Image source: play.google.com

By Augustin Eden, Analyst

Fortunately, He-Man wasn’t referring to a recent acquisition he’d made when he first clambered onto that rock just outside the inadequately heated west wing of Castle Greyskull, hove forth his sword and yelled those now legendary words (the ‘n’ in nPower is silent. Not many people know that).

If he was, he’d now be telling us all how he should have bought National Grid (or my personal fave,  gone short Centrica) instead, since nPower fell victim in 2015 to a mere technological error that scrambled its customer billing system and led to an 81% drop in profits. That’ll be a black swan then.  Let’s try not to take nPower as a UK utilities sector barometer.

But what of the sector at large? There’s been much hype heaped upon miners and basic materials amid economic slowdown (or is it? But is it though?) in the world’s #1 commodities consumer, Eternia  –  only joking, it’s China  –  and a fair amount around oil and gas E&P companies, but very little on our domestic energy suppliers. Are they still benefitting from low oil prices as the global supply glut intensifies? What of UK fracking and the tearing down of wind farms as promised by the Conservatives in pursuit of energy independence?

On low oil, UK utilities companies have both suffered and benefitted, depending on how much exposure they have to upstream (E&P) activities. These days it’s better to buy cheap gas off someone else than go looking for it yourself, right? Right!

But of course the benefits come with a caveat:  that the current low oil price is stifling much needed producer price inflation. Savings should after all be passed on to the consumer to avoid one of two things. Firstly, the demise of the business on competition grounds and secondly, a right royal wrist slapping from the UK government. The second is especially true of the UK’s energy companies that manage to garner exceptional amounts of bad press with their ‘up like a rocket, down like a feather’* price policies endowing vote-hungry politicians with a useful weapon when fighting for (re-)election.

On that note, in the extreme event that we one day get a prime minister called Jeremy Corbyn, wrist slapping is likely to convert to full on indiscriminate abduction. It’d have to be abduction because there’s no way he (read ‘we’) could afford a £185bn compulsory purchase. Not that I mind Jeremy Corbyn. He looks like a nice guy.

So, wind farms. There are only really two objectively true statements about wind farms. 1) They are expensive and 2) They’re not that good at making lots of electricity, especially when it’s not windy. The big alternative of the moment is, of course, shale. The government is desperate to fill the gaping hole in its balance sheet that it blames on shrinking income from taxing North Sea oil production, and it’s going to fast track fracking planning applications to do so.

We should of course be thinking nuclear too but the end-game is the same. You do realise the world still runs on steam power, don’t you? The old ideas are the best…

Anyway, rest assured that the UK’s utilities sector is safe, still a cracking defensive play when emotions are set to one side. We are, after all, here to make money. In fact, what sweeter way could there be to get one up on the nasty energy companies than by trading them? nPower is owned by German behemoth RWE AG (RWE), just so you’re aware, but I think it’s suffered enough, don’t you? I’m just off to buy some.

*Phrase attributed to M. van Dulken