Short article that highlights how hard it is to allocate scarce resources effectively

 So long as shipping is the easiest way to move large items around the world, control of the seas will be vital to our national interest

TOM SHARPE24 February 2023 • 10:59am

After a year of fighting, tanks and trenches dominate the press coverage of Russia’s invasion of Ukraine. Less noticed is the quieter but equally essential maritime war being waged for the survival of Ukraine’s economy – one that should send shivers down the spines of Britain’s defence officials.

The war in the Black Sea and Sea of Azov doesn’t look anything like the battle of Jutland, with titanic warships locked in combat. Much of it doesn’t have anything to do with direct maritime combat at all, instead focusing on denying the use of sea lanes. 

In oceanic terms, this is a small area. But it is flanked by both combatants, and from a Ukrainian perspective it’s the point of transit for 90% of the country’s exports, from wheat and corn through to steel and fertilisers. Russia’s maritime blockade is having a crippling impact on the Ukrainian economy, and starving the countries which depended on its exports of grain. 

Meanwhile, in the Baltic Sea, public debate is still focusing on who was responsible for the sabotage of the Nord Stream pipeline. Regardless of responsibility, the action shows the range of options someone with mastery of the maritime environment has at its disposal – and the threat posed to the UK’s national interests by Moscow, now and in the future. 

Control of the seas will always be critical to both Britain and Ukraine’s national security so long as shipping is the easiest way to move large items around the world. For the UK, there are also critical fixed assets from the data cables running under the North Atlantic – monitored by the Russian navy for decades – to power infrastructure from oil and gas extraction to wind and tidal generation requiring our protection. 

Britain’s nuclear deterrent is in use every single day, without ever being deployed. In much the same way, the Navy keeps us safe everywhere, every day. And yet successive governments have cut and cut this vital national security asset, just as they have squeezed resources for the Army and RAF.

What was meant to be 12 destroyers became eight, and then six. They are now having their well-publicised mechanical defects repaired over a period of several years. Of our two aircraft carriers, only one is functional, and we only have 30 F35B’s capable of flying from them. Our frigates are venerable workhorses but beginning to show their age, and too many are not fully equipped. 

And once again, numbers are being cut; we are moving from 13 frigates to eight without ship-launched torpedo capacity, plus five “general purpose” frigates not capable of fully matching their role. Our mine-hunting capability, world-leading for decades, is being traded for new technologies which have yet to prove themselves at scale and in conflict. 

Below these surface problems are mounting concerns over critical enabling capabilities. Ammunition stocks are grabbing the headlines, but we also don’t have enough helicopters, long range air surveillance aircraft, people, or accommodation to put them in. The list is as long as it is depressing.

The Treasury’s response to requests for more money from each service always centres on the objection that they can’t be trusted not to waste it. This is a line that works better for regulating a child’s pocket money than for the defence of the realm, and it isn’t one that they’ve ever applied to the monumental waste in the NHS. Waste must be fixed, but can't be used as an excuse.

The shipbuilding pipeline is more promising. Nuclear attack and missile submarines, specialist anti-submarine and general purpose frigates and large support values are all in train. If they arrive on time and fully armed – and that is a big “if” – then by the back end of this decade we may scrape through in numerical terms. 

In the meantime, even with a war on our doorstep, an increasingly aggressive superpower on the other side of the world, and a demonstrably less stable global commons, the Treasury and its political masters appear to believe there aren't enough votes in defence to justify spending more in general, let alone on the Royal Navy. We will need to think hard about how to do more with less.

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Tom Sharpe OBE is partner at Special Project Partners. He previously spent 20 years in the Royal Navy during which time he commanded four warships

Must-read on how government could really help industry

 

Britain’s semiconductor champions could conquer the world, if Sunak grasps the nettle

The UK should stick to its strengths, not chase the chimaera of ‘semiconductor sovereignty’

AMBROSE EVANS-PRITCHARD24 February 2023 • 9:00am

Paragraf is the sort of gold dust company that Britain vitally needs if it is to sustain an advanced semiconductor industry, and if it is to avoid getting crushed in the arms race for global chip ascendancy.

A spinoff from the Materials Science Department at Cambridge, Paragraf is the world’s first and only manufacturer of 2D graphene chips for sensors. These chips are one-atom thick. They are a thousand times faster than silicon wafers used today, and they use 10,000 times less energy to do the job.

