Well I used to wake the mornin’ before the rooster crowed

Searchin’ for soda bottles to give myself some dough

Brought ‘em down to the corner, down to the country store

Cash ‘em in and give my money to a man named Curtis Lowe.

 

In other words, in those days some value was attributed to the glass content in the bottle. This is clearly not the case with the plastic in the water bottles and the metal in the cans which now lie discarded in their emblazoned glory where they have no place to be! If the consumer enterprises that bottle and can drinks were to guarantee some value for the glass and plastic from which they are made, we might see a lot less of them lying around or floating about in our seas and rivers.

 

This would not come without some cost because I’m proposing that the bottlers & canners should guarantee those residual values regardless of the vagaries of the market value (i.e. a fixed price per bottle or can) in order to encourage fundamental change in the way these items are viewed. In return, as well as a supply of recyclable material they would benefit from reputational advantages to their firms.

 

I have one further suggestion for our friends in industry, specifically the mining companies. With sluggish growth forecast, some of these behemoths are currently deferring investment in new projects citing low commodity prices. They too have reputational damage to make good as the Samarco dam burst in Brazil, and the BP Gulf spill before that, have shown only too well. So why not consider the stock of obsolete computers and dead cars as a resource equivalent to the metal ores currently extracted and go into the recycling business big time? As the recent expression of interest in the Port Talbot steelworks by Liberty House shows, this is not as farfetched as it might seem although it would require a fundamental change in attitudes by all parties including the unions. And of course there is no reason why the same thinking could not be applied to other materials like plastic assuming the extraction and reprocessing technology is there to harness.

 

Sheikh Yamani, perhaps the best known Saudi Oil Minister, described plastic as one of the “noble uses of oil.” That might have been true in the seventies but it certainly isn’t regarded that way anymore. In conclusion, let me say that if anyone is wondering about the title of this blog (Don’t throw litter in Portuguese), it is a sign you see everywhere in the Brazilian Pantanal along with other placards requesting people to respect the forest animals. Even the more remote and beautiful areas of the world (and indeed space) suffer from the unwanted discards of modern life.


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The law of unintended consequences

The law of unintended consequences

Churchill is quoted as once saying: “I am preparing my impromptu remarks”. It seems that decisions about long-term green investments are sometimes made without such forethought, delivering some unintended results.

For example, when the US decided to support mass production of bioethanol it was not long before scientists started raising the alarm. Apparently, unlike tropical Brazil where crops grow easily, in the US the energy used in irrigating maize more than offset the carbon reduction benefits of using bioethanol.

Nearer to home, the UK government’s incentives to improve residential building insulation seemed a very sensible way of saving energy. Now doctors are reportedly complaining about increased respiratory problems arising from poorly ventilated homes. Could this second order effect not have been foreseen?

In the Turquoise office, the lights were changed last winter from incandescent bulbs to LEDs. Great stuff, except that we found that the temperature of the office dropped dramatically. It turned out that the lights had been serving as our heating system. So we asked the building managers to turn on the heating, only to discover that up to that point our building was considered efficient enough not to need a heating system (just cooling) ! In the middle of winter, any other team would have been tempted to install (small, inefficient) electric heaters but I am proud to say that as green-minded people we resisted and just shivered quietly and waited for spring.

I realise that it is not easy to foresee second (and third) order effects of changes. However, it sometimes seems that there is little attempt to do so when faced with a campaign by often well-intentioned lobby groups in favour of particular environmental policies.

A lack of adequate analysis can also result in inaction where change may be needed. For example, governments around the world seem to be hanging their hat on electric vehicles as the solution to emissions from cars. Sure enough, an electric motor powered by electricity generated from renewable sources is the cleanest method we know of running a vehicle. However, few people seem to be willing to do the sums about the length of time required for car engine production lines to be adapted to manufacture electric motors, costs to fall sufficiently to make EVs affordable, additional renewable generation to be built, new electricity distribution and charging points put in place, and so on. As a result, policy makers are not focusing on the the millions of conventional cars that will be produced in the interim, by one estimate peaking only in 2040 at about 120m per year (compared to 80m per annum now).

Similarly, I keep hearing the idea of using the batteries in electric cars as a means of storing electricity for the grid. Given that I also hear that the battery is currently the Achilles heel of any EV, needing to be swapped out at least once during the life of the car, is that really feasible? Before any policy decision is made that assumes such an arrangement, I very much hope someone bothers to test the theory with battery makers, car manufacturers, utilities and car owners.

