A nuclear impasse

Published: August 27 2008 19:20

Anyone who went off to the beach a month ago in the expectation that the future of Britain’s nuclear industry had been settled will be returning to a serious disappointment. The structure of the industry is still undecided, while the government maintains the fiction that it is a question that can be resolved by the private sector alone. With the security of Britain’s energy supplies at stake, this muddle and confusion is dismaying.
British Energy is the UK’s principal nuclear generator and owns the great majority of its reactors and most of the best sites for building new ones. At the end of July it seemed that it would fall into the hands of Electricité de France. The deal would have had problematic consequences for competition in Britain’s electricity market, but would have secured EDF’s expertise and financial strength for the UK nuclear industry.

At the eleventh hour, with both companies preparing to announce a deal, the takeover fell through because of resistance from Invesco and M&G, British Energy’s two biggest institutional shareholders. But responsibility for the collapse of the deal is shared with the government, which provided less than wholehearted support for the French bid. The tough conditions it attached to selling its 35 per cent stake in the company gave unhappy investors the leverage they needed to hold out for a higher price. While EDF remains interested in buying British Energy, a deal that can win over dissident shareholders is as far away as ever.
British Energy’s fall-back strategy is to engage in a series of ad hoc joint ventures with partners including EDF and other big European energy groups to build new nuclear power stations. But until the company’s future is resolved, potential investors will be uncertain about crucial factors, such as the structure of the industry and the availability of sites. The UK does not have the luxury of indefinite time to debate its options. Perhaps a third of the country’s generating capacity is likely to go out of service in the next decade, and new nuclear power stations are urgently needed to replace it.
If the government sold its 35 per cent stake to EDF regardless of the attitude of the institutional shareholders, it would resuscitate the French bid. The government’s reticence over British Energy is legitimately motivated: it does not want to be seen to be dirigiste, and it does not want to sell its stake too cheaply. But it needs to act quickly. If the lights are to be kept on in the 2020s, its laisser faire attitude must change.
Copyright The Financial Times Limited 2008