The Chinese are spending $80 billion trying to crack this technology – so far to no avail – aware that the first country to make these next-generation chips at scale will dominate clean-tech, bio-tech, and artificial intelligence for decades. It will gain the edge in precision weapons.  

Paragraf has a plant in Huntingdon. Demand is so intense that it is now searching for a much bigger site with the infrastructure and skills pool for the big league. Speed is of the essence. “Right now I’m afraid we’re going to have to go elsewhere,” said Simon Thomas, the company’s chief executive.

It is the same story from Newport-based IQE, the world’s leading producer of compound epitaxy wafers for photonics. Chief executive Americo Lemos has threatened to decamp altogether unless the Government comes up with a viable semiconductor plan in short order.

Dr Thomas described the British political class as technologically primitive, with scant understanding of how semiconductors underpin the 21st Century economy or what it takes to nurture the ecosystem behind it. One official suggested that he outsource the work to Malaysia.

It took six months for Paragraf to obtain a work visa for a German specialist, and nine months for an Indian. “You want to cry: these are highly-skilled people. There are never enough visas, and it is expensive for us, and expensive for them. The Government is throttling how quickly we can grow.” he said.

He has had to build an electricity sub-station because the public infrastructure is inadequate. Don’t get him started on the stone-age planning system.  

“I am passionate about trying to grow the business in the UK. If we invested in the next generation of graphene, silicon carbide, and diamond technologies, we could own the world market in fifteen years. We have the IP, and nobody else in the world has it. But we can’t expand without the necessary support,” he said.

Paragraf is the world’s first and only manufacturer of 2D graphene chips for sensors CREDIT: Jason Bye

Paragraf is eyeing America, where Joe Biden’s $52bn Chips Act is raining money, and full-service tech-parks are rolling out the red carpet. They even scout talent for you.

Tech-leaders penned a cri de coeur to the Prime Minister last month, warning that “Britain’s status as a leading tech ecosystem is at risk” with every month that the paralysis drags on.

This has a familiar ring. The silicon chip was invented in Manchester in the 1950s, yet America and Japan ran away with the prize, before Taiwan Semiconductor Manufacturing Company (TSMC) outflanked them all. The UK then pioneered the first compound chips in the 1980s but let much of the manufacturing slip away to Asia. “We missed the boat again,” said Dr Thomas

So what should we hope for when the Sunak strategy finally emerges in March? The UK certainly should not chase the chimaera of ‘semiconductor sovereignty’.

It should eschew the EU’s ruinous attempt to match Asia in advanced silicon chips. It is 40pc cheaper to produce these wafers in Taiwan due to lower labour and power costs, and TSMC is light-years ahead on miniaturisation. Nor should the UK copy the EU in trying to induce Intel to build production ‘fabs’ in Europe at €20bn a shot – half in subsidy.

The EU made a mess of its farm and fisheries policies, its energy policy, its digital policy, and its currency.  We can be sure that it will make a mess of its French-driven bid to turn Europe into a semiconductor fortress, purportedly doubling its global chip share to 20pc by 2030.

The Commission has unveiled a €43 billion plan, of which just €3.3bn of actually comes from EU funds, and that is mostly from cannibalising Horizon Europe (science) and Digital Europe. It is a drop in the bucket. “We calculate that they would need €500bn,” said Kurt Sievers, head of the Dutch chip-maker NXP.

The EU is spreading itself too thin and risks a subsidy haemorrhage on yesterday’s technology. It is akin to the Chirac-Kohl bet on HD television in the 1990s, the last gasp of the analogue age.

The UK has two crown jewels: advanced compound wafers and chip design. Over 95pc of the processors in the world’s smartphones are designed by ARM in Cambridge. This is where the country has critical mass and the greatest hope of world-beating clusters.

The US, the EU, China, and Japan are all pursuing superconductor sovereignty to varying degrees. It is nigh inevitable that this will lead to a cyclical glut in the end, with much wasted money along the way. Britain should leave this impetuous scramble to others.

“We can’t do everything. We should stick to what we are fundamentally good at and where we have a global competitive advantage,” said Andy Sellars from CSA Catapult, which researches compound chips in Newport.

Joe Biden’s $52bn Chips Act aims to revolutionise America's chipmaking industry CREDIT: Chip Somodevilla/Getty Images

Generally, I oppose picking winners and losers, but semiconductors are sui generis. It is a reasonable bet that modest sums of taxpayer money deployed quickly and with panache could turn the UK into a pocket superpower in the fastest growing segment of the chip market.  

