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Hydrogen project set to drive UK transition to a low-carbon economy

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Indian energy company Essar is planning to build the UK’s biggest low carbon hydrogen production hub to help the country’s transition to a more environmentally sustainable economy.

The £750m investment in two plants will be made jointly with clean energy specialist Progressive Energy as part of its HyNet scheme, a project to supply low carbon hydrogen to industrial sites and homes in north-west England.

The news is a fillip to the UK government’s drive to meet its target of net zero carbon emissions by 2050. Ministers have pledged to have 5 gigawatts of low carbon hydrogen production capacity for use in industry, transport, power and homes by 2030, with one town heated entirely by the gas.

Essar would build the plants next to its Stanlow refinery on the Mersey estuary in north-west England. Natural gas, and fuel gases from the refinery, will be converted into low carbon hydrogen, with carbon dioxide captured and stored in depleted undersea gasfields 60km offshore in Liverpool Bay. The refinery will be converted to burn hydrogen instead of natural gas.

Carbon capture and storage remains controversial. It is expensive and environmental groups believe it is better to find alternative fuel sources that do not emit carbon dioxide.

However, Chris Manson-Whitton, a director of Progressive Energy, said switching to hydrogen was the only way to decarbonise many heavy industries. He pointed out that the area around Stanlow is home to several big plants that could be converted, and the high cost of burying the carbon would be cut dramatically thanks to the presence of a gas pipeline to the nearby undersea reservoirs.

“If hydrogen cannot work here it cannot work anywhere. We have gasfields reaching the end of their economic life nearby. People will not now need to pay for decommissioning,” said Mr Manson-Whitton. “We have a refinery that is well used to dealing with combustible gases and chemical industries as potential clients.”

Glassmaker Pilkington is trialing hydrogen power © Paul Thomas/Bloomberg

HyNet is already trialing hydrogen power with Pilkington, the glassmaker, in St Helens and Unilever, which makes cleaning products, at Port Sunlight on the Mersey. If the trial is successful, Cadent, which owns local gas infrastructure, will build the supply pipelines, eventually feeding households and potentially ships and trains across the north-west.

Ministers are currently consulting on a hydrogen incentive regime and Mr Manson-Whitton said the government would need to provide around £25 per megawatt hour to cover the difference between the cost of natural gas and hydrogen.

The government gave HyNet £7.5m for development work last year. Essar and other partners in the scheme are waiting for details of the new subsidy regime before committing to the project.

Stein Ivar Bye, chief executive of Essar Oil UK, said the switch to hydrogen was the best way to secure a sustainable future for the refinery, which provides 16 per cent of UK road transport fuels. He added that the cost of carbon, currently about €27 a tonne in the EU, is expected to rise as governments try to force companies to decarbonise. 

“HyNet is the most synergistic way for us to reduce our carbon footprint. It is also the right thing to do,” he said.

The first plant should open in 2025 and have a capacity of 350MW, Mr Bye said, adding that the second is expected in 2027 with a capacity of 700MW. He estimated that by 2030 the project could be trapping 10m tonnes of carbon dioxide every year.

Mr Bye said financial institutions were ready to invest in green energy projects. “They are interested if you say you have a long-term strategy to transform our business to a supplier of sustainable energy solutions.”

Aurora, a consultancy, estimates that 25 per cent of UK energy demand will be met by hydrogen by 2050, when its production price will be £50 per MW hour.

Additional reporting by Nathalie Thomas



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Financial bubbles also lead to golden ages of productive growth

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Sir Alastair Morton had a volcanic temper. I know this because a story I wrote in the early 1990s questioning whether Eurotunnel’s shares were worth anything triggered an eruption from the company’s then boss. Calls were made, voices raised, resignations demanded. 

Thankfully, I kept my job. Eurotunnel’s equity was also soon crushed under a mountain of debt. Nevertheless, the company was refinanced and the project completed. I raised a glass to Morton’s ferocious determination on a Eurostar train to Paris a decade later.

With hindsight, Eurotunnel was a classic example of a productive bubble in miniature. Amid great euphoria about the wonders of sub-Channel travel, capital was sucked into financing a great enterprise of unknown worth.

Sadly, Eurotunnel’s earliest backers were not among its financial beneficiaries. But the infrastructure was built and, pandemics aside, it provides a wonderful service and makes a return. It was a lesson on how markets habitually guess the right direction of travel, even if they misjudge the speed and scale of value creation.

That is worth thinking about as we worry whether our overinflated markets are about to burst. Will something productive emerge from this bubble? Or will it just be a question of apportioning losses? “All productive bubbles generate a lot of waste. The question is what they leave behind,” says Bill Janeway, the veteran investor.

Fuelled by cheap money and fevered imaginations, funds have been pouring into exotic investments typical of a late-stage bull market. Many commentators have drawn comparisons between the tech bubble of 2000 and the environmental, social and governance frenzy of today. Some $347bn flowed into ESG investment funds last year and a record $490bn of ESG bonds were issued. 

Last month, Nicolai Tangen, the head of Norway’s $1.3tn sovereign wealth fund, said that investors had been right to back tech companies in the late 1990s — even if valuations went too high — just as they were right to back ESG stocks today. “What is happening in the green shift is extremely important and real,” Tangen said. “But to what extent stock prices reflect it correctly is another question.”

If the past is any guide to the future, we can hope that this proves to be a productive bubble, whatever short-term financial carnage may ensue.

