Treasury Blocking electrification plans

[Wynd]

We already have rising inflation and a massive current account deficit. And paying hefty interest on the government debt, it's not free money

And somebody has to buy the government debt. If the markets consider that the country is being reckless in issuing debt, then it'll demand higher interest rates to buy it.

The BOE has bought 1/3 of the Gilt Market acting as Lender of Last Resort. The interest on these Gilts ends up back at the Treasury, who issued them in the first place. Recklessness is not something HMT suffers from when viewed internationally.

Under-investment and low productivity are what destabilize UK government debt as they pose a threat to long term repayments on the bonds.

This is the primary issue many are aware of. Investment in decarbonising the rail infrastructure is a good idea and makes economic sense long term. How else do you get modal shift without fast, clean, efficient, affordable public transport?

 

[furnessvale]

Construction generally- a big problem in that it encourages over-promising. With competitive tendering and the 'winner' being the one who submits the lowest price suggests a lot of underestimating and under-pricing- the 'unsuccessful' bidders didn't think it could be done for that price!

A lot to be said for a tendering system that accepts the middle bid. Every incentive to bid "just right".

 

[Nicholas Lewis]

The BOE has bought 1/3 of the Gilt Market acting as Lender of Last Resort. The interest on these Gilts ends up back at the Treasury, who issued them in the first place. Recklessness is not something HMT suffers from as viewed internationally. Under-investment and low productivity are what destabilize UK government debt as they pose a threat to long term repayments on the bonds.

Known as Printing Money in the 20th Century but term dropped as it had been associated with rampant inflation but far less of a risk now in consumer goods but there is a high leakage into hard assets like property which is potentially storing up future issues.

This is the primary issue many are aware of. Investment in decarbonising the rail infrastructure is a good idea and makes economic sense long term. How else do you get modal shift without fast, clean, efficient, affordable public transport?

No question but clearly the government doesn't feel that compelled to print money to pay for it currently and in terms of reducing total UK CO2 emissions there is far more low hanging fruit to go for in road vehicles and building efficiency although the latter is still lagging even further behind than rail electrification.

 

[quantinghome]

We already have rising inflation and a massive current account deficit. And paying hefty interest on the government debt, it's not free money

Not entirely free, but nearly. The interest rate paid on our borrowing has little connection to our overall debt level.

And somebody has to buy the government debt. If the markets consider that the country is being reckless in issuing debt, then it'll demand higher interest rates to buy it.

We mostly owe money to ourselves.



As the first chart shows, the markets have not responded to increased borrowing by increasing interest rates. On the contrary the UK is seen as a safe haven:

The fact that most UK government debt is owed within the UK, all of it as pounds sterling, also means that we face little risks because of sudden increases in interest rates based on international financial flows. It is more likely that economic shocks in the rest of the world will reduce UK government interest rates by increasing the role of UK government debt as a safe haven for investors.

The above are excerpts from a longer document, which is well worth a read. It's written by the Jubilee Debt Campaign who campaign to reduce debt of developing countries, so they know what real national debt problems look like.

10-key-facts-on-debt-in-the-UK_Update_Jan_21.pdf (jubileedebt.org.uk)

 

[Nicholas Lewis]

Not entirely free, but nearly. The interest rate paid on our borrowing has little connection to our overall debt level.

View attachment 106978



As the first chart shows, the markets have not responded to increased borrowing by increasing interest rates. On the contrary the UK is seen as a safe haven:

Yes but nearly 25% of the debt is RPI linked so the current spike up in inflation is leading to some hefty monthly gilt interest payments so if RPI doesn't drop back this will be an additional headache. Just look at UK gas prices, below, and you can see the spill over that's going to occur economy wise for at least 6-12 months. Hopefully govt will be smart and stop issuing index linked gilts!

 

[Meerkat]

The problem we have is that the Treasury's approach to electrification of approving bespoke projects one at a time will exacerbate the cost problem.

Only if they leave gaps between them and appear as though there is no long term plan, whereas the IRP gives work for a long time, with more to come.
I'm not really buying how brilliant the Scottish way is - less motivation to cut costs and they will still run out of money and/or time at some point.