This is all a long way of saying that perhaps we need to examine our green initiatives with a bit more care, testing the feasibility of our primary assumptions and checking second order effects. One organisation I know that tries to tackle such issues is the Energy Research Partnership (www.ErpUK.org ), a think tank comprising public and private sector players from the energy sector. We need more such institutions, and we need to consult them more frequently.


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We need a new energy Trilemma … like a hole in the head! (Part 2)

We need a new energy Trilemma … like a hole in the head! (Part 2)

Having dispatched Trilemma1 to Room 101 let me now try and place a finger in the dyke of Trilemma2 recently proposed by Mr Marchant before it is taken seriously by anyone and a dam wall breaks flooding regulators with confusion and obfuscation that is not required.

Trilemma2 has raised three related but simple issues;

  • Flexibility (… time of use in old money)
  • Meeting of needs
  • Affordability (… price in old money).

Let me dismantle these one by one. Flexibility, and the need for the energy system to turn up and down to meet customer demand, has been with us for years, works fine and has been a spectacular feat of engineering … at least cost. Yes, in the future, we may all own solar panels and electric vehicles but it is not going to happen overnight and the system can support a great deal of this already, even before we increase our interconnection with other systems by 7000 MW.

Of course we need to meet the needs of customers, the industry by and large meets current customer needs; some may want more tech and control in their lives but are being offered this already. The market is responding but slowly, what we need is a ‘Energy Uber’ moment.

At last we arrive at the key issue of price. Customers, quite understandably, believe they are getting a raw deal. Regulators are dispatched on 5 yearly cycles to investigate, and come back with the same answer: they are not getting a raw deal on price. However any industry that languishes 43rd-45th out of 45 home services rated and purchased by Joe Voter is likely to be bashed and so it is. What the industry has failed to do is publish the value in the products of gas and power, i.e. how good we are at keeping lights on and delivering least cost energy system that, almost without the customer noticing, is transitioning to a low carbon world. The industry is also failing to provide an infrastructure that allows an ‘internet of energy’ to develop. Just compare your meter/bill and your smartphone … notice any difference? I’m afraid the new smart meter roll out is only going 1/10th of the distance needed.

Here is a new plan:

  • Agree as society, absent political yo-yoing, what our carbon budget is and transmit that to the world to get their OK (whilst also noting what everyone else is doing)
  • Interconnect like there is no tomorrow (this is happening)
  • Plan to develop an energy system through some form of Energy System Architect (Central Bank of Energy, if you will) at LEAST COST
  • Allow Tech City folk to educate the old brigade at the not-so-smart-meter-central what they could do if they could only get access to the meter cupboard.
  • Enjoy the smiling faces of the customers as they bathe in an abundant, low cost and transitioning energy system.


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Visitors from the East

Visitors from the East

Thanks to the good work of my colleague, David Wright, Mandarin-speaker and China expert, Turquoise recently played host to a large delegation of business and government people from Zhejiang Province. Located to the south of Shanghai, Zhejiang has China’s highest per capita GDP and is home to many of the country’s largest, privately-owned companies. Turquoise’s longstanding connections with the provincial government resulted in the Vice Governor, Mr Zhu Congjiu, bringing over 60 company owners and officials to London for a series of meetings around the theme of outward investment and technology acquisition.

I am sorry to say that I have never visited China, so was unsure about what to expect from the visit. We did know in advance that language would be an issue; given the seniority of the Chinese delegates, the vast majority had not been brought up in an era when English was widely taught. (You can guess at my command of Mandarin…) We also knew that most of the visitors were company owners who had founded their businesses decades ago and grown them into very substantial, listed enterprises. Lastly, we were aware that the delegation would also be visiting Germany and Israel as part of the same trip and that Turquoise would be expected to do its bit for UK business.

In the event, the visit was enjoyable, exhausting and went very well. There were a large number of one-on-one meetings between the Chinese representatives and a selection of UK industrial technology companies from the Turquoise portfolio and extended network. Those were complemented by presentations and detailed discussions on the benefits of investment and M&A by Chinese companies outside their home market. Although some of the companies had previously made foreign acquisitions, this was new territory for many of them.

What did I learn from this ? Firstly, that, despite language barriers, Chinese and UK businesspeople had few problems in communicating when it came to matters of mutual interest. Secondly, that anyone, like Turquoise, involved in investments in the industrial technology sphere should be looking to establish relationships in China to access finance, markets and potential acquirers. Thirdly, that London in particular is home to a large number of young Chinese students who speak good English and have excellent academic credentials (35 of them acted as translators for the event and I saw at first-hand how quickly they grasped the technological and commercial issues being discussed).