In her book Technological Revolutions and Financial Capital, the economist Carlota Perez argues that financial excesses and productivity explosions are “interrelated and interdependent”. In fact, past market bubbles were often the mechanisms by which unproven technologies were funded and diffused — even if “brilliant successes and innovations” shared the stage with “great manias and outrageous swindles”.

In Perez’s reckoning, this cycle has occurred five times in the past 250 years: during the Industrial Revolution beginning in the 1770s, the steam and railway revolution in the 1820s, the electricity revolution in the 1870s, the oil, car and mass production revolution in the 1900s and the information technology revolution in the 1970s. 

Each of these revolutions was accompanied by bursts of wild financial speculation and followed by a golden age of productivity increases: the Victorian boom in Britain, the Roaring Twenties in the US, les trente glorieuses in postwar France, for example.

When I spoke with Perez, she guessed we were about halfway through our latest technological revolution, moving from a phase of narrow installation of new technologies such as artificial intelligence, electric vehicles, 3D printing and vertical farms to one of mass deployment.

Whether we will subsequently enter a golden age of productivity, however, will depend on creating new institutions to manage this technological transformation and green transition, and pursuing the right economic policies.

To achieve “smart, green, fair and global” economic growth, Perez argues the top priority should be to transform our taxation system, cutting the burden on labour and long-term investment returns, and further shifting it on to materials, transport and dirty energy.

“We need economic growth but we need to change the nature of economic growth,” she says. “We have to radically change relative cost structures to make it more expensive to do the wrong thing and cheaper to do the right thing.”

Albeit with excessive enthusiasm, financial markets have bet on a greener future and begun funding the technologies needed to bring it to life. But, just as in previous technological revolutions, politicians must now play their part in shaping a productive result.

john.thornhill@ft.com



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US tech stocks fall as government bond sell-off resumes

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A sell-off in US government bonds intensified on Wednesday, sending technology stocks sharply lower for a second straight day.

The yield on the 10-year US Treasury bond, which acts as a benchmark for global borrowing costs, climbed to nearly 1.5 per cent at one point. It later settled around 1.47 per cent, up nearly 0.08 percentage points on the day.

Treasury trading has been particularly volatile for a week now — 10-year yields briefly eclipsed 1.6 per cent last Thursday — but the rise in yields has been picking up pace since the start of the year and the moves have begun weighing heavily on US stocks.

This has been especially true for high-growth technology companies whose valuations have been underpinned by low rates. The tech-focused Nasdaq Composite index was down 2.7 per cent on Wednesday, on top of a 1.7 per cent drop the day before.

The broader S&P 500 fell by 1.3 per cent.

The US Senate has begun considering President Joe Biden’s $1.9tn stimulus package, with analysts predicting that the enormous amount of fiscal spending will boost not only economic growth but also consumer prices. The five-year break-even rate — a measure of investors’ medium-term inflation expectations — hit 2.5 per cent on Wednesday for the first time since 2008.

Inflation makes bonds less attractive by eroding the value of their income payments.

“I would expect US Treasuries to continue selling off,” said Didier Borowski, head of global views at fund manager Amundi. “There is clearly a big stimulus package coming and I expect a further US infrastructure plan to pass Congress by the end of the year.”

Mark Holman, chief executive of TwentyFour Asset Management, said he could see 10-year yields eventually trading around 1.75 per cent as the economic recovery gains traction later this year.

“It will be a very strong second half,” he said.

Line chart of Five-year break-even rate (%) showing US medium-term inflation expectations hit 13-year high

Elsewhere, the yield on 10-year UK gilts rose more than 0.09 percentage points to 0.78 per cent, propelled by expectations of a rise in government borrowing and spending following the UK Budget.

Sovereign bonds also sold off across the eurozone, with the yield on Germany’s equivalent benchmark note rising more than 0.06 percentage points to minus 0.29 per cent. This was an example of “contagion” that was not justified “by the economic fundamentals of the eurozone”, Borowski said, where the rollout of coronavirus vaccines in the eurozone has been slower than in the US and UK.

The tumult in global government bond markets partly reflects bets by some traders that the US Federal Reserve will be pushed into tightening monetary policy sooner than expected, influencing the costs of doing business for companies worldwide, although the world’s most powerful central bank has been vocal that it has no immediate plans to do so.

Lael Brainard, a Fed governor, said on Tuesday evening that the ructions in US government bond markets had “caught my eye”. In comments reported by Bloomberg she said it would take “some time” for the central bank to wind down the $120bn-plus of monthly asset purchases it has carried out since last March.

After a series of record highs for global equities as recently as last month, stocks were “priced for perfection” and “very sensitive” to interest rate expectations that determine how investors value companies’ future cash flows, said Tancredi Cordero, chief executive of investment strategy boutique Kuros Associates.

Europe’s Stoxx 600 equity index closed down 0.1 per cent, after early gains evaporated. The UK’s FTSE 100 rose 0.9 per cent, boosted by economic support measures in the Budget speech.

The mid-cap FTSE 250 index, which is more skewed towards the UK economy than the internationally focused FTSE 100, ended the session 1.2 per cent higher.

Brent crude oil prices gained 2 per cent at $64.04 a barrel.



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UK listings/Spacs: the crown duals

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City-boosting proposals are not enough to offset lack of EU financial services trade deal



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