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NCE Live News Updates 27 June 2013: High Speed 2 costs soar by £10bn; Treasury unveils £100bn infrastructure plan

Treasury chief secretary Danny Alexander has set out £100bn infrastructure investment plan, a day after government revealed costs of delivering the High Speed 2 (HS2) scheme had soared by £10bn.

6pm: Pick the bones out of that: £100bn for infrastructure, including a huge boost in roads funding; a privatised Highways Agency; and a wealth of shale gas ready to be exploited.

But beneath the positive headlines, warnings from energy regulator Ofgen of power cuts in less than two years and admissions from the Department for Transport that High Speed 2 will now cost upwards of £50bn to build, rendering it break even on benefit to cost ratio. So quite a day for infrastructure. Here is how it unfolded.

5.56pm: The Government has today published its Water Bill.

Ofwat’s chief executive, Regina Finn said the Bill would boost the UK economy by over £3bn.

“The Bill will mean better services for customers, more efficient use of water resources and greater resilience in the face of drought and population growth,” Finn added.

To read the report click here

More to follow tomorrow

5.07pm: Shale reserves estimate doubled as Government tables fracking incentives

Treasury secretary Danny Alexander has today announced that the amount of gas trapped in shale across northern England is almost double initial estimates.

The British Geological Survey (BGS) said the gas contained in the so-called Bowland shale layer which covers much of Lancashire, Yorkshire and surrounding counties could be as much as 37 trillion cubic metres (tcm).

To coincide with the announcement the government also unveiled new tax incentives and guidelines for developers. It also pledged that £100,000 in local benefits would be paid per well-site where fracking exploration takes place and that one per cent of production revenue would go to the local community.

The news is a boost for the UK’s nascent and controversial ‘fracking’ industry. So far 176 licenses have been issued for onshore gas and oil exploration but the UK’s only on-site fracking facility is currently operated by Cuadrilla Resources in Lancashire where the company is already tapping into Bowland shale.

The BGS refused to say how much of the gas would be recoverable, but even if only fraction is brought to the surface there could be enough gas to meet the UK’s needs for many years given that last year BP said the UK used 0.07 tcm of gas.

 

2.48pm: Infrastructure Plan: EdF to get £10bn government guarantee for Hinkley Point

EdF’s proposed Hinkley Point C nuclear power station scheme in Somerset has qualified for a £10bn government guarantee, energy sectretary Ed Davey has confirmed.

The money represents a huge chunk of the original £40bn pledged under the UK Guarantees Scheme (UKGS) through which the government underwrites “nationally-significant infrastructure projects”.

Before today’s announcement by treasury chief secretary Danny Alexander, only two other projects had been signed up to the UKGS – the Drax powerplant upgrade and the Northern Line Tube extension to Battersea.

At the same time as Alexander was speaking, his colleague, energy secretary Ed Davey confirmed that the EdF scheme had qualified for the “£10bn guarantee.”

Davey denied that the financial backing was tied in with any negotiations on the as yet undecided strike price for nuclear energy: “That is about the financing, not about the construction,” said Davey. “The purpose of offering EdF the infrastructure guarantee is to help that project.” Davey added that negotiations on the all-important strike price were “intense and on-going”.


2.36pm: Infrastructure plan reaction from the ICE: It says the energy news is encouraging.

“Extension of the Government’s guarantee scheme and the inclusion of a guarantee advancing Hinkley Point C is a welcome and sensible step, demonstrating government’s commitment to the role of nuclear as part of a wider energy mix that can achieve a secure and decarbonised energy supply and meet the challenges of security and affordability,” said ICE director general Nick Baveystock.

“Confirmation that guaranteed strike prices for renewable energy sources will be set out ahead of plan is also encouraging. As government knows, to be a catalyst for increased certainty and clarity on long term strategic direction, swift agreement will be needed. Passage of the Energy Bill however, also remains crucial if we are to establish a stable policy environment and build greater confidence within industry and among investors.”