Lastly, and possibly most importantly, I learned the etiquette of toasting a Chinese guest by clinking glasses. To demonstrate humility, it is important to make sure that the rim of your glass touches their glass somewhere below its rim. Of course, your guest will also be trying to ensure that they do the same, so this can quickly develop into a race to the floor…


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What next for the UK Solar Industry?

What next for the UK Solar Industry?

It’s very easy to get caught up in hyperbole in the period immediately following a subsidy cut announcement, as all the stakeholders desperately clamour to make their voice heard the loudest. Given the recent cuts to solar subsidies, depending on who you listen to, you could very easily believe that the industry has either been destroyed overnight, along with the UK government’s reputation in the eyes of investors, or that costs have come down so far and efficiency improved to such an extent that subsidies are no longer required at all. It’s fairly safe to assume the truth lies somewhere in the middle.

On the large-scale, ground-mounted side of things, the industry was willing to admit to the government during the recent review of subsidies that it is very close to grid parity now. If that is correct then subsidies are probably no longer required. The focus of developers will therefore sensibly switch to higher yield sites and getting PPAs signed with trusted counterparties; however, as costs continue to fall even these conditions will become less stringent.

The main headline grabbers though are domestic rooftops. These installations are not yet at the point where they can compete without subsidies, so the cuts that were announced last December caused consternation in the industry. The government’s own estimates suggest up to 700,000 rooftop installations that would have otherwise been made by 2020 will now not materialise, and up to 10,000 solar industry jobs will be lost. All this in a sector that has been a great success story, growing from practically nothing to over 9GW in the last decade whilst getting costs down so far that it can now be taken seriously as a part of the UK national energy plan. That seemed out of reach even only a few years ago given the prohibitive costs and amount of space required to produce a meaningful amount of power. So, is financial support being pulled too soon?

I believe that the future of domestic rooftop installations probably depends more on progress with developing cost-effective battery technologies. Once batteries are cheap enough, especially with the use of electricity tariffs that discount off-peak use, households will be able to install solar panels and a battery and pay for it with the electricity bill savings over just a few years. The time when that maths adds up for consumers is not yet with us, but it’s probably not more than a couple of years away for some parts of the country.

So it seems like the solar industry is in for a year or two of genuine slowdown during which only the best-situated large-scale projects will go ahead and the proliferation of domestic systems will reduce right down. This time can give the secondary market a chance to further establish itself and currently active players an opportunity to determine what their role will be going forwards. Those that see a future role for themselves shouldn’t take their foot too far off the pedal, as the breakthrough could really be just around the corner. It now seems more likely than ever that solar power is here to stay.


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We need a new energy trilemma … like a hole in the head!

We need a new energy trilemma … like a hole in the head!

Ian Marchant, ex CEO of SSE and ex IE President, has suggested we need a second Trilemma (see below). However, as the first Trilemma achieved nothing, the second is surely a step in the wrong direction.

The first trilemma was a brain teaser that the power industry created where it was befuddled into doing very little as it had three problems it needed to solve and couldn’t. They were (in case somehow you managed to avoid them):

  • Security of supply
  • Decarbonisation
  • Affordability (price…. in old money)

If I had a penny for every CEO of the major energy companies who has a slide with these three issues on it, I would retire.

The trilemma came to an abrupt end some 10 years after its birth when HM Treasury slapped a Levy Control Framework on the industry – in effect a cap on spending, or in economic terms a price limit. The Treasury’s realisation was that we can only do what we can afford to do., Planning to achieve something other than that should be a crime (alongside banking crime).

The lost billions as the industry sent itself around the trilemma merry-go-round could have been usefully aimed at the problem which is, and always has been, delivering power at the least possible cost.

Least Cost Energy Planning (as it was known prior to when the fated trilemma invention took hold) is a lost art. It does not take place without the other two key issues and never has done. Environmental limits have been part of the power industry challenge since the dawn of time. The fact that they are now more stringent is no surprise.

Security of supply has also always been part of the industry. Until recently, we’ve paid for it with a capacity charge – a concept now belatedly making a comeback as the Capacity Mechanism – and in gas, a bigger pipe.