I'm very unconvinced by the idea the government can just borrow a shedload of money for the railways. You might be able to sell low interest long term bonds now, but would you if you suddenly massively increased the amount you wanted to sell? How much are investors willing to lend the UKG before they hit their limits for exposure, and what effect will that have when you need to refinance debt (and find out no one wants any more UKG debt)? If there is capacity to sell long term low interest debt that would be better prioritised on funding health and social care, and refinancing old debt.
Also borrowing loads of money is dumping our problems on future generations. Its a bit like the low interest fixed rate mortgage trap - brilliant until your fixed rate ends, you find the variable rate they put you on is massively higher, and no one will give you decent fixed rate.......
Its always the refinancing that breaks countries - in 50 years time that long term debt needs refinancing and that generation will have to do it at the prevailing rate at that time.

Lastly this idea that the BoE owns the debt, the government owes itself, so its all good - I am convinced this is the Emperor's new clothes, almost a confidence trick, and at some point investors are going to look at this system, decide its as dubious as it sounds, confidence will go, and things will get pretty ugly.

 

[Mikey C]

Yes but nearly 25% of the debt is RPI linked so the current spike up in inflation is leading to some hefty monthly gilt interest payments so if RPI doesn't drop back this will be an additional headache. Just look at UK gas prices, below, and you can see the spill over that's going to occur economy wise for at least 6-12 months. Hopefully govt will be smart and stop issuing index linked gilts!

View attachment 106979

It's entirely possible that they issued index linked gilts as this was the only way to get external investors to buy so much UK debt though

I'm very unconvinced by the idea the government can just borrow a shedload of money for the railways. You might be able to sell low interest long term bonds now, but would you if you suddenly massively increased the amount you wanted to sell? How much are investors willing to lend the UKG before they hit their limits for exposure, and what effect will that have when you need to refinance debt (and find out no one wants any more UKG debt)? If there is capacity to sell long term low interest debt that would be better prioritised on funding health and social care, and refinancing old debt.
Also borrowing loads of money is dumping our problems on future generations. Its a bit like the low interest fixed rate mortgage trap - brilliant until your fixed rate ends, you find the variable rate they put you on is massively higher, and no one will give you decent fixed rate.......
Its always the refinancing that breaks countries - in 50 years time that long term debt needs refinancing and that generation will have to do it at the prevailing rate at that time.

Lastly this idea that the BoE owns the debt, the government owes itself, so its all good - I am convinced this is the Emperor's new clothes, almost a confidence trick, and at some point investors are going to look at this system, decide its as dubious as it sounds, confidence will go, and things will get pretty ugly.

Agreed

"Borrowing to invest in the future" is a nicer slogan than the alternative of "Spend now and let our children and grandchildren pay for it"

 

[ohgoditsjames]

What does this mean for the MML? Only a couple of weeks ago were we told it would be electrified in full to Sheffield.

 

[quantinghome]

Only if they leave gaps between them and appear as though there is no long term plan, whereas the IRP gives work for a long time, with more to come.
I'm not really buying how brilliant the Scottish way is - less motivation to cut costs and they will still run out of money and/or time at some point.

I'm very unconvinced by the idea the government can just borrow a shedload of money for the railways. You might be able to sell low interest long term bonds now, but would you if you suddenly massively increased the amount you wanted to sell? How much are investors willing to lend the UKG before they hit their limits for exposure, and what effect will that have when you need to refinance debt (and find out no one wants any more UKG debt)? If there is capacity to sell long term low interest debt that would be better prioritised on funding health and social care, and refinancing old debt.
Also borrowing loads of money is dumping our problems on future generations. Its a bit like the low interest fixed rate mortgage trap - brilliant until your fixed rate ends, you find the variable rate they put you on is massively higher, and no one will give you decent fixed rate.......
Its always the refinancing that breaks countries - in 50 years time that long term debt needs refinancing and that generation will have to do it at the prevailing rate at that time.

Lastly this idea that the BoE owns the debt, the government owes itself, so its all good - I am convinced this is the Emperor's new clothes, almost a confidence trick, and at some point investors are going to look at this system, decide its as dubious as it sounds, confidence will go, and things will get pretty ugly.

I believe we should treat capital investment as distinct from day to day expenditure. If you're a business you shouldn't be borrowing money to pay your staff, but it's fine to borrow money to build a new factory, especially when you can do so at very low interest rates - in fact you'd be a fool not to.

