Energy firm Centrica is set to fulfil a long-held ambition to play a part in the UK’s nuclear power revival through a £2.3 billion deal with EDF, the owner of British Energy.
Centrica has reached an agreement with EDF to acquire a 20 per cent stake in British Energy and to create a joint venture for the construction of four new nuclear power plants in the UK. The deal marks Centrica’s debut in the nuclear power market and will help the firm to reduce its exposure to fluctuating energy prices.
The UK utility, which is the largest supplier of gas and electricity to the UK’s domestic energy sector, will pay £1.1 billion in cash, with the remainder of the £2.3 billion price tag made up by the transfer of its 51 per cent stake in Belgian utility SPE to EDF. The agreement came after several months of negotiations between the two companies.
Under the deal, EDF and Centrica will offtake the available power from British Energy’s generating fleet on an 80:20 basis. EDF will also provide Centrica with an additional 18 TWh of power at market prices over five years from 2011.
“We are delighted to have successfully concluded an agreement with EDF as a world leader in nuclear power,” said Roger Carr, Centrica Chairman. “The deal represents good value for Centrica shareholders, improves the strategic balance of our business and further underpins our green energy credentials.”
Centrica will also hold a 20 per cent stake in EDF’s venture for planned new nuclear build. The French firm, which acquired British Energy in 2008 for £12.4 billion, is planning to build at least four EPR-based nuclear plants in the UK.
“This transaction, part of the group’s strategy of developing its positions in Europe, will enable leading British generator, Centrica, alongside EDF, to take part in the re-launch of nuclear energy in the United Kingdom,” said Pierre Gadonneix, Chairman and CEO of EDF. “The asset swap in this deal will also see the EDF group reinforce its Benelux presence by becoming the second-largest generator in Belgium.”
A stake in British Energy’s eight nuclear power reactors will reduce Centrica’s exposure to wholesale electricity prices as it will enable the company to meet 85 per cent of its customers’ peak electricity needs from its own resources – up 27 per cent from current levels. Centrica’s own generating fleet is largely gas-fired.
The £2.3 billion paid for 20 per cent of British Energy represents a six per cent discount on the price per share paid by EDF for the nuclear generator in 2008. The decline in value reflects the sharp fall in energy prices seen in Europe since mid-2008.
The two companies have been linked in the negotiations over the BE sell off since last summer when they signed a non-binding agreement for the latter to buy 25 per cent in British Energy for £3.1 billion – equivalent to the same price per share paid by EDF. Centrica’s shareholders raised concerns about the risks of such a significant deal to the company.
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