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The other election: South Carolina and the battle for the US Senate

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As a first-term congressman from South Carolina, Lindsey Graham stood on the floor of the House of Representatives and attacked what he called the “fog” of Washington.

“People are so detached from reality . . . it really is amazing,” the political newcomer said. He noted his promise to serve no more than a dozen years on Capitol Hill.

That was 25 years ago.

A quarter-century later, a silver-haired Mr Graham is coming to the end of his third six-year term as a US senator. He is among the most senior Republicans in Congress and one of President Donald Trump’s closest allies.

But the 65-year-old is in now in the fight of his political life. He faces a formidable challenge from Democrat Jaime Harrison, a black 44-year-old former congressional aide and lobbyist who has raised $86m for his campaign — more money than any Senate candidate in US history.

With fewer than three weeks to go until election day, statewide polls show a tight race — the last Quinnipiac survey had the two men statistically tied. The same poll showed Mr Trump leading his Democratic opponent Joe Biden by just one point, a stunning set of circumstances in a historically Republican southern state where Mr Graham won re-election six years ago by a nearly 17-point margin.

The Republican party is hoping to rally its base with the confirmation of Amy Coney Barrett as a Supreme Court justice © Win McNamee/POOL/EPA-EFE/Shutterstock

“The fact is that Jaime hopped into this race when nobody said he had a snowball’s chance in hell,” says Trav Robertson, chair of the South Carolina Democratic party. “He has put together a campaign that has put him nationally, and in this state, in the realm of doing what people did not think was possible.”

The fate of Republican senators, such as Mr Graham, is central to the outcome of the November 3 election. Given Mr Biden’s comfortable lead in the polls, many Democrats are starting to grow more confident about winning the White House.

But the success of a Biden administration would also depend on the Democrats winning the Senate. Only then would the new president have a chance to push through legislative priorities on everything from healthcare to climate change to pandemic stimulus without Republican obstruction.

Mr Graham is one of several Republican senators struggling to keep their seats. Martha McSally in Arizona, Cory Gardner in Colorado and Susan Collins in Maine all face tough re-election battles. So do David Perdue in Georgia, Joni Ernst in Iowa and Thom Tillis in North Carolina — all states that Mr Trump won in 2016.

It is a state of affairs that seemed unimaginable just a few months ago. But amid heavy criticism of Mr Trump’s handling of the pandemic, many voters appear to be lining up behind Democratic congressional candidates, too.

The key races 1: Republican women under fire

Iowa 

Republican incumbent Joni Ernst, right, the first female combat veteran elected to the Senate, is trailing Democrat Theresa Greenfield, who runs a local real estate firm, in the polls in the Midwestern state that Mr Trump won by 10 points in 2016.

Maine 

Longtime Republican senator Susan Collins, right, who has always styled herself as a moderate, could lose her seat to Sara Gideon, a Democratic state lawmaker, in part because of her support for Mr Trump’s appointment of Brett Kavanaugh to the Supreme Court.

“When you are looking at trying to win in places like South Carolina and Montana, and Iowa, and Georgia, and North Carolina, it seemed impossible to knock off incumbents . . . if you presumed a normal presidential map in a normal year,” says Matt Bennett, co-founder of the Democratic think-tank Third Way. “But certainly the map is expanding in incredible ways.”

Democrats hold the House of Representatives, but the Republicans currently control the 100-member upper chamber of Congress, with 53 senators. Two senators — Angus King of Maine, and Bernie Sanders of Vermont — are independents but caucus with the Democrats.

Mr Graham’s race in South Carolina is emblematic of the broader issues faced by Republicans across America. On one hand, the party is hoping to rally its base with the confirmation of Amy Coney Barrett as a Supreme Court justice who is opposed to abortion and in favour of gun rights. As chairman of the Senate judiciary committee, Mr Graham has a starring role in that process, with confirming hearings being held this week.

On the other hand, the senator and many of his colleagues are realising that supporting Mr Trump is a double-edged sword. If they curry favour with the president’s most ardent supporters, they risk alienating the moderate Republicans and swing voters who cannot stomach his bombastic rhetoric and are angered by his management of the pandemic.

