TAKING STOCK: Only way is up for Centrica as Osborne unveils tax breaks
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UPDATED:
08:36 GMT, 29 July 2012
The most dispiriting aspect of the latest review of subsidies to encourage the use of sustainable green energy sources is the fact that it was the outcome of a battle between the Treasury and the Department of Energy and Climate Change.
And there is only one winner in a battle with the Treasury.
Chancellor George Osborne has decreed that gas is clean – it is, compared with dirty coal – and so he has unleashed a second dash for gas.
Despite protests from the energy department and the Government’s own advisers on climate change – who have warned him that Britain will miss climate-change targets by relying on gas rather than other forms of energy, such as wind, tide and hydro-electric power, to cut carbon dioxide emissions – the Chancellor has gone ahead and encouraged the gas industry to flourish.
Support: George Osborne's generous tax breaks for North Sea gas exploration has boosted British Gas owner Centrica
Within hours of his announcement on
Wednesday of generous tax breaks for North Sea gas exploration, up
popped Centrica – owner of British Gas, which announced later in the
week that profits were up 23 per cent – to reveal that it would be going
ahead with its North Sea Cygnus plan.
This 1.4billion project will create
4,000 jobs and will produce enough gas to supply five per cent of our
total gas production when it is at its peak.
Not surprisingly, the announcement of
the investment and the good financial figures had a suitably elevating
effect on Centrica’s shares, which rose 31⁄4p Friday to 318p, just short
of this year’s closing high of 326p.
With support like this, there is only one way the shares can go, and investors will draw their own conclusions.
The problem for consumers and the
Chancellor is that while subsidies may appear a high price to pay, over
time they will reduce. The solar industry is a good example of that,
with sharp falls in subsidies as technology brings down the price of
solar panels.
The same cannot be said for
consumers’ fuel bills. Gas prices are going only one way – up – and
there is a zero chance of them coming down in the long term.
There were fewer shocks elsewhere in the review.
There was the predictable cut in
onshore wind farm subsidies, but offshore support has been maintained,
albeit with a promise of yet another review. Support for biomass-generated energy has been confirmed.
That is good news for Drax, the
coal-fired power station that plans eventually to become biomass
dependent. Its shares initially collapsed last week after analysts got
the wrong end of the stick about the subsidy announcement, but they
recovered partly and ended the week down 9.7 per cent at 4751⁄2p.