The benefits of electrification will last generations, so it's perfectly morally acceptable that for the cost to be paid back over the long term. Especially as it actually reduces running costs on the vast majority of lines. Future generations will not look kindly on us if we fail to decarbonise our transport system when we had plenty of financial resources to do so.

Private debt is actually the UK's biggest problem, not public debt.

What does this mean for the MML? Only a couple of weeks ago were we told it would be electrified in full to Sheffield.

That's still happening, as is Transpennine electrification.

What is in doubt is the Treasury's commitment to a rolling programme of electrification. Logical add-ons such as Leeds-Sheffield, Derby-Birmingham, extensions to Hull and Middlesbrough may not get a look-in.

 

[ohgoditsjames]

Private debt is actually the UK's biggest problem, not public debt.


That's still happening, as is Transpennine electrification.

What is in doubt is the Treasury's commitment to a rolling programme of electrification. Logical add-ons such as Leeds-Sheffield, Derby-Birmingham, extensions to Hull and Middlesbrough may not get a look-in.

Ah yes I see. Basically its the ones that would see the most benefit, especially the Sheffield to Leeds one. Electrifiying the MML will remove very few diesels, but an extension to Leeds and Doncaster would.

 

[Rhydgaled]

All this economics stuff might be relevant if the cost of the TDNS project was all that high but, compared to what Highways England (or whatever they're called this week) is getting thrown at them it isn't. There is no need to increase borrowing to fund electrification, we just need to divert funds from the Government's more environmentally damaging activities.

What does this mean for the MML? Only a couple of weeks ago were we told it would be electrified in full to Sheffield.

That's still happening, as is Transpennine electrification.

Is there a full list of what is currently 'on' in terms of electrification, complete with estimated completion dates and the length of track to be electrified in Single Track KMs?

 

[LNW-GW Joint]

What does this mean for the MML? Only a couple of weeks ago were we told it would be electrified in full to Sheffield.

And indeed it will be (assuming NR gets its sums right).
This Telegraph rumour (not confirmed) is that the DfT/Treasury has not endorsed Network Rail's wider plans for a rolling programme of decarbonisation by electrification.
Meanwhile, MML and TRU are enough to be getting on with, taking up to a decade to complete.
Stages in every major project still have to be approved by DfT.

 

[quantinghome]

Ah yes I see. Basically its the ones that would see the most benefit, especially the Sheffield to Leeds one. Electrifiying the MML will remove very few diesels, but an extension to Leeds and Doncaster would.

MML electrification would be beneficial in terms of removing diesels, as it allows the new Aurora bi-modes to be cascaded to (say) Crosscountry and replaced with more efficient electric-only traction. Extending to Leeds and Doncaster would allow a significant number of local services to go electric and give cross-country a fully electric route from Derby to Edinburgh.

While MML and TRU electrification are significant investments, the problem is really a lack of strategic network-level thinking on the part of the Treasury.

 

[Starmill]

All this economics stuff might be relevant if the cost of the TDNS project was all that high but, compared to what Highways England (or whatever they're called this week) is getting thrown at them it isn't. There is no need to increase borrowing to fund electrification, we just need to divert funds from the Government's more environmentally damaging activities.

Is there a full list of what is currently 'on' in terms of electrification, complete with estimated completion dates and the length of track to be electrified in Single Track KMs?

- Glasgow Central and Barrhead / East Kilbride, almost all bases and most masts, most bridges amended and almost ready for wires
- Church Fenton (exclusive) and Colton Jn (York) most bases, a number of masts
- Manchester Victoria and Stalybridge, many bases, no evidence of masts
- Stalybridge and Guide Bridge, unknown
- Kettering and Market Harborough, piling
- South Wales Core Valley Lines, the first mast appeared near Aberdare a couple of months ago
- Wigan and Bolton, approved but not started
- Huddersfield to Westtown (Dewsbury), subject to public inquiry

And, as a follow-up from the IRP:
- Leeds and Church Fenton
- Dewsbury and Leeds
- Stalybridge and Huddersfield
- Leicester and Nottingham
- East Midlands Parkway and Sheffield via Derby

STPR2 phase two will also set out the priority order beyond Fife and Borders, which will probably be Inverness and Aberdeen.