Mr Harrison believes he can pull off what he describes as a “David and Goliath” story. “We are on the verge of a tremendous upset,” he says.

Lindsey Graham, left, is a frequent defender of Trump, centre, on Fox News, and a regular golfing partner for the president © Jim Lo Scalzo/EPA-EFE

‘Trump is on your side’

Mr Graham is perhaps the most extreme example of a Republican who has changed his tune on the president. In the run-up to the 2016 presidential election, the senator called Mr Trump a “race-baiting, xenophobic, religious bigot”, a “kook” and a “jackass” who was “unfit” to be president.

Today, Mr Graham, a frequent defender of Mr Trump on Fox News and a regular golfing partner for the president at weekends, is working in lockstep with the White House to confirm Ms Barrett.

In South Carolina, Mr Graham has tried to satisfy two different groups. He has a rightwing base that has never liked his record of bipartisanship — along with his close friend, the late Republican senator John McCain, the senator frequently worked with Democrats earlier in his career. But he also needs more moderate Republicans and independents who see his U-turn on Mr Trump as hypocritical at best and unforgivable at worst.

Earlier this month, just hours after the White House revealed that the president had tested positive for Covid-19, Mr Graham was in a hotel ballroom in Myrtle Beach, a seaside golf resort, addressing a conference of current and retired South Carolina police officers. It was only 9am, but the senator said he had already spoken to the president on the phone to wish him well.

“The Republican party has its faults, and Trump can be a handful . . . but he has been right on the things that matter to me, and I hope to you,” Mr Graham told the audience. “Do you have any doubt that Donald Trump is on your side? Do you have any doubt that I am on your side?”

Key races 2: the Deep South

Alabama 

Republicans are likely to pick up a Senate seat in Alabama, where college football coach Tommy Tuberville, right, is challenging incumbent Democrat Doug Jones, who won in a 2017 special election against Roy Moore, who was the subject of sexual misconduct allegations.

Georgia 

Both of Georgia’s US Senate seats are up for grabs, with Democrat Jon Ossoff, left, challenging incumbent Republican David Perdue, second from left, and a simultaneous special election involving two Republicans and one Democrat vying for a vacancy that opened up in 2019 with Johnny Isakson’s resignation. Kelly Loeffler, an Intercontinental Exchange executive, filled the spot but she is being challenged by fellow Republican Doug Collins, bottom right, a vocal Trump ally, and Democrat Raphael Warnock, second from right.

The officers — many of whom said they would never vote for a Democrat after calls by left-leaning activists to “defund the police” during this summer’s Black Lives Matter protests — proved to be a friendly crowd for Mr Graham, giving him a standing ovation.

But the senator did not shy away from acknowledging his ballot box battle, saying he was taking the challenge “seriously”.

“Has anybody seen a commercial of my opponent? If I see one more, I think I am going to vote for him,” Mr Graham quipped, referring to the wall-to-wall television advertisements the Harrison campaign has purchased. “Where the hell is all of this money coming from?”

“Every liberal in the country is supporting my opponent, which means to me I must be doing something right,” he added. “So let’s send a message to Hollywood from South Carolina: You’re welcome to visit, but you’re not going to pick our senator.”

Changing state

South Carolina has long been a Republican stronghold. The last Democrat to win the state in a presidential election was Jimmy Carter in 1976, and he benefited in part from calling the neighbouring state of Georgia home. Republicans currently control all of South Carolina’s statewide offices. Mr Graham is one of two Republican senators from the state. Five of the state’s seven House members are also from the GOP.

The two exceptions are Jim Clyburn, a veteran Democratic congressman whose endorsement helped catapult Mr Biden to his party’s presidential nomination, and Joe Cunningham, a first-term congressman who was part of a wave of Democrats who flipped seats held by Republicans in the 2018 US midterm elections.

The socially conservative and strongly religious state, which was the first to secede from the union in the American Civil War, also maintains a complicated relationship with its slave-trading past. The Confederate battle flag — a symbol often associated with slavery and segregation — was only removed from the State House five years ago, after a white supremacist killed nine black worshippers at Mother Emanuel, a church in Charleston.

