ALEX BRUMMER: Remarkable how accepting politicians have been of QE and how difficult it is to win acceptance for visionary projects such as nuclear

By ALEX BRUMMER, CITY EDITOR

Updated:

The indiscriminate Russian shelling of the Zaporizhzhia nuclear plant in Ukraine is the single biggest act of lunacy in an unnecessary and extraordinarily bloody war. 

At a moment when the Western democracies are struggling to come to terms with energy self-sufficiency without Russian oil and gas, meet net zero targets and overcome the phobia that surrounds atomic power, it is a monumental disservice. 

Germany had been planning to turn off all its nuclear power generation by the end of this year and terminated future projects after the Fukushima disaster in 2011. 

The future?: Whitehall funding has been secured for the Rolls-Royce project to produce small modular reactors

The future?: Whitehall funding has been secured for the Rolls-Royce project to produce small modular reactors

The withdrawal could be reversed as Europe's powerhouse economy remakes its plans after the Ukraine war amid new determination never again to be as dependent on the Kremlin for energy. 

By his attacks on nuclear plants, Russian president Vladimir Putin may have rekindled old fears in Germany about safety, decommissioning and radioactive waste disposal. 

It is to be hoped that it doesn't do the same in Britain where informed opinion, including parts of the green lobby, has moved decisively in favour of a fleet of new nuclear plants to provide a base-load of electricity production when the wind, which can provide up to 50 per cent of UK electricity requirements, fails to blow. 

Nuclear cannot be a short-term answer to anything, as the gestation time is so long. 

Electricite de France (EDF), which runs most of Britain's historical nuclear fleet, recognises that the policy of extending its life is no longer possible. That is why the vast Hinkley project in Somerset is so critical. It also explains why the Government, together with EDF, wants to start building a new plant at Sizewell. 

Chinese involvement is no longer seen as strategically sensible. It now looks as if the Government will displace China by taking a 20 per cent stake, matching the EDF equity. Another obstacle is the Regulated Asset Base proposed financing. This requires critics to bite their tongues and accept that dividend payouts will take place while the project is being delivered. 

The UK is fortunate in having an alternative, more flexible source of nuclear power. Whitehall funding has been secured for the Rolls-Royce project to produce small modular reactors (SMRs), based on the nuclear turbines used to power submarines, which can be put to land use. Each will produce less than 10 per cent of the output of Hinkley. 

The proposed 16 SMRs would be assembled more quickly and deployed more flexibly – if traditional negativity around nimbyism and waste disposal can be overcome.

Successive governments have struggled with the financing of new nuclear projects seen as too politically toxic, too risky and too longterm. Yet after the financial crisis and in the era of Covid, the Bank of England found resources to engage in a vast £895billion exercise in buying Government bonds through quantitative easing (QE). 

At times of acute financial and banking stress after the collapse of Lehman in 2008 and the start of the pandemic in March 2020 central bank actions were key to normalising markets. 

But there are real questions to be asked as to whether this was well targeted. Among the poor outcomes of QE has been the rise in speculative activity– a tech bubble, the boom in crypto currencies, special purpose acquisition companies, surging property prices and irresponsible private sector lending to emerging market entities. 

What if the authorities had chosen a different course? What if, instead of a black box policy of pumping money into the banking system, lessons from Franklin D Roosevelt in the 1930s or the Marshall Plan for European reconstruction after the Second World War were learnt? 

The Tennessee Valley Authority, which brought hydro-electricity and other power projects to America's South was a direct result. Imagine if some of the QE had been used to finance the creation of half a dozen large modern nuclear power plants. It would have been a big boost for Britain's productivity and energy security. 

It is remarkable how accepting politicians have been of QE, perhaps because nobody understands it, and how difficult it is to win acceptance for visionary infrastructure projects such as Hinkley, Sizewell C and rail link HS2. 

Unfocused pump priming hit too many wrong targets. 

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