Smart Meters and HS2 pose problems for the concept of Investment

One of the sacred cows of economic theory is the concept of investment. The text books have it as what 1066 and all that would call a “Good Thing”. We see this repeated by the media and there are many cries for it to be increased because of the low-cost of it in terms of interest-rates and more importantly bond yields. From a UK perspective that is invariably an easy thing to say or write because we have a culture which leads to strong consumption levels and usually growth which tends to crowd out at least some investment. So as a starter let us look at what investment means.

An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit. ( Investopedia ).

In essence the major feature is that it is for the future rather than the now as opposed to consumption which is for now. In some ways it is similar to a catalyst in a chemical reaction which makes a change without being used itself. Of course if we move from the text books to the real world we see that nearly all types of investment do in the end run out via wear and tear or simply getting out of date. Even more problematic is the issue of time. What I mean by that is in its own the concept of deferral seems rather moral and good as well of course of being completely contrary to the zeitgeist of these times. But what if it takes so long to be developed that by the time it arrives it is already out of date? That issue does not apparently trouble the world’s statisticians who changed the GDP calculations a few years ago to include Research and Development as an investment regardless of whether it actually led to anything. A dangerous move in my view.

Smart Meters

These are devices for measuring your domestic energy consumption ( gas and electric ). These allow you to see what you are consuming in pretty much real-time and save you the trouble of reading your meter as they send readings to your supplier. So gains but very minor ones. You might believe from the constant stream of both TV and radio advertising that they help you to cut your bills along these lines.

#GAZNLECCY have been causing mayhem for too long. Get them under control with smart meters!

How exactly? There is a radio version which says they will help someone with their favourite dinner but never says how. Actually as we stand it is very misleading as whilst the meters are given for no individual cost they are in fact collectively added to people’s bills. So in the future the “cheaper” dinner will be more expensive!

According to the Financial Times the rollout is not going to well.

 

But as energy suppliers work towards a government target to offer every home in Britain a smart meter by 2020, people in the industry warn the £11bn infrastructure delivery programme is increasingly shrouded in complexity, while costs are mounting.

Not only is it more expensive it is not turning out as promised.

 

So far the devices fitted are first generation technology — known as “Smets1”. These are generally more expensive, less sophisticated and are considered less secure than the second version — Smets2 — which was intended to be the main model rolled out to the market…….Crucially there is a chance the older devices will go “dumb” if a customer chooses to switch energy provider, as the new utility company may not be able to access the data.

Against this there are two possible types of gain. The first is that once people see their energy use they will cut back on it, how they tell that from those who cut back due to higher prices I am not sure. The second impact comes from this described by the Guardian.

Over the longer term they will also allow consumers on smart tariffs to take advantage of off-peak deals – cut-price electricity at night, or when there is a plentiful supply because wind turbines are working at full capacity – at which point it is expected that everyone would run their washing machine.

As someone who lives in a block I could immediately see the problem in everyone’s washing machine coming on at 3 am! Hardly good for neighbourly relations especially as we all became more sleep deprived. But after the Grenfell fire disaster there is a much darker issue to face which the proponents of this technology have either overlooked or ignored.

HS2

This is the project for a High Speed railway to the North and the 2 refers to the fact that the line to the Channel Tunnel was 1st. That is not an auspicious comparison as Eurotunnel went bust and for a long time the trains actually crawled past my area on a back line in Battersea. It is in the news today.

The winners of £6.6bn worth of contracts to build the first phase of HS2 between London and Birmingham have been announced by the government.

In itself we see investment in infrastructure and in our future with even a green tinge as railway transport is greener than cars. But there are more than a few possible problems with this particular investment.

But critics say the £56bn project will damage the environment and is too expensive.

Actually more and more doubts are emerging over the final cost. From The Independent.

The HS2’s first phase between London and Birmingham will cost almost £48bn, according to expert analysis commissioned by the Department for Transport (DfT).

That highlights two problems. If we start with costs then if this report is accurate we will have the most expensive railway in the world at £1.25 billion per mile on the first bit from Euston to Old Oak Common. The next is that by 2026 if everything is on time we will only have a new railway to Birmingham which is way short of the “Northern Powerhouse” promises. Assuming that the bits to Leeds and Manchester are eventually built will it all be out of date by then?

Oh and we have an official denial which of course we know what to do with…

Mr Grayling told the BBC’s Today programme that the high-speed rail network will be “on time, on budget” and the government has “a clear idea of what it will cost”.

The whole concept will not be helped by the fact that Carillion is one of the contractors although it looks as though Carrillion will be happy.

Carillion, which last week issued a profit warning and announced the immediate departure of its chief executive, has won two “lots” within the central area. Its share price rose by 7.7% to 60.5p on Monday but it has fallen by more than 76% over the last 12 months.