“It really is a Republican-dominated state. But it is a state that is changing,” says Gibbs Knotts, a political science professor at the College of Charleston. He pointed to an influx of Democrats from parts of the north-east and Midwest and said Mr Harrison would need to mobilise those voters, as well as the state’s large African-American population, to win in November.

“There is a coalition to be built,” Mr Knotts says. “[Barack] Obama did it nationally; Joe Cunningham did it in the first congressional district. But we have not seen anyone do that statewide in South Carolina in 20 years or so.”

The coronavirus pandemic is likely to be among the topics discussed in Mr Graham’s first re-election debate with Democratic challenger Jaime Harrison © Joshua Boucher/The State/AP

Younger Democrats, many with college degrees, have moved to South Carolina in recent years for jobs in the suburbs of Charlotte, which is just over the state border in North Carolina. Older Democrats, drawn to milder winters and lower taxes, have moved to South Carolina to retire along the Atlantic coast.

For conservatives, the shift has not gone unnoticed. At a local Republican party office in Charleston earlier this month, one man stopped in to collect yard signs advertising for Mr Graham, noting that “unfortunately” he had seen many placards for Mr Harrison in his neighbourhood. “I don’t know what’s going on, but I have a feeling I know what’s going on,” he said to a party volunteer, who nodded in agreement.

“They come down here for the lower taxes and the nice lifestyle, but then they bring their politics with them,” she said. “They turn us into what they left.”

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South Carolina is one of many southern states where changing demographics, driven in part by economic growth and job opportunities in cities like Charlotte, as well as Atlanta, Georgia, and Austin, Texas, have resulted in an influx of Democratic voters and the possibility that states that were once solidly “red” could shift to the Democrats. Mr Harrison frequently describes his campaign as part of a wider effort to build a “New South”.

But Republican officials maintain South Carolina will stay true to its roots. Drew McKissick, chairman of the state Republican party, contends that even the large sums of money being spent by the Harrison campaign would not be enough to win over a majority of the state’s voters.

“Quite frankly, no matter how much you spend on any campaign, people have to be willing to buy what you are selling. Just ask President [Mike] Bloomberg or President Tom Steyer,” he says, referring to the two billionaires who failed in their Democratic presidential primary bids.

“Jaime is the representative of Democratic party on the ballot,” Mr McKissick said. “Representing the Democratic party comes with a lot of political baggage that is not popular in South Carolina.”

Key races 3: a shift in the Sunbelt

Arizona 

Democrats in this south-western state have pinned their hopes on Mark Kelly, a former astronaut and husband of Gabby Giffords, the congresswoman who narrowly survived an assassination attempt in 2011. Mr Kelly is on course to oust Martha McSally, a former fighter pilot who has struggled to appeal to both Donald Trump’s rightwing base and centrist Republicans.

North Carolina 

Republican Thom Tillis, right, a former management consultant at PwC and IBM, is in the fight of his political life, defending his seat against Democrat Cal Cunningham, a retired military officer who was leading in the polls but whose campaign is reeling from revelations that he had an extramarital affair.

Fundraising gap

The Harrison campaign on Sunday revealed they had raised $57m in the third quarter, the largest sum raised in three months by a Senate candidate in US history. The previous quarterly record was held by Beto O’Rourke, the former Democratic congressman who raised $38m in the final stretch of his effort to oust Ted Cruz in Texas in the 2018 midterms.

Republicans are keen to draw comparisons between Mr Harrison and Mr O’Rourke, who came up short against Mr Cruz despite generating widespread national enthusiasm for his candidacy.

Mr Harrison bristles at Republicans’ suggestions that the bulk of his donations have come from wealthy donors living outside of South Carolina. His campaign says the total of $86m they had raised so far in this election cycle has come from nearly 1m individual donors, with an average donation size of $37. South Carolina has a population of 5.1m.

“This is grassroots. Grandmas, grandpas, aunts, uncles, cousins, donations from all [of South Carolina’s] 46 counties . . . I am proud of that,” Mr Harrison said.

Katon Dawson, former chairman of the South Carolina Republican party, disagrees. “Jaime Harrison doesn’t know these people, he does not have to know them,” Mr Dawson says, adding that he was confident that despite the fundraising gap — Mr Graham’s campaign has not disclosed its third-quarter figures, but had raised nearly $30m at the end of June — the senator would triumph.