2.25pm: Business news: Contractor Costain has increased its forward order book by £500M since 31 December 2012, according to a trading update released by the firm today.

The contractor has £2.9bn in forward orders, up from £2.4bn on 31 December 2012. it is expected to perform in line with board expectations for the six months to 30 June 2013.

Results will be announced on 22 August 2013.


2.10pm: Energy regulator Ofgem has warned that electricity supplies may tighten faster than previously expected in 2015/16.

In a report published today, the regulator warned that margins could tighten by between 2% and 5% depending on demand. This would increase the probability of supply disruption from 1 in 47 years to 1 in 12.

“Ofgem’s analysis indicates a faster than anticipated tightening of electricity margins toward the middle of this decade,” said Ofgem chief executive Andrew Wright. “Ofgem, together with DECC and National Grid, think it is prudent to consider giving National Grid additional tools now to procure electricity supplies to protect consumers as the margin between available supply and demand tightens in the mid-decade.”

1.38pm: The Crown Estate has posted a record profit of £252.6M for its property portfolio.

The profit, which will be paid into the UK treasury, represents a 5.2% rise in profit on the previous year. Total property value has risen 7.2% to £8.1bn.

“Today’s results are a ringing endorsement of the quality of our portfolio, our active asset management and our highly skilled team,” said Crown Estate chief executive Alison Nimmo CBE. “Despite challenging market conditions, we are well placed as a business with a clear vision and investment strategy, great partners and a strong balance sheet.”


12.25pm: Meanwhile, back in the real world: the first passenger services have begun using Network Rail’s Hitchin flyover.

The 2km single track flyover was constructed by main contractor Hochtief and will help improve reliability of services, reduce delays and provide scope for extra capacity in future.

Up to three services a day will run over the flyover, rising to almost 600 per week by December.

“The Hitchin flyover will make a real difference to passengers who travel on the East Coast Main Line, as well as people travelling to Cambridge and beyond,” said Network Rail route managing director Phil Verster. “Improving the railway at Hitchin will solve the problems caused by the current track layout and help meet growing demand on the railway.”


12pm: No gifts for new nuclear as government sticks to its guns on strike price

Energy secretary Ed Davey has set out his department’s take on the £100bn infrastructure announcement. On Hinkley Point C new nuclear he confirmed the decision to pre-qualify EdF’s new nuclear power project for a UK Government Infrastructure Guarantee. But said that “negotiations remain on-going” between government and EdF subsidiary NNB Genco on the potential terms of an investment contract (an early form of Contract for Difference) for Hinkley Point C. “A contract will only be offered it is value for money, fair and affordable, in line with government policy on new public subsidy for nuclear and is consistent with State Aid,” he said.


11.30am: Treasury details how £100bn will break down across the regions.

The Treasury has produced a handy map showing how the £100bn will be distributed around the regions. Here it is.


10.30am: Treasury chief secretary Danny Alexander is revealing to the House of Commons details of a £100bn infrastructure investment plan announced by chancellor George Osborne yesterday.

Plan highlights:

  • Prices have been set for low carbon electricity generation from on-shore and off-shore wind, tidal, wave, bio-mass and solar - a determination that has been brought forward from next month. However, there was no mention of a strike price agreeement for new nuclear. Alexander previously said an announcement on this would be made before the summer recess.
  • Ownership of the Highways Agency will be transferred to a public company
  • £28bn pledged for the six years from 2014 for roads.
  • All of the projects in Highways Agency pipeline will be delivered.
  • A14 upgrade - bringing forward start of construction to 2016.
  • A303 improvements and A1 north of Newcastle will also receive investments.
  • £10bn to go toward road repairs 2015/16 to 2020/21 - more than £4bn on road maintenance and the remaining £6bn will go to local authorities to tackle problems such as potholes.
  • £2M to support a funding and financing study into Crossrail 2. “The challenge for the mayor of London is to determine to how at least half of the cost of the scheme can be met through private resources,” Alexander added.
  • The UK Guarantees scheme will be extended for two years to 2016 with £500M underwritten for the Mersey Gateway scheme, which announced its preferred bidder last week. And a multi-billion pound guarantee is being agreed for Hinkley Point C, although Alexander stressed that the deals were not yet done.
  • An agreement with the Association of British Insurers on the future of flood insurance via a new scheme called Flood Re, which “effectively” would limit insurance prices for high risk households. However, Alexander added that there remained many details to be worked out.
  • In line with recommendations made by Treasury commercial secretary Lord Deighton, Alexander announced that the government would take infrastructure delivery out of the hands of civil servants and out it more under the control of the private sector.
  • £15bn will be generated by asset sales by 2020.
  • From 2015 Network Rail will receive funding for electrifying the Gospel Oak to Barking line in London.