Comment

The reason for the clamour for new investment plans has support from the price of it. Here we return to the subject of Friday which is the fact that interest-rates and bond yields are very low in historical terms. The UK has existing debt running into the mid 2060s and none of it yields more than 2% currently. Frankly we could look further than 50 years ahead and could follow Argentina, Ireland and Belgium in issuing 100 year debt. It would be likely that the cost would be low and we would pay maybe not even 2% on it.

Against such a low-cost many investments look affordable as it is a low hurdle to overcome. The problem is that if we look at the examples above we have two enormous projects that seem set to not only fail to clear the hurdle but injure the hurdler in the process. Meanwhile I am sure that plenty of smaller projects would bring genuine gains but less publicity. Is this another flaw of the QE era that the investment generated goes to the wrong places and areas?

 

 

 

Advertisements

30 thoughts on “Smart Meters and HS2 pose problems for the concept of Investment

  1. Hello Shaun,

    I have a “smart” meter – saved me precisely nothing – not a sausage , are you really going to tell the wife she’s goto get up at 3:00AM to empty the washing machine? ( It stinks if you leave it in after a few hours , and what if you have several loads? )

    And I went through all this garbage with economy 7 metering – used to be a huge difference in price but not so much now .

    Again and again I see no one thinking these thing through , certainly not on MSM – just copy and paste and forget …

    and those “£”$%! adverts drive me crazy

    They will eventually . hopefully , save money by replacing the meter reader person .

    except in places where the mobile reception is poor – linked to you broadband ? if you have that

    I regard SMART meters as one of those things being slapped on me by people who haven’t a clue how they work yet alone how to save me money – help their chums in big business?

    yah thats the clue.

    And that brings us to HS2 ……

    Long term investment is impossible these days as each polly needs a return that gets them re-elected .

    Forbin

    • Hi Forbin

      I came under pressure ( if you don’t get a free one you will have to pay for one later) a year or so ago but stayed with the dumb ones. As to meter readings they seem to have not taken much note of mine and after not sending anyone round for quite a while 2 people came around in a fortnight.

  2. Smart meters were never intended to save anybody any money. The underlying purpose is to enable variable pricing in order to influence demand – as we move to more intermittent renewable energy supplies,

    • yes , I have also thought about that aspect .

      nice to know our illustrious leaders what us to emulate the electricity supply of , say , Pakistan…..

      take a look at Gridwatch to see how reliable our wind farms are …..
      ( about 13.5GW capacity )

      all backed up with gas …….. just fitting that HMG wants us to be powered by Wind and Gas…..;-)

      Forbin

    • You are right on that one Chris, the hidden sinister(already planned?) other reason for them is variable pricing at peak periods. Most people haven’t a clue how close this country is to shutting down during cold periods in the winter, the spare capacity that used to exist to cover such eventualities has all gone, the power stations(mostly coal fired)shut down for environmental reasons(whilst at the same time the government subsidises the building and the generation of electricity from wood pellet burning stations, the wood pellets being imported from Canada -how is that good for the environment?).

      There is now only 2-3% spare capacity left and that includes the link from France, how long will it be before the smart meters are used for variable pricing in these periods when we are close to blackouts and the price of a killowatt hours goes from 13p to 15p to 20p to 30p to 50p? until people stop using electricity and the threat of blackout has subsided?

      This isnsanity could only have been planned by the government. I wonder how many power stations could have been built with the money that will be thrown at the smart meter scheme by the time it is finished. And in case anyone thinks they will escape the penalties by refusing to have a smart meter, I’m sure some minister has already thought of a scheme to penalise them by putting them on a high penalty rate with their energy provider until they comply.

      • ‘This isnsanity could only have been planned by the government. I wonder how many power stations could have been built with the money that will be thrown at the smart meter scheme by the time it is finished. ‘

        Good point kevin.Also hwo many could we have built with the HS2 money?

  3. Prediction:HS2 will end up running over budget.

    You can see all the normal suspects lining up the govt-which has a long record of paying over the odds for things-on the other side of the contract.

    Moment of mirth today,Carillion named as a contractor for HS2 with impeccable timing.

    • Hi Dutch

      The way that Carillion emerged as a player is fascinating isn’t it? The share price closed up nearly 11 pence of 19% on the day so it is seeing a wild ride. Not exactly what you want from a utility and of course of interest to me and my neighbours via its role in the Battersea power station project.

  4. On the presumption that driver less cars are going to work, will this not make a train journey from London to Brum a rather lot of hassle … also presuming they’ll be allowed to go much faster than 70MPH.

    Can’t see many wanting to get out their futuristic tailor made car that takes you from your house to exactly where you want to go.for a cattle like experience on a train and pay a kings ransom for the privilege.

    • Yes Arthur, I was thinking the same. Build some dediated toll roads for electric driverless cars, greener from the sun, quieter and cheaper than all alternatives. HS2 will be only 1/4 built but half spent by the time it is redundant in 2022.

      • Could not agree more. Railways are victorian technology, they do not often take you from where you are to where you want to go. Another example is sewers, a hugely inefficient way of solving the problem. Time for some lateral thinking.