Mr Graham has come under fire for going back on his 2016 statement that there should be no vote on Supreme Court nominees in an election year © Stefani Reynolds/Getty

“It will show you that a lot of people don’t like President Trump, nor Lindsey, but that’s OK. We’re going to show how many people do like him,” he says. “Everybody around the country who doesn’t like him, doesn’t matter here. Because guess what? They can’t vote.”

Mr Dawson and other Republicans say Mr Graham’s stewardship of Judge Barrett’s confirmation will only earn him plaudits with South Carolina voters, galvanising conservatives around issues like abortion and gun rights, while reminding those on the fence of his influence in Washington.

Rob Godfrey, a longtime adviser to former South Carolina Republican governor Nikki Haley, says the hearings will provide an “unquantifiable and invaluable” contribution to Mr Graham. “It is pretty easy for people to click away from, or turn the channel on, traditional TV ads,” says “It is a much harder proposition to change every channel when you have got Senator Graham leading the . . . hearings.”

But Mr Harrison says Mr Graham’s handling of the Supreme Court vacancy is just another example of the senator’s flip-flopping.

After Ruth Bader Ginsburg died last month, a video went viral of Mr Graham from four years earlier, when Republicans refused to consider Barack Obama’s Supreme Court nominee, Merrick Garland, during an election year.

In the clip, the senator said: “I want you to use my words against me. If there is a Republican president . . . and a vacancy occurs in the last year of the first term, you can say Lindsey Graham said, ‘let’s let the next president, whoever it might be, make that nomination’.”

The senator swiftly distanced himself from his earlier comments, insisting Republicans press ahead with confirming Judge Barrett, saying: “The rules have changed as far as I’m concerned.”

“This is a guy who cannot keep his word,” Mr Harrison said. “My grandfather taught me, he said a man is only as good as his word. What is Lindsey Graham’s word worth?”

Profile photographs by AP, Getty Images, AFP via Getty Images, Bloomberg and Reuters



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Analysis

Square’s $29bn bet on Afterpay heralds future for ‘buy now, pay later’ trend

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Jack Dorsey’s biggest gamble to date has sent ripples around the fintech and banking world, with investors betting that Square’s $29bn all-stock deal to acquire Afterpay signals the “buy now, pay later” trend has staying power.

BNPL relies on an emerging thesis that millennials and Gen Z consumers distrust traditional credit, but still want to borrow money to buy goods. Afterpay allows shoppers to split the cost of goods into four instalments with no interest — but a late fee if payments are missed.

“We think we’re in the early days of the opportunity facing us,” said Square’s chief financial officer Amrita Ahuja, speaking to the Financial Times. “From a buy now, pay later perspective, we see, with online payments alone, a large and growing opportunity representing $10tn in payments volume by 2024.”

The deal sees Square join an increasingly crowded space, alongside big players such as Sweden’s Klarna, Silicon Valley-based Affirm and PayPal, with Apple also exploring the market. The sector also faces a brewing regulatory battle, as legislators question an industry that lends money in an instant, often without a traditional credit check to ensure a consumer will be able to pay off their debt.

“This decade is going to be the upheaval of the banking industry,” Klarna’s chief executive Sebastian Siemiatkowski, said on CNBC on Monday. “I’m a little bit surprised to see consolidation happening this early, at this level, but at the same point in time I think this is directionally what we’re going to see.”

Column chart of By downloads (% of total) showing Top US mobile payment solution apps

BNPL has exploded in popularity over the past year thanks to the coronavirus pandemic-driven boom in online shopping, but industry executives said it had shown strong growth well before the pandemic, alongside a broader trend for more flexible financing among traditional lenders.

Leading into 2020, banks including JPMorgan Chase, American Express and Citigroup each launched flexible payment options tied to existing credit cards as an answer to point-of-sale financing.

The past 18 months have seen a meaningful uptick in the number of retailers willing to adopt the extra financing option. “There’s a little bit of FOMO setting in,” said Brendan Coughlin from Citizens Financial Group.