10.20am: Government confirms appointment of former LOCOG boss, Lord Deighton, to lead a taskforce to maximise the economic benefits of HS2.

High Speed 2

High Speed 2

Deighton’s appointment comes the day after the first HS2 bill received a successful vote in Parliament and following the Treasury’s commitment to boost infrastructure spending across the UK. But also a day after the cost of building the scheme was revealed to have hit £50bn - the figure quoted by government as the economic benefits to be gained from the scheme.

Said transport secretary Patrick McLoughlin: “We need to squeeze every possible benefit from this vital project, leaving no stone unturned. That is why we are setting up a Growth Taskforce and that is why I have asked Lord Deighton, the man who delivered the Olympics, to lead it.

“I recognise HS2 is a huge project and I am determined to get maximum payback from the investment. This is about far more than just a new railway and, through the work of the Taskforce, we will be able to identify many of the wider economic benefits it can deliver.”

The HS2 Growth Taskforce will publish an interim report later this year and will submit its final report to government early next year. This will then drive forward a programme of work with the core cities along the route to ensure that the economic opportunities presented by HS2 are maximised.

 

9.20am: Anti-HS2 groups have described the £10bn cost rise of the scheme as “amazing”, coming just hours after chancellor George Osborne outlined £11.5bn of “essential” cuts in his Spending Review.

Stop HS2 Campaign Manager Joe Rukin said: “The casual way in which a 30% jump in the costs of HS2 has been announced by the transport secretary, which almost completely wipes out the cuts made in the spending review, is unbelievable. To push ahead with HS2 blindly because it sounds like it must be a good idea is simply insane and a kick in the teeth to everyone affected by the cuts.”

“The MPs who have voted for the blank cheque have only shown that they are totally out of touch with the common man, and HS2 Ltd have responded to the fact they are ten billion by saying they are ‘broadly within the envelope’. I don’t know what planet they are on, but I wouldn’t want to be picking up their stationery bill.”

9.15am: HS2 backer HS2 Ltd has remained stoic in the face of the government’s admission that the total cost of HS2 is now likely to top £50bn.

Chief executive of the project promoter Alison Munro said that costs for phase one remained “broadly” within the cost and contingency “envelope” of £16.3bn set by the government in January 2012 and that her team would continue to be “focused on control of costs”.

“We have been set a cost target for the route from London to Birmingham,” she said. “That provides a clear mandate not only to deliver  the infrastructure, but also to work with the towns and cities to create a true Engine for Growth.”

She added: “The target we have been set is consistent with our Baseline 3 estimate produced in May and upon which the Department for Transport spending review bid was made. The scope of which is the same as the current round of consultation.”

8am: HS2 will cost £42.6bn – a significant hike from the previous estimate of £33bn, transport secretary Patrick McLoughlin told MPs yesterday.

Phase one from London to Birmingham will cost £21.4bn in 2011 prices and phase 2 will cost £21.2bn.

The total price includes a contingency of £14.4bn. But on top of the £42.6bn a further £7.5bn (of which £1.7bn is contingency) will be set aside for rolling stock.

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