The Government should not be shy about taking equity stakes. The Taiwanese state co-funded the launch of TSMC in 1987 and turned the venture into a national endeavour, backed by an heroic push for STEM education (Science, Technology, Engineering, Maths). Today TSMC makes 86pc of the world’s advanced silicon chips.

“The Government could easily copy what Taiwan did," said Dr Thomas from Paragraf. IQE's Mr Lemos made the same argument in testimony to Parliament.

The Centre for Policy Studies says Westminster should get the foundations right, offering R&D tax credits and ‘full expensing’ for plant and machinery, backed by a strategic investment fund for emerging technologies.

It should expand its ‘high potential’ visa scheme to all advanced STEM graduates from a wide range of universities in allied countries, and eliminate the needless friction of visa and health surcharge fees.

The CPS says the Government should use its power under the Levelling Up Bill to ride herd over the planning bureaucracy, giving laboratories and hi-tech sites supremacy in the order of priorities. Nobody should have to go through the deranged ordeal inflicted on the Wellcome Sanger Institute when it tried to put up a temporary genome sequencing lab at its Cambridge site during the white heat of Covid.  

Rishi Sunak is tech-savvy from his Stanford days. He has liberated semiconductors from their captivity in ‘digital, media, culture, and sport’, of all places, and put them under a new Science, Innovation, and Technology Department where they belong.

His chip strategy may prove a welcome surprise. If it is not, this country would be better off with a pro-business Labour government.

Info on a state-owned bank - supply-side:

 

SMALL-BUSINESS MINISTER KEVIN HOLLINRAKE (LEFT) VISITS RAMEN ELECTRA FOUNDER JAMES FRASER, WHO RECEIVED THE 100,000TH START UP LOAN

A state loan for start-ups

The British Business Bank offers competitive unsecured rates for founders

When the owners of St Albans-based noodle shop Ramen Electra decided it needed financing to fulfil its potential, they hadn’t expected a visit from a government minister. But as the recipient of award number 100,000 from the Start Up Loans scheme, the government-backed initiative aimed at new businesses, Ramen Electra got some helpful publicity when small-business minister Kevin Hollinrake turned up to mark the moment.

Ramen Electra started up during the pandemic lockdown, serving takeaways through the window of a local pub, The Beehive. Then, in the aftermath of the pandemic, founder and chef James Fraser decided to make a full-time go of the new venture and serve meals six days a week as the pub’s main food offering. Earlier this month, the business received £6,000 from the Start Up Loans Scheme to invest in new kitchen equipment, as well as marketing materials.

A DECADE OF SUPPORT

It’s the sort of story that has become commonplace since the launch of the scheme just over a decade ago, but many would-be entrepreneurs are unaware of what is available. The scheme, which is administered by the British Business Bank, offers personal loans to people looking to start a brand new business or to expand an existing business that has been trading for less than 36 months. The cash can be used for more or less any business purpose – from renting premises or buying stock to funding marketing materials.

“FOUNDERS CAN BORROW UP TO £25,000 EACH AT 6% INTEREST”

Business founders can borrow between £500 and £25,000 each – the average loan size is around £9,300 – with the money repayable over a term of between one and five years. There are no arrangement fees, but interest is charged at a rate of 6% a year – competitive compared to financing for start-up businesses provided by banks and other lenders.

However, importantly, the loans are unsecured, so you don’t need to put up any personal or business assets as collateral. You also don’t need a guarantor to access the scheme.

Applications aren’t guaranteed to succeed. The British Business Bank assesses borrowers on the basis of their credit histories and their ability to repay, since the loans are personal loans rather than lending to the business. It also makes an assessment of viability, so applicants are expected to provide a business plan and a cashflow forecast.

However, the scheme offers support for business founders who have never put together such documents before, including online templates that you can use to pull the information required together. It also offers a range of support and mentoring services once your loan has been approved and you’re running the business.

FURTHER FUNDING TO GROW

The scheme also offers additional loans – if you need further support to expand, for example, or to exploit a new opportunity. These also come with a 6% interest rate and your total outstanding balance to the scheme cannot exceed £25,000. So if, say, you borrowed £10,000 through your first loan and you have repaid £2,000, you could apply for new financing of up to £17,000.

Note also that each founder of a business is entitled to apply for their own loan. So, if you’re co-launching a business, you’ll have access to a larger amount of capital. The only caveat is that the Start Up Loans scheme won’t advance more than £100,000 to any one business.