Afterpay was among the pioneers in BNPL. It was founded by Sydney neighbours Nick Molnar and Anthony Eisen in 2014, and today facilitates global annual sales of $15.6bn.

The company went public on the Australian Securities Exchange in 2016 at a valuation of A$165m (US$122m). In May 2020, Chinese tech giant Tencent paid about A$300m for a 5 per cent stake in the Australian group, which was by then worth about A$8bn.

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The Afterpay tie-up will enable Square to offer BNPL services to its millions of merchants, who processed payments worth $38.8bn in its most recent quarter, while also tapping into Afterpay’s clients, which include Amazon and Target.

The company will also integrate Afterpay into its Cash App, which has about 70m users and is slowly being built out as a one-stop financial services shop for payments, cryptocurrency, saving and investing.

“All of a sudden, you’ve got probably the most compelling super app outside of China,” said DA Davidson’s Chris Brendler, who is an investor in both companies.

Square’s gross payment volume

Investors appear convinced. Despite the deal coming at a 30 per cent premium to Afterpay’s most recent stock price, the news sent Square’s share price up 10 per cent by Monday’s close.

“This is certainly a bull market deal,” said Andrew Atherton, managing director at Union Square Advisors. “People are rewarding Jack Dorsey for being bold and for making a big bet.”

Square’s entry into BNPL comes as the sector is becoming increasingly competitive.

Klarna increased its valuation from $11bn in September 2020 to $46bn in June of this year, making it the most valuable standalone company in the industry.

Shares in Affirm, the US online lender led by PayPal co-founder Max Levchin, rose 15 per cent on Monday following news of the Afterpay deal. Affirm, which went public in January and is now valued at $17bn, recently expanded its partnership with Shopify to offer BNPL services to the ecommerce platform’s US merchants.

PayPal first moved into BNPL back in 2008 when its then-parent eBay bought Bill Me Later. A year ago, PayPal launched Pay in 4, a six-week instalment offering that is free for both consumers and merchants, alongside its longer-term PayPal Credit service.

Earlier this year, Apple was recruiting staff for its payments division with experience in BNPL, as it looks to expand Apple Pay and its Wallet app. Bloomberg reported last month that the iPhone maker was working with Goldman Sachs to develop an Apple Pay Later service.

Industry executives warn, however, that the more crowded market could erode the businesses’ margins, while flustered consumers may also be put off by the rapidly growing number of checkout options.

“The current state of affairs, where you have seven buttons when you go to checkout, I don’t think is a sustainable state of affairs,” said one consumer finance executive at a top US bank. “I think we are in an interim period.”

A bigger threat still is the sector’s immature and inconsistent regulatory environment.

“It’s what everyone is calling the Wild West,” said Alyson Clarke, an analyst at Forrester. “There is no onus on them to make sure that you are of financial health to be able to repay that loan.”

Some companies do a “soft” credit check that briefly examines a person’s position but “not as much as they should be doing if they are lending you money”, Clarke said. “Afterpay doesn’t do any of that.”

A survey of Australian consumers, compiled by the country’s financial regulator in 2020, suggested 21 per cent of BNPL users missed a payment in the previous 12 months. Almost half of them were aged 18 to 29. Morgan Stanley analysts have estimated Afterpay makes about $70m a year on late fees.

The UK’s financial regulator has said BNPL players should be forced to adhere to its credit rules as a “matter of urgency”. In the US, a government consumer protection agency issued guidance urging caution around “tempting” BNPL deals.

In a hint at further possible tensions, Capital One in December became the first major credit card company to block its customers from using its cards to pay off BNPL purchases, calling the practice “risky for customers and the banks that serve them”, according to Reuters.

Afterpay board member Dana Stalder said the company welcomed regulation. “Buy now, pay later is just a friendlier consumer product,” he said. “Consumers understand that, they’re not dumb. This is why they are voting with their feet.”

Additional reporting by Richard Milne



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UK pushes floating wind farms in drive to meet climate targets

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In waters 15km south-east of Aberdeen, renewable energy companies are preparing to celebrate yet another landmark in the drive to end Britain’s reliance on fossil fuels.