Let’s take Hinkley Point C. This is a new nuclear station that, when built, will replace an old nuclear station or two – no trilemma here, just a least cost planning need. Let’s take a less well publicised topic – interconnectors with Europe. Brexit or not the drive to interconnect has and always will be strong as it’s cheap. As gas and power interconnection capacity grows, so does security of supply. Approximately 7,000 MW of new interconnection is planned in the UK, twice as much as Hinkley Point C – by the way, as yet, this is hardly mentioned in the press.

In part 2 I commit the second demand side trilemma to room 101.

We need a referendum on carbon, which in my view poses a much simpler question than the Brexit issue. Possible topics include :Do you think that the United Kingdom should deliver on its commitment (to the world) to decarbonise our energy system by 80% by 2050?

The Intended Nationally Determined Contributions (INDCs) agreed in Paris are the sign that, referendum or not, the world is moving towards carbon budgets. Our INDC (either inside or outside of the EU) will be discussed with us by our global trade partners such as USA, India, South Korea and China (amongst others). They may take a dim view of anything other than a plan to deliver.

So we have a carbon budget (no, we do), we are energy secure as it is abundant (check the oil price) and why should we pay more? Our industry needs to bury trilemma1, man up and get back to some good old fashioned least cost energy planning.


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Floods, Insurance & Climate Change

Floods, Insurance & Climate Change

It must have been incredibly dispiriting, and at times scary, to have spent the holidays in the north of the British Isles being inundated with torrential rain day after day as Desmond (not me!), Eva and Frank swept in from the west. Two years ago, it was the south & west that bore the brunt of the winter weather as a conveyor belt of storms rolled in off the Atlantic. The Somerset Levels, admittedly a low-lying area, spent several months under water.

December was the wettest month in more than a century with an average of 9 inches (230mm) of rain falling across the country. It was also the warmest since records began in 1910. England was almost frost-free and if you include Scotland, Wales & Northern Ireland, there was less than three days of frost compared to the normal eleven. According to Professor Jennifer Francis of the Rutgers University in New Jersey, much of the shift in weather patterns is down to a change in the temperature differential between the Arctic and the temperate mid-latitudes where the UK lies.

A warner Arctic is resulting in kinks in the jet stream, that pesky high-speed current of air that blows in from the Atlantic and brings much of our weather with it. According to Prof Francis’s hypothesis, increasing rainfall in the UK is likely to become the norm in the same way as droughts in the Western United States and parts of Australia have, albeit they are affected by other systems. According to a study published in the science magazine Nature, they have reduced crop yields by up to 20% in those places. So whether this turns out to be true or not, it would be sensible to build the scenario into our plans.

Not surprisingly, those affected blame the politicians and the Environment Agency for cutting back spending on flood defence or spending more in one area than another. The figures are arguable and the Government, opposition and other interested parties have all produced statistics to support their case. The air of general frustration has been compounded still further by pictures of politicians standing around in their gumboots surrounded by angry locals or reports that the head of the agency has been sunning himself in the Caribbean instead of doing his job.

But the reality is that many of the towns and villages affected are on rivers or the confluences of rivers where there is a natural pinch point in the flow. This is hardly surprising in a country like Britain where rivers have, in the past, provided transport as well as the power to turn mill wheels including the spinning jennies that began the Industrial Revolution. And if you speed the flow of water through one town by building flood defences, it will invariably cause a problem for the next one downstream unless, of course, you’re on an estuary.

All this causes misery, disruption and chaos as well as costing a lot of money. Whatever insurance companies pay out in damages they have to recoup on way or another in premiums (ignoring profits on their investments). So what can those politicians do to mitigate the effects of the weather? One thing would be to the change planning rules for new houses and encourage property owners to “flood protect” homes and business premises as far as possible. In this they will be given a helping hand by the small print in insurance policy documents with their exclusions.

But I gather there is a more radical solution which is now doing the rounds in Whitehall, namely to change Common Agricultural Policy payments to farmers so that they are encouraged to store water upstream. The result would be that farmland gets flooded and not homes. There is a simple theory behind this: it’s not the volume of water that causes the problems but the rate of run off! Most landowners are a conservative bunch and have resisted this idea in the past so it may be some time before we see the creation of sinks through extensive tree planting in upland gullies and the creation of barriers to slow down the streams and becks – but in the end, money talks.

And while we’re about it, why not release a few beavers and let them do the heavy lifting. They may not be popular with fishermen or poplar fanciers, but there is increasing evidence that they do exactly what the Government is now considering. Perhaps our furry friends will attract sponsorship from the insurance industry!


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