 

[mr_jrt]

Part of me wonders if the storage losses of hydrogen mean we'll never truly be able to use it on a large scale. I wonder if we'll eventually end up (perhaps rather ironically) using hydrocarbons, abet synthetic ones. If the carbon in them comes from the atmosphere, then in theory they could be largely carbon-neutral if you can source the energy required for production from renewable sources. We also already have a lot of infrastructure in place for handling them, and the energy density of a tank of hydrocarbons has proved very difficult to beat by chemical batteries. Or you go with nature's solution - solar-powered carbon capture, aka. wood-powered steam trains.

Seriously, though. Are forms of biomass (i.e. woodchips, etc) considered carbon-neutral? Their carbon would have returned to the atmosphere when it rotted and are pulled from the atmosphere as the trees grow, so I suspect they count, but I'm no expert?

 

[Meerkat]

The benefits of electrification will last generations, so it's perfectly morally acceptable that for the cost to be paid back over the long term. Especially as it actually reduces running costs on the vast majority of lines. Future generations will not look kindly on us if we fail to decarbonise our transport system when we had plenty of financial resources to do so.

How much cash benefit is there to electrification? Non cash goodies are all well and good but they dont pay off anything. The other issue being that of course we dont really pay off that debt - there is no amortisation type thing - its just a huge lump of debt that eventually the people of the future have to pay somehow.

As for taking the money off roads projects that depends on what the roads projects are. Bypasses are essential, traffic isnt going away and people need through traffic out of their towns and villages, if we are to build hundreds of thousands of new homes they need roads, even buses need roads, and the railway simply isnt going to take all the imports off the roads - things like the Lower Thames Crossing are desperately needed.

 

[LNW-GW Joint]

And, as a follow-up from the IRP:

You can add Sheffield-Leeds, as some way has to be found for HS2 trains via East Midlands Pkwy to reach Leeds - route to be confirmed.

 

[quantinghome]

How much cash benefit is there to electrification? Non cash goodies are all well and good but they dont pay off anything. The other issue being that of course we dont really pay off that debt - there is no amortisation type thing - its just a huge lump of debt that eventually the people of the future have to pay somehow.

They allow cheaper rolling stock to be bought. This rolling stock is considerably lighter which reduces track maintenance and replacement costs, as well as the rolling stock itself being easier to maintain. Lighter rolling stock allied to electric power allows faster acceleration which reduces journey times, particularly for stopping trains, thus encouraging more passengers onto the railways.

As for taking the money off roads projects that depends on what the roads projects are. Bypasses are essential, traffic isnt going away and people need through traffic out of their towns and villages, if we are to build hundreds of thousands of new homes they need roads, even buses need roads, and the railway simply isnt going to take all the imports off the roads - things like the Lower Thames Crossing are desperately needed.

Some bypasses are essential, as are some road upgrades - for example the A1 from the M62 to Doncaster is a horribly busy, substandard and dangerous road and should be upgraded to motorway.

However, roads like Lower Thames Crossing will simply generate more traffic and we'll be back to square one in a few years.

We need to be providing decent alternatives to road-based transport. I don't fall into the trap of thinking that cars aren't necessary - they are. But I do think at least a 20% reduction in car miles through modal shift is a realistic long term objective. Average car use per person has reduced over the years so it's certainly possible.

 

[snowball]

Seriously, though. Are forms of biomass (i.e. woodchips, etc) considered carbon-neutral? Their carbon would have returned to the atmosphere when it rotted and are pulled from the atmosphere as the trees grow, so I suspect they count, but I'm no expert?

Depends who's doing the considering! For official purposes they're usually considered carbon-neutral, but many groups object for the reason given by DerekC below.

I can't remember what the Climate Change Committee says on the subject. I would have to check.

 

[Nicholas Lewis]

What about windless weeks? Lets see how it goes in Feb 2022 shall we?

As I say unless we are prepared to accept intermittent electricity we will need the CCGTs to used as standby power for those days.

 

[DerekC]

Part of me wonders if the storage losses of hydrogen mean we'll never truly be able to use it on a large scale.

Cryocompression (combination of low temperature and high pressure) seems to offer a good prospect of reducing losses to low levels. BMW is said to have been exploring this for some time.