Five wind turbines, each taller than the Gherkin building in the City of London, fixed to 3,000-tonne buoyant platforms have been towed to the UK North Sea from Rotterdam where they will form part of the Kincardine array, the world’s biggest “floating” offshore wind farm.

Wind farm developers have dabbled since the 2000s with floating technology to overcome the limitations of conventional offshore turbines. These are mounted on structures fixed to the seabed and are difficult to install beyond depths of 60m, which makes them unsuitable for waters further from shore where wind speeds are higher.

Floating projects, which are anchored to the seabed by mooring lines, are rapidly moving from the fringes to the mainstream as countries turn to the technology to help meet challenging climate targets.

Britain was the first country to install a floating offshore wind farm off the coast of Peterhead, Scotland in 2017. But existing floating projects are modest in size. The Kincardine array has an electricity generation capacity of 50MW compared to 3.6GW for the world’s largest conventional offshore wind farm.

Map showing the location of Kincardine offshore floating wind farm, offshore from Aberdeen on Scotland's east coast

Now the bigger wind developers are stepping up a gear with plans to build more schemes on a larger scale.

Denmark’s Orsted, Germany’s RWE, Norway’s Equinor along with the UK’s ScottishPower and Royal Dutch Shell are some of companies on a long list of bidders vying to build floating schemes in an auction of seabed rights for about 10GW of offshore wind projects in Scottish waters. The bidding round closed in mid-July with the winners expected to be announced in early 2022.

The UK is separately examining an auction exclusively for floating wind in the Celtic Sea, the area of the Atlantic Ocean west of the Bristol Channel and the approaches to the English Channel and south of the Republic of Ireland.

Developers expect the costs of floating projects to fall rapidly as more projects are deployed. In 2018 floating wind costs were estimated at more than €200 per megawatt hour, nearly double the cost of nuclear power in the UK.

The Offshore Renewable Energy Catapult, a UK technology and research centre, is hopeful developers will be able to build “subsidy free” floating projects at prices below forecast wholesale electricity costs in auctions as early as 2029. Conventional offshore wind developers reached this inflection point in a UK government auction in 2019.

A Norwegian flag flies from a boat near the assembly site of offshore floating wind turbines in the Hywind pilot park, operated by Equinor
Norway’s Equinor is among the companies competing to build floating turbines in Scottish waters © Carina Johansen/Bloomberg

UK prime minister Boris Johnson, who is hosting the UN’s COP26 climate summit later this year, has set a 1GW floating target out of a total 40GW offshore wind goal by 2030. He has underlined the importance of accessing the “windiest parts of our seas” as part of the UK’s goal to cut carbon emissions to net zero by 2050. 

Other countries including France, Norway, Spain, the US and Japan are pursuing the technology, which experts said would particularly appeal to countries with limited access to shallow waters, or where the geology of the seabed makes it impossible to install conventional “fixed-bottom” turbines.

WindEurope, an industry body, predicts one-third of all offshore wind turbines installed in Europe by 2050 could be floating.

Countries pursuing floating wind are interested in it “not just as an opportunity to deliver net-zero targets. It has a real potential to be a driver of economic growth as well,” said Ralph Torr, a programme manager at the Offshore Renewable Energy Catapult.

Much like how the UK supply chain has lost out to foreign companies in the construction of conventional wind offshore farms — despite Britain having more than anywhere else in the world — there are concerns the mistakes will be repeated for floating technology. Manufacturing work for the Kincardine project was carried out in Spain and Portugal and the turbines and foundations assembled in Rotterdam.

An offshore wind turbine off the coast of Fukushima, Japan
A wind turbine off the coast of the town of Naraha in Japan’s Fukushima prefecture. Japan is one of the countries pursuing floating technology © Yoshikazu Tsuno/AFP/Getty Images

Competition with other markets was already high as they all tried to gain a “first-mover advantage”, said Torr, who warned the UK government’s 1GW floating wind target by 2030 was not “going to unlock huge investment in the supply chain or infrastructure because it’s [just] a handful of projects”.

The Offshore Renewable Energy Catapult and developers are urging the government to commit to a second target in 2040 for floating wind, which they believe would provide confidence to industry to invest in the necessary facilities in Britain.

