Electricité de France has finally secured itself a leading role in the revival of the UK’s nuclear power sector by agreeing a deal to take over British Energy.
It has also pledged to sell key British Energy-owned sites for the development of new nuclear capacity to other companies and says it will carry out its plans for four new EPR reactors at two locations.
After several months of negotiations, the government-controlled French energy group talked round key shareholders in British Energy with a sweetened deal of 774 pence/share and a Partial CVR Alternative.
EDF’s latest offer for the UK-based nuclear generator has been accepted by British Energy’s board, which is recommending the offer. It has also been accepted by Invesco – a major institutional shareholder – and the British government, which owns 36 per cent of British Energy.
The deal values British Energy at £12.5 billion and secures EDF as the largest generator of electricity in the UK. It still requires shareholder and regulatory approval, although EDF says that it hopes to conclude the deal by early 2009, placing it on-track to develop its first new nuclear power plant in the UK by the end of 2017.
EDF and British Energy entered talks earlier this year but the French company’s last bid was rejected by Invesco in July. The current cash offer is 9 pence/share higher than the July offer, while the CVR Alternative – which gives shareholders a return based on wholesale power prices and the performance of British Energy’s existing nuclear plants – is more generous.
EDF and Centrica are also continuing discussions over Centrica’s possible acquisition of a 25 per cent stake in British Energy.
The takeover of British Energy by EDF has strong political support in the UK but will result in further market concentration, a factor that is likely to cause concern among some market players. Combined with the assets of EDF’s UK subsidiary, EDF Energy, British Energy will have an installed capacity of 16.5 GW, sales of EUR11.9 billion and employ nearly 20 000 people.
“Together, the businesses of EDF and British Energy will have broader access to markets and a unique blend of engineering expertise, project management skills and physical assets available for the development of new nuclear build in the UK,” said Sir Adrian Montague, Chairman of British Energy. “In addition, this combination will be better able to prolong the contribution of our existing fleet to the energy needs of the UK.”
EDF says it has already booked the main components needed for the construction of the first two of four EPR nuclear plants that it plans to construct in the UK. The first of these will be located at Hinkley Point in Somerset.
EDF hopes to build a further EPR plant at Hinkley and two at the Sizewell site in Suffolk, all of which will be on-line by 2025. Together the four reactors will add 6.2 GW of capacity to the UK grid.
The UK government will net £4.4 billion from the sale of its share for the Nuclear Liabilities Fund, a segregated fund established to meet British Energy’s decommissioning costs. EDF will be responsible for meeting the cost of decommissioning any new nuclear plants.
The government has also reached a deal under which EDF will sell some of British Energy’s land to other potential developers in order to promote the development of new nuclear plant and ensure that more than one nuclear operator exists in the market. British Energy owns some of the best sites for new build, including land at Bradwell and at its existing power plants at Dungeness and Heysham.
Britain’s Nuclear Decommissioning Authority (NDA) has already started the process of selling some of the sites that it controls. Both RWE and E.On of Germany are thought to be interested in buying land for new nuclear development.
Centrica is hoping that it will be able to purchase a 25 per cent stake in British Energy after the EDF takeover is concluded. The move would give it access to non-fossil fuel generation as well as the right to participate in EDF’s new nuclear build activities in the UK.
But the involvement of Centrica, which owns seven natural gas-fired power plants in the UK with a total capacity of 3420 MW and which sells electricity and gas through its British Gas brand, would only increase concerns over market concentration, especially among some of the country’s smaller generators and suppliers.
EDF has countered the criticisms, noting that a combined EDF Energy/British Energy would account for no more than one-quarter of the UK’s generation. It also says that the sale of British Energy land would enable other nuclear developers to build capacity and fulfil the government’s policy objective of having more than one nuclear operator.
Nevertheless the tie-up of EDF Energy and British Energy and the possibility of a further link with Centrica would create a highly vertically integrated group with considerable market power.
Linkedin