  5. Eurotunnel’s trains only run between Folkestone and Calais, as a “ferry” service.
    http://www.eurotunnelgroup.com/uk/shareholders-and-investors/key-figures/shareholder-analysis/

    Eurostar runs the trains from London to Paris, Brussels and a few other destinations, as an inter-city service.
    http://www.ft.com/content/3fadc1fe-1113-11e6-91da-096d89bd2173?mhq5j=e3

    HS1 is another separate company that operates the rail link from Folkestone to St. Pancras.
    http://www.telegraph.co.uk/business/2017/07/14/canadian-pension-funds-sell-loss-making-hs1-investor-consortium/

  6. Shaun, a nice summary of how Govt mandated investment is always manipulated by vested interests and usually poorly justifiable. Regarding meters, yes you want the new ones, version 2 or 3. Ideally you would also want to “own” the meter, much of the standing charges are allocation of rents to the asset owners. Say your standing charge is £36 then £4.50 will go to the meter owner and investor. I’d love to own my meter then when I paid £36 Id get 4.50 back. I bet you cant though.

    Paul C.

  7. ‘Investment now’ is one of those lovely phrases that the media trot out without having a clue what it is all about. When I worked in the private sector, I frequently had to sign off requests for investment expenditure in the form of capital expenditure ( e.g new factory, plant and equipment, vehicles etc) or advertising expenditure over and above what was planned, investment in people and so on. All investment had to be backed up with a return on investment financial plan and a written marketing plan to justify the financials. It didn’t have to be long winded – just believable and the manager requesting the expenditure signed it – and was responsible for it. This is all pretty basic stuff but I wonder if these mega projects are subject to the same scrutiny. I doubt it. I have examined our county councils justification for a new incinerator to be built and it runs to many volumes – of rubbish ( if you will pardon the pun). At no point could i find a concise return on investment plan and a simply worded justification to back it up. There are volumes of regurgitated figures and waffle about socio economic changes ( and I mean volumes!) all of which are already in the public domain – but that’s what you get when you hire consultants. They justify their cost per Kilo of documents they provide. getting something of substance in amongst the waffle is very hard to do.

    I will bet that HS2 and smart meters are the same; except that the power companies will be pushing smart meters as it will allow them to boost profits.

    The Government should be forced to publish an ROI statement and a simple and believable justification to back it up. And then be prepared for it to be questioned and scrutinised. As I said, all pretty basic stuff in the private sector.

    • dunno who down marked you but yer right , a A4 top sheet with ROI – details within

      assuming we can trust the top note figures of course…….

      ( if GDP and CPI are so Gerry Mandered …….)

      Forbin

      • I did it myself by accident whilst re reading what I had written! Pity there isnt an ‘undo’ button. Didn’t know you could rate your own comments!!

        • Have an uptick from me, Pavlaki
          Four years ago I calculated the ROI on my proposed Solar PV system would be 7% p.a. The actual ROI has never been below 7% and last year was 7.6% (as the retail price of power rises the ROI rises too!).

          I used to have a smart meter but it was replaced by a dumb meter when the Solar system was installed – apparently smart import/export meters didn’t exist.

  8. Government investing has nothing to do with returns in any measurable sense. There is no known return on building infrastructure but a whole bunch of people pretending their is. The question can we afford HS2 is absurd, the question is are the real resources needed best spent there and are they available? I highly doubt the UK’s indigenous is capable of building it.

    As to smart meters they are there to provide the illusion of scarcity of electricity as if we can’t afford to generate all we need and, as pointed out above, cut the workforce.

  9. Hi Guys

    I was just reading about Hyperloop, and the forecast cost per mile is way less than the HS2 budget, even before overruns. Of course it is unproven tech, but HS2 won’t even be open for 15 years. If Hyperloop works, UK will have another white elephant.

    Surely some positive investment in future tech is more visionary and uplifting than railway tech from 40years ago?

    • Hyperloop is proposed for distances of around 400 miles or more. London to Birmingham or even Manchester is too short.

  10. I have a bit of a bee in my bonnet about HS2 for two reasons. One is witnessing the chattering media in London and the cognoscenti complain about the costs as they laud CrossRail on the other, as London sucks up 95% of infrastructure investment over the last years.

    Secondly is the fact that speeding up links leading to the weaker centre being hollowed out and turned into a dormitory. This is little talked about. HS2 seems almost designed to achieve this as it links London up to the second city well in advance of other links.

    My preference would be to set a different strategy for the midlands and the north – to not try and create London2 or even dormitories for London1, but to say we want the midlands and north to experience a manufacturing resurgence for the purpose of mending the current account (services are a very small share of tradables globally compared to manufactures and we have a dangerously high share of that small amount). Scrap the expensive and damaging link between Birmingham and London and simply build a triangle linking the manufacturing centres of Birmingham to Sheffied and onto Leeds and across to Manchester and then to the ports of Liverpool and Hull.

  11. I question the security of these smart meters. A malicious hacker might disconnect your power and presumeably it would be possible to load cracked software which under-reported power consumption.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s