I wonder if we'll eventually end up (perhaps rather ironically) using hydrocarbons, abet synthetic ones. If the carbon in them comes from the atmosphere, then in theory they could be largely carbon-neutral if you can source the energy required for production from renewable sources. We also already have a lot of infrastructure in place for handling them, and the energy density of a tank of hydrocarbons has proved very difficult to beat by chemical batteries.

That might be. Microbes exist naturally which can convert hydrogen and carbon dioxide to methane and water.

Seriously, though. Are forms of biomass (i.e. woodchips, etc) considered carbon-neutral? Their carbon would have returned to the atmosphere when it rotted and are pulled from the atmosphere as the trees grow, so I suspect they count, but I'm no expert?

The problem as I understand it is that small trees absorb only small amounts of carbon dioxide until they become big trees, so cutting down big trees to make woodchip to feed power stations and claiming carbon neutrality by planting small ones is highly misleading - at least for the first half century or so. Drax is coming in for a lot of criticism for precisely that reason.

 

[Greybeard33]

It appears that I even managed to misunderstand the scale on the diagram too, although only slightly. Are the ranges project timelines or estimates of possible entry into service dates? If the former the variance between the IRP and Bald Rick's suggestion could be only 2-3 years. If the latter it could be 5-6 years. Or anything in between.

That Fig.9 IRP Core Pipeline bar chart is an unprofessional piece of work, in that the meaning of the bars is not clearly defined and the date scale is vague.

I think it can be deduced that the length of each bar represents a range of delivery dates not the construction period, because the bar for HS2 Phase 1 and 2a does not start until 2029. The date range of each bar might represent contingency in the final completion date, i.e. for Leeds - York 2030 is the currently planned date and 2033 the worst case. Or conceivably it could interpreted as representing staged delivery, i.e. part of the line completed by 2030 but not fully electrified until 2033.

 

[Nicholas Lewis]

The problem as I understand it is that small trees absorb only small amounts of carbon dioxide until they become big trees, so cutting down big trees to make woodchip to feed power stations and claiming carbon neutrality by planting small ones is highly misleading - at least for the first half century or so. Drax is coming in for a lot of criticism for precisely that reason.

Wood pellets also produce more CO2 than coal its utterly daft to call it environmentally friendly. Trouble is they are huge generator so switching it off would need to find 2-3GW of alternative baseload so maybe when Hinkley Pt C is on line then it can go.

 

[Bald Rick]

What does this mean for the MML? Only a couple of weeks ago were we told it would be electrified in full to Sheffield.

Yes, still happening

Electrifiying the MML will remove very few diesels, but an extension to Leeds and Doncaster would.

Electrifying the MML removes a lot of diesel vehicle mileage. Extending that to Doncaster and Leeds (which way?) doesn’t, comparatively.

Seriously, though. Are forms of biomass (i.e. woodchips, etc) considered carbon-neutral? Their carbon would have returned to the atmosphere when it rotted and are pulled from the atmosphere as the trees grow, so I suspect they count, but I'm no expert?

Yes, although somewhat dubiously.

Trouble is they are huge generator so switching it off would need to find 2-3GW of alternative baseload so maybe when Hinkley Pt C is on line then it can go.

Trouble is Hinckley C will effectively replace many of the existing reactors. Drax has a future for the medium term - indeed it is a trial site for carbon capture, and will (in some eyes) be seen as Carbon negative.

how do we store enough electric to cope with a fortnight of no renewables? Like in a February anticyclone. no wind, no solar (cos its cloudy), damn cold.

As @Starmill says, it becomes a matter of scale. In 20 years there will be enough battery capacity in the country to power us for 6 weeks with no other input; albeit most of that will be in people’s cars (and they’d have to use other transport!)

Although even in a February anticyclone - like we had this year - there is still some wind and solar. Not much admittedly.

 

[WatcherZero]

A fully electrified rail network needs only about 50% more electricity than the current electrified network. I’ve seen the maths somewhere - it’s the equivalent of about a third of the annual output of a new offshore wind farm, of which there’s 3 under construction and another 10 or so in planning. So it’s not an issue.

The current network uses between 3.5 and 4 Twh of electricity, a 50% increase is equivalent to around 2000 gwh (considering there will be a high peak demand spike call it 2,500 more to be safe. Thats equivalent to the combined output of Heysham B and Torness power stations.
Essentially it requires an additional two medium sized nuclear power stations!

