This Miliband scheme is cracked

Ed Miliband's mad scheme to fix energy prices illustrates the dangers of political risk. Bengt Saelensminde looks at what investors can do, and picks a very interesting utilities play.

27 September, 2013 This Miliband scheme is cracked Dear Buzzhairs Buzzhairs, Ed Miliband's grand scheme to fix energy prices has gone down like a lead balloon in the City. Some £2bn was immediately wiped off the value of Centrica and SSE. And star fund manager Neil Woodford called it outright economic vandalism. It surely gives every investor pause for thought. Political risk is still very much on the table – even when the politicians aren't in power! And isn't it that Whitehallers always seem to think they've got the solutions to the problems they, themselves created!? I'm not getting all party political here – practically all sides of the house were up for implementing the policies that have caused energy costs to soar. The fact is though that North Sea oil revenue has been leached by central government for decades now. Taxes have driven away investment, causing supply constraints that have driven up prices. Then there's the weak pound that purchases little in the global energy markets... again, this is a product of central planning. Markets hate this kind of uncertainty. And that makes investing in one of my favoured sectors – utilities – a little tricky. But don't worry, there is a way to avoid these political pitfalls… The problem facing everyone in Britain There's something seriously wrong with the UK financial system.   The banks - and our very own British government - have colluded to stoke up the biggest credit bubble in British history.   If and when it bursts, it could blow a hole in every British investor's portfolio… including yours.   Will your wealth survive intact? Click here and judge for yourself.   The Fleet Street Letter is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. 0207 633 3600. They don't have a good record here When is it right for a government to intervene in economic matters? Well most economists would say it's right and proper for government to intervene when it comes to externalities. An externality is something like pollution – an industrial side-effect that impacts people who didn't get any economic benefit from its creation. Unfortunately central planners don't have a good record of dealing with these sort of problems. Take the drive to limit global warming. That has lead to government backing for a truly ludicrous scheme to subsidise solar panels all across this green and pleasant land. Don't get me wrong – I'm all for renewables. I totally see that we must invest in a future not so dependent on fossil fuels. But the economics of the scheme put forward was just bonkers . Putting solar panels on domestic roofs was so uneconomical that they had to offer massive subsidies to homeowners to make them invest. Basically, electricity produced by homeowners is worth something like 5p per Kwh to the national grid. Yet, the electricity companies are forced to pay 41p for the stuff... even though it's getting used by the homeowner whose roof the panels sit on! And who ultimately foots the bill for this subsidy? Consumers do of course... the leccy company has to make someone pay! If government is supposed to intervene in inefficient markets (externalities), then for heaven's sake, surely they should introduce reforms that make the market more efficient. NOT less! Actually, given the cost of these things, it wouldn't even surprise me if the carbon footprint of these installations were bigger than what they save in the long run. Anyway, back to Miliband... Why Miliband's scheme is cracked Miliband's idea of fixing prices spotlights once again a politician that doesn't understand markets and lacks imagination on how to put things right. If you want to efficiently capture the sun's energy, then why not do it somewhere sunny? Take the south of France where you'll find acres of useless vineyards... in fact, in many areas, the land owners are paid to not to produce grapes! They're heavily subsidised to let the land lay fallow – of course this is the product of political interference on an EU scale. The point is, this land is ripe for the solar industry. Wouldn't it make sense to make solar farms? Think about the massive efficiencies of farming electricity on a grand scale. So why on earth are our engineers scrambling about on cumbersome roofs, putting in place tiny installations, yielding barely enough leccy for a toaster; and which are prone to breaking down anyway? And before you tell me the French wouldn't have it, then just consider the fact that French companies are practically running the UK nuclear fuels market already. German companies are all over our utilities too. And if we don't set up shop in France, then why not somewhere else? Whatever we do, it has to be done on a scale and in a place that's efficient. Miliband is looking at the wrong problem. The problem of price is a knock-on effect from supply issues caused by political mismanagement. Bank up to 42 extra income cheques a year… No matter what your age or income!   Spare a few minutes to set this up now, and you could have your first cheque in your hands within the next 30 days.   When you've seen how simple this is, you'll wonder why everyone isn't doing it.   Everything you need to get started is here.   The Dividend Letter is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares – you can lose you some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment. Forecasts are not a reliable indicator of future results. There is no guarantee that dividends will be paid. Customer services: 020 7633 3609. So, what's an investor to do? As it happens, I'm a big fan of investing in utility companies. The only problem is, they're always going to be operating in a political minefield. Anytime you're digging stuff out of the ground, there's always a taxman on your back. And when your products have a big impact on voter finances, you're going to attract the ire of the political masters. Nonetheless, in mid-April, I talked about a very interesting utilities play –  the EcoFin Water and Power opportunities fund. You can read about the risks and the reasons why I would consider investing here. One of the great things about this fund is its global diversification. The fund manager allocates funds to different countries and utility companies considered the best long long-term bets, given the individual political climate. Right now, a major 10% of the fund is invested in a Texan shale gas operator. Probably a safer political bet than Sussex! 15% of the fund is invested in emerging markets, with 6% in exciting renewables in China. The fund has been underweight UK utilities, saying that our operators are looking a little pricey, and rather presciently, citing potential regulatory concern. Offering a yield of 5.5%, and (to my mind) some decent inflation protection, many income seekers will no doubt be interested. If so, you can download the August fact sheet here. Political interference is nothing new. And though at times we seem helpless against it, it's always worth considering the global approach. Sometimes it's best to allow a professional investor, with a broad overview of the political landscape the scope to allocate your funds accordingly. Good investing, Bengt Saelensminde The Right Side PS: Got a comment on this article? Leave a comment on the MoneyWeek website, here. Don't miss out on other recent articles… This is QE in action 25th September 2013 Forget the taper - QE can never end 20th September 2013 How your gut is costing you money 18th September 2013 Politicians won't let this market crash 16th September 2013 Important Information The Information in The Right Side is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. This means that you will not have the protection of the Financial Ombudsman Service or the Financial Services Compensation Scheme. Appropriate independent financial advice should be obtained before making any such decision. Your capital is at risk when you invest in shares - you can lose some or all of your money, so never risk more than you can afford to lose. The Right Side is an unregulated product published by Fleet Street Publications Ltd. Want more? Go to http://www.moneyweek.com Query? Please do not reply to this email. Messages to The Right Side sending address will not be seen by customer services. To contact customer services, please click here. Alternatively, telephone us on 020 7633 3600, Monday to Friday, 9.00am - 5.30pm (Wednesday, 9.00am - 2.00pm only). Know someone who'd like to receive The Right Side themselves? Simply forward the following link to anyone you think could benefit from our free daily service: Sign up to The Right Side Whitelisting Make sure you never miss your The Right Side issue by adding us to your safe list. Learn more about whitelisting here. To unsubscribe from The Right Side: Simply follow this link. Fleet Street Publications. Registered Office: 8th Floor Friars Bridge Court, 41-45 Blackfriars Road, London SE1 8NZ. Registered in England Company No. 01937374. VAT No. GB629 7287 94. © 2013 Fleet Street Publications Ltd. All Rights Reserved. © 2013 Fleet Street Publications Ltd. All Rights Reserved. The content of this email and the MoneyWeek website (www.moneyweek.com) may not be reproduced without the written consent of Fleet Street Publications Ltd and MoneyWeek Ltd.