Regulatory capture and crony capitalism

 N

Why does Drax the tree destroyer get eco cash?

The wood-burning power company has friends in all the right places

Dominic Lawson

Sunday February 19 2023, 12.01am, The Sunday Times

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The City likes Drax, the world’s biggest publicly listed burner of biomass — or wood, as it used to be called. The firm is to announce its annual results this week, and the investment bank JP Morgan has enthusiastically declared the shares “a top pick”. Which is fine and dandy for all concerned, except the only reason Drax is handsomely profitable is the colossal subsidies it receives. Its profits for 2021-22 were £398 million, but its subsidies, courtesy of the ministry then known as BEIS (now the Department for Energy Security and Net Zero), were £893 million. There would be no dividends for shareholders at all, or even a functioning business model, without the intervention of government. It is thought that while Drax’s profits for the latest year will have risen to at least £540 million, the subsidies, per megawatt hour of energy produced, will have also increased.

What’s that all about? Drax, which used to burn coal in its Yorkshire power stations, has switched most of them to wood — and as wood is “renewable”, it attracts subsidies similar to those accorded to, for example, solar power generation. Drax does this on a vast scale, getting through the equivalent of about 27 million trees a year and almost 14 per cent of the wood pellets burnt globally.

Not one of those trees is cut down in the UK. They are all imported, largely from Louisiana and Canada, where they are turned into pellets suitable for use in Drax’s power stations before being shipped across the Atlantic in vast diesel-powered container vessels. Now here’s the trick: the CO₂ “chimney emissions” in the process are not recorded in the UK’s carbon accounts as the trees are not chopped down here. They are on the American and Canadian carbon balance sheet.

But what about the CO₂ produced in Yorkshire when the stuff is actually burnt? As, among others, the Intergovernmental Panel on Climate Change has observed, wood-burning, per unit of energy produced, puts more CO₂ into the atmosphere than coal, and overwhelmingly more than natural gas.

How does that make Drax the darling of the government as it seeks to make the UK “net zero” by 2050 (as mandated by a parliamentary statutory instrument in the dying days of Theresa May’s rule)? Answer: it argues that all these millions of trees are replaced by newly planted ones, which will absorb the CO₂ in the atmosphere as they grow. Drax also claims that what it chops and burns is mere “waste wood”; it denies the charge of a BBC Panorama programme that it has been felling trees from primary Canadian forests.

This justification, at least insofar as it purports to address the “climate emergency” and the 2050 target, is extremely dodgy; the carbon payback period of a mature tree — how long it takes to absorb the CO₂ it will give off in being burnt — is likely to be at the upper end of a range of 44 to 104 years, according to the Chatham House think tank. That doesn’t help at all if the emergency is now, as claimed.

This point was made in “Letter Regarding Use of Forests for Bioenergy”, addressed to world leaders in 2021 from a cavalcade of scientists (their signatures filled 27 pages). They, too, pointed out that “wood burnt for energy emits more carbon up smoke-stacks than using fossil fuels ... governments must end subsidies and other incentives that today exist for the burning of wood, whether from their forests or others’.”

Later that year a group of MPs in this country led by the Father of the House, Sir Peter Bottomley, and including the solitary Green in the Commons, Caroline Lucas, wrote a letter demanding the government stop subsidising Drax; they argued that “the switch to burning wood has led to huge extra emissions — equivalent to three million more Ford Fiestas on our roads” and that the day “the last tree will be burnt in our power stations ... cannot be soon enough”. Yet the government’s plan is to burn up to 120 million trees a year by 2050, nearly all imported.

Those MPs had found it extraordinarily difficult to get answers to their concerns via the normal parliamentary process. To such written questions to the energy secretary as, “What are the ages of the forests burnt by Drax?”; “What are the CO₂ emissions for domestically sourced coal versus imported wood?”; and, “What are the chimney CO₂ emissions from Drax?”, the answer was, consistently: “The government does not hold this information.”

Eventually, in August last year — shortly before he became the ill-fated chancellor in Liz Truss’s self-immolating administration — the energy secretary, Kwasi Kwarteng, met some of a group of 84 MPs concerned about the wood-burning subsidy racket. They were able to point out that it had taken eight months to get him to agree to see them, whereas Drax had had no fewer than 32 meetings with the secretary of state since he joined BEIS.