“Because floating [wind] becomes economic in the 2030s, it’d be much better to understand what the longer term pipeline is,” said Tom Glover, UK country chair at RWE. He added that in the Scottish seabed rights auction, developers had to “provide a commitment and an ambition for Scottish content”, which should benefit the local supply chain.

Wind developers are conscious that UK suppliers need time to gear up. Christoph Harwood, director of policy and strategy at Simply Blue Energy, which is developing a 96MW floating scheme off the coast of Pembroke in Wales, said projects that were larger than the earliest floating schemes but were not yet at a full commercial scale would be important in that process.

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“If the UK supply chain is to benefit from floating wind, don’t rush into 1GW projects, take some stepping stones towards them,” he said.

Tim Cornelius, chief executive of the Global Energy Group, which carries out offshore wind assembly work at the Port of Nigg on the Cromarty Firth in north-east Scotland, said the size of floating wind turbines offered opportunities to UK suppliers. 

The floating turbines are much bigger than their conventional offshore counterparts so need to be built closer to their point of installation, which precludes using the lowest cost manufacturers in China and the Middle East.

The floating turbines require “an astonishing amount” of deepwater quayside space at ports, Cornelius explained. His company is looking at creating an artificial island for quaysides in the Cromarty Firth in Scotland, which he says would require a “material investment but is entirely justifiable as long as developers are prepared to commit”.

But he warned that “as it currently stands, the [UK] supply chain isn’t in a position to be able to support the aspirations of the [floating offshore wind] industry”.

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Analysis

China tech crackdown claims ETF victims

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Exchange traded funds updates

Beijing’s regulatory crackdown on some of its biggest companies in technology and education has delivered a bruising blow to highly specialised China-focused exchange traded funds.

Broad-based tech ETFs have sailed through virtually unscathed, but some narrowly focused thematic instruments have taken a beating. Among those most affected, the KraneShares CSI China Internet ETF (KWEB) has nearly halved in value since its peak in February.

Some ETF buyers are hunting specifically for targeted strategies, despite the risks. But Kenneth Lamont, senior fund analyst at Morningstar, said this highlights the potential drawbacks of tracking a narrow theme without the flexibility to shift tactics.

“The [passive thematic] strategy has no way to quickly react to bad news and will hold the stock until the next rebalance. The small number of fund holdings also means that overall returns can be influenced by the performance of handful of stocks,” Lamont said.

Line chart of Total returns, year to date (rebased) showing Narrow vs broad tech ETF

He noted that for the KraneShares ETF, one Chinese education group alone — TAL Education Group — was responsible for knocking 2.8 percentage points off performance from the end of June.

Global X Education ETF (EDUT), which has a large exposure to the Chinese online education sector, was also badly affected.

Actively managed ETFs, such as Ark Invest’s ARKK flagship Innovation fund, can react more quickly. After voicing her optimism for the prospects for China’s tech disrupters earlier this year, Cathie Wood, Ark’s chief executive, shed millions of dollars worth of shares in four China-domiciled companies.

Line chart of Number of shares held (millions) showing ARKK has been selling Chinese technology holdings

Investors in ARKK have not been rewarded as well as those who simply put their money in broadest based funds such as the Vanguard Total World Stock Index Fund ETF (VT), but they have still managed to ride out the China tech storm far better than more exposed counterparts.

Line chart of Returns, year to date (rebased) showing ARKK vs Vanguard Total World Stock ETF (VT)

Some investors insist Chinese investments can bounce back. Mark Martyrossian, chief executive of UK-based Aubrey Capital Management, said he believed many of the affected tech companies would maintain their market leadership.

“The gravy train may have slowed but you disembark at your peril,’ Martyrossian said.

Lamont said badly hit funds had suffered such losses because they were doing exactly what they had promised to do — provide narrow exposure.

More nimble active investment strategies also face their own challenges, said Elisabeth Kashner, director of global fund analytics at FactSet. “Active managers may successfully anticipate market reversals, but they can also miss them, sometimes seriously tanking returns,” she said. “Some people can be skilful and some people can be lucky and if you’re lucky and skilful in one period you might be lucky and skilful in the next, but you might not.”

Additional reporting by Steve Johnson

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