Economy is “not working;” here are 2 key reasons why
In the countryside of Cambridgeshire, a British semiconductor startup was ready to expand beyond its lab and open a manufacturing base. But the company’s ambitions came with unexpected costs to bring enough electricity to the new site. The potential bill? One million pounds ($1.27 million).
The company, Paragraf, makes chips using graphene, an ultrathin carbon. Its devices can be used to check for defects in electric vehicle batteries to prevent fires, or work in quantum computers. After acquiring the site in 2023, Paragraf made plans to ramp up its weekly manufacturing capabilities from tens of thousands of devices to millions.
But the cost of increasing the power supply to the location, a result of years of underinvestment in Britain’s electricity grid, is diverting money — and time — from hiring and equipment purchases, said Simon Thomas, Paragraf’s CEO.
“Our biggest kind of advantage when you’re a company like ours is the pace you can move,” he said. Delays are “not just affecting what you can do now, it’s affecting how successful you’re going to be in the future,” he added. “It’s extremely frustrating.”
Up and down the country, complaints about the lack of investment in Britain are reaching a crescendo after more than a decade of low economic growth and wage stagnation.
There’s an “overriding sense of things not working” in the economy, said Raoul Ruparel, the director for Boston Consulting Group’s Center for Growth and a former British government special adviser. That includes a lack of affordable housing, weak public services including transportation and long hospital wait times.
With the economy expected to essentially flatline this year, two ideas to reignite it have stood out: Accelerate electrical grid upgrades and make it easier for new construction to win planning approval.
Analysts and lawmakers hope that these initiatives can unlock investment in infrastructure, cut carbon emissions and deliver much-needed productivity growth. The problem is substantial: In the past five years, the number of applications to connect to the electricity grid — many of them for solar energy generation and storage — has increased tenfold, with waits of up to 15 years.
The underinvestment is restricting the flow of cheap energy from Scottish wind farms to population centers in England and adding to the delays for those with high power needs, such as laboratories and factories. Laws that give local planning authorities considerable power are blamed for Britain’s shortage of housing and blocking the construction of pylons needed to carry electricity from offshore wind farms. Residents’ objections to noisy construction and changes to the landscapes have been a stumbling block.
Planning and grid connections, once relatively niche interests, have taken on mainstream importance. At the opposition Labour Party’s annual conference this fall, Keir Starmer, the party leader, promised to “bulldoze” through Britain’s “restrictive” planning system and get the electricity grid moving “a lot faster” if he wins the race for prime minister in the next general election, expected in 2024. Planning and grid reforms were two of the most crucial changes in the latest budget update for reviving growth, said Jeremy Hunt, the chancellor of the Exchequer.
At Paragraf, which was spun out of the University of Cambridge six years ago, “we want to go faster than some of the infrastructure will let us,” said Natasha Conway, the chipmaker’s research director.
The company, with about 120 employees, makes sensors that are used to measure magnetic fields. Attracted by the CHIPS Act, which provides subsidies to semiconductor makers, it had considered setting up production in the United States. In the end, though, Thomas chose to stick to
Britain and establish a domestic manufacturing business.
“Graphene was isolated and invented here in the U.K.,” he said. “Are we just going to let all of the value go somewhere else?”
But securing enough electricity has not been easy.
After months of searching for a site that would come with the power they needed, Thomas said, he settled on a warehouse 10 miles from the lab that would need power upgrades. Rather than wait for an upgrade arranged by the local council, the company moved ahead by paying a grid operator to install a connection to the main grid. That solution will allow work to get started sooner but carry costs coming to 1 million pounds ($1.27 million), including the price of upgrades to the first lab, the company said. Paragraf expects to have initial production underway by the second half of 2024, about a year and a half after getting the site.
In November, the government announced measures to speed up planning approval for major projects and impede NIMBY-ISM. The moves would, among other things, give communities financial benefits for approving grid infrastructure projects in their area and shake up the first-come, first-served queue for grid connections to remove stalled projects.
The plans have been welcomed by the National Infrastructure Commission, which advises the government.
Many of the reforms are plucked from the commission’s own recommendations, but the group wants the government to go further in compensating people when important projects such as housing developments or electricity transmission facilities are built nearby.
The country needs to overcome a “desire to maintain a chocolate box image of Britain, which is nice for tourists coming in and looking at the quaint old villages,” said John Armitt, the chair of the commission. “There has got to be more to Britain in the future than that.”
Inability to get major projects built — such as the government’s decision in October to cut a key part of a planned highspeed rail line, citing delays and overspending — affects “the view of investors as to whether or not the U.K. is a worthwhile place to come,” Armitt said.
One way the British government turned off investors was by changing planning measures in 2015, and tightening them further in 2018, so that a single objection could upend a planning application — effectively banning onshore wind in England. John Fairlie was a consultant in the wind industry at the time.
Fairlie is currently a managing director at Awgroup, a land development and renewable energy company that recently got an onshore wind turbine up and running in Bedfordshire, in the east of England, that will generate enough electricity to power 2,500 homes. Because of planning restrictions and grid connection delays, the project took seven years to complete.
In the past few months, “policy has changed, but it has not changed enough,” Fairlie said. As Britain seeks to escape from a long stretch of slow growth and lost productivity, while meeting targets to reduce carbon emissions, companies, economists and other experts say the government urgently needs to commit to these reforms.
“There’s lots of acknowledgment” of the problems, Armitt said. “We’re great on ambition” but not turning it into action, he added, which is particularly concerning around net zero emissions goals.
What is “increasingly becoming the fear of many people is that we’ve set ourselves some tough targets,” he said, “and as long as you’re 10 years or so away, well, it’s too easy to kick the can down the road.”