Anyway, Kwarteng, to the MPs’ surprise and delight, told them that his own department’s policy of subsidising the burning of millions of imported trees a year at Drax was “not sustainable”, that “it doesn’t make any sense to me at all” and that he was close to deciding “to just draw the line and say that this isn’t working, it doesn’t help carbon emission reduction and we should just end it”.

We know this because someone at the meeting recorded Kwarteng and passed the remarks to the Financial Times. The Drax share price plummeted. But then BEIS put out a statement insisting the secretary of state “fully backed” the existing policy after all — and Drax’s shares regained most of their losses. The FT’s Lex column suggested “furious power companies and bureaucrats had presumably applied thumbscrews” to the hapless secretary of state.

Well, Drax is a formidable lobbyist with friends in all the right places. For some time its “head of climate change”, Rebecca Heaton, was simultaneously on the Climate Change Committee, the official body charged with advising the government on such matters. Drax’s chief executive, Will Gardiner, chose to mark the death of the Queen and the accession of King Charles by issuing a press release reminding us that “His Majesty ... invited me to join the Carbon Capture, Use and Storage task force”. And earlier this month Gardiner was pleased to announce that he had “joined the World Economic Forum’s Alliance of CEO Climate Leaders”.

That reference to carbon capture is important. Drax aims to make its wood-burning “negative CO₂ emitting” by developing a way of burying the emissions under the North Sea in depleted oil or gas fields. That would make its existing subsidy tally of about £7 billion look puny: its plan for bioenergy with carbon capture and storage would require subsidies of at least £30 billion to make it financially viable.

Apparently that makes Drax shares a raging buy. Most odd.

Something useful about changing industrial priorities

 

Why the gusty North Sea could give Europe an industrial edge

Wind power is breathing life into a new green economy on its coasts

Jan 5th 2023

Fears about the fate of European industry abound. Russia’s invasion of Ukraine and the ensuing gas crunch have dealt it a cruel blow. basf, the world’s largest chemicals-maker, is shifting production away from its headquarters in Ludwigshafen in Germany. Nearly a quarter of the country’s revered Mittelstand firms are reported to be considering moving part of their operations abroad. And even as energy prices have fallen back, America’s protectionist and subsidy-laden Inflation Reduction Act is feeding fresh worries that industry might be lured away from the old continent.

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One unlikely bright spot is the part of Europe with the grimmest weather. As we report this week, a new economy based on renewable energy is taking shape in and around the North Sea. Rather as hydropower fuelled Lancashire’s cotton mills and cheap coal the Ruhr valley’s steel furnaces in the early days of industrialisation, the promise of cheap, abundant wind power is attracting industry and infrastructure to Europe’s northern coasts. If this fledgling economy thrives, it could give the continent a new, greener industrial edge.

The North Sea’s strong winds and relative shallowness together make it a huge basin of potential energy. Thanks to taller and more powerful wind turbines, more efficient undersea cables and other technological advances, it is now increasingly being tapped. A group of nine countries near this body of water has plans to install 260gw of offshore wind power by 2050—nearly five times that produced worldwide today, and enough to power all of the European Union’s nearly 200m households.

All this is breathing life into a new coastal economy. Esbjerg, a town in south-west Denmark that some consider the capital of the North Sea economy, now boasts companies that make equipment to build and maintain wind turbines. Many once supplied the offshore-oil-and-gas industry, but have shifted their attention to greener customers.

Nordic countries are beginning to attract energy-hungry battery plants and data centres. On Germany’s North Sea coast, a plan is afoot to build facilities to turn easier-to-transport ammonia into hydrogen, to fuel factories in nearby industrial parks. Even parts of steelmaking could eventually move north, as hydrogen replaces coal or gas in the manufacturing process.

For this economy to take off, though, Europe will need to focus its energies. A good start would be to cut red tape: getting a permit to build a new wind farm can take ten years, or even longer. Countries bordering the North Sea will need to work together to ensure that the seabed does not become overcrowded with cables and pipes and that infrastructure is looked after. The rise of the new coastal economy could be fiercely resisted in the old industrial heartlands. It will fall to governments to ease the transition.

A favourable wind

The pay-off will be handsome. Done right, the North Sea economy could be a model for other parts of the continent, including the Iberian peninsula, with its huge solar potential. Such shifts in its economic geography will not only help Europe achieve its climate ambitions and rebalance its energy mix away from Russia and other autocracies: they could even give rise to the sort of green corporate giants that Europe badly needs. ■

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This article appeared in the Leaders section of the print edition under the headline "Northern delights"