 

[Bald Rick]

The current network uses between 3.5 and 4 Twh of electricity, a 50% increase is equivalent to around 2000 gwh (considering there will be a high peak demand spike call it 2,500 more to be safe. Thats equivalent to the combined output of Heysham B and Torness power stations.
Essentially it requires an additional two medium sized nuclear power stations!

You’re a bit out there old chap. Torness alone has a nameplate capacity of 1.36 GW. Even if it operates at only 50% capacity for the year, that’s still 6TWh.

Dogger Bank ‘A’ wind farm, under construction now, will have an installed capacity of 1.2 GW, and as with all deep offshore wind farms in the North Sea, is expected to have a capacity factor of around 40%. This will produce 4.2TWh of electricity a year. Therefore you need roughly half a Dogger Bank A to power the rest of the rail network if it was all electrified. That’s 48 turbines.

Fortunately there’s another two Dogger Banks (B and C) being delivered in the next 4-5 years. And plenty more elsewhere.

 

[Nicholas Lewis]

As @Starmill says, it becomes a matter of scale. In 20 years there will be enough battery capacity in the country to power us for 6 weeks with no other input; albeit most of that will be in people’s cars (and they’d have to use other transport!)

In mid winter we use nearly 1TWh/day that is very BIG battery x 45 days let alone needing 45GW maximum output for evening peak demand. Average cost / MW is about 0.8m currently which give approx 90mins at full load. So you would have to spend 100's billions pounds to get even a few hours continuous supply. Im sure battery capacity will improve but cost reduction isn't so sure as basic material costs are increasing rapidly due to the need for whole world to use batteries.

 

[Southsider]

- Glasgow Central and Barrhead / East Kilbride, almost all bases and most masts, most bridges amended and almost ready for wires
- Church Fenton (exclusive) and Colton Jn (York) most bases, a number of masts
- Manchester Victoria and Stalybridge, many bases, no evidence of masts
- Stalybridge and Guide Bridge, unknown
- Kettering and Market Harborough, piling
- South Wales Core Valley Lines, the first mast appeared near Aberdare a couple of months ago
- Wigan and Bolton, approved but not started
- Huddersfield to Westtown (Dewsbury), subject to public inquiry

And, as a follow-up from the IRP:
- Leeds and Church Fenton
- Dewsbury and Leeds
- Stalybridge and Huddersfield
- Leicester and Nottingham
- East Midlands Parkway and Sheffield via Derby

STPR2 phase two will also set out the priority order beyond Fife and Borders, which will probably be Inverness and Aberdeen.

Glasgow Central to Barrhead & East Kilbride is nowhere near that advanced. There are bases and masts between Muirhouse and Kennishead but nothing done on the EK branch where most of the complexity lies. In fact, work on the ground seems to have stopped at the moment.

 

[Dr Hoo]

All this economics stuff might be relevant if the cost of the TDNS project was all that high but, compared to what Highways England (or whatever they're called this week) is getting thrown at them it isn't. There is no need to increase borrowing to fund electrification, we just need to divert funds from the Government's more environmentally damaging activities.

Could you flesh this out a bit, please?

The investment strategy for principal roads works just like the ORR Periodic Review for Network Rail - with 5-year control periods, a Statement Of Funds Available and so on. The current Control Period is 2020-25 and the headline total was just over £27 billion. Of this only £14 billion was for enhancements. Almost half was thus for basic maintenance and renewal. Many of the 'enhancement' projects are actually driven by safety or environmental factors (e.g. the Stonehenge Tunnel) or things like supporting new housing developments. Junction improvements are often justified by things like improved arrangements for pedestrians, cyclists or local bus services.

Some commentators have suggested that the Autumn Statement actually signalled a reduction in funding to £24 billion (allowing for things like slippage, doubts over 'smart motorways', etc.).

There were some announcements about local transport funding but that is more at the 'pothole and bus lay-by' level and not really comparable with a national electrification strategy.

 

[Bald Rick]

In mid winter we use nearly 1TWh/day that is very BIG battery x 45 days let alone needing 45GW maximum output for evening peak demand.

Or 30 million small batteries on wheels