Nuclear diplomacy

Saturday, May 17, 2008

British Energy proves a slow sell

EVEN today, 13 years after it was built, Britain's newest nuclear-power station looks futuristic, with its landmark white containment dome and the blue haze of Cerenkov radiation in the cooling pond. In contrast to the huge furnaces needed to burn coal, a reactor core at Sizewell B roughly the size of a smallish lorry produces 3% of Britain's electricity. But its construction was so controversial—sparking one of the longest planning inquiries ever—that, after it was finished, nuclear power was abandoned for a generation.

Now, worries over climate change and the end of self-sufficiency in oil and gas mean that atom-splitting is set for a comeback. Ministers want new plants to boost nuclear power's contribution above the 18% of electricity it currently provides but insist that, unlike in the past, there will be no subsidies. With that in mind, the government announced in March that British Energy, which owns most of Britain's nuclear plants (including Sizewell B), was up for sale, and with it the state's 35% stake.

In theory, the firm is an attractive proposition. Despite its troubled history (a government bailout in 2002 saved it from bankruptcy), it is well placed to take advantage of any nuclear renaissance. The appeal lies not in the firm's mainly elderly power plants but in its land. Public support for nuclear power tends to be highest near existing reactors, which are big employers, and there is ready access to cooling water and the electrical grid.

So far, though, there has been no scramble for it. By May 9th, the unofficial deadline for bids, only EDF, a French utility and nuclear enthusiast, had made an offer, which was to be discussed at a British Energy board meeting on May 15th and 16th. Other companies such as RWE, a German firm, and Spanish Iberdrola are said to be interested; they could submit bids in the coming weeks. Besides the usual business considerations, there seem to be two particular worries affecting the sale.

The first is economic nationalism, a force long thought absent from the corridors of power. Foreigners have been blithely permitted to buy firms in Britain that other countries would regard as strategic; most recently Ferrovial, a Spanish company, acquired BAA, which owns Heathrow airport. But some sense that letting foreign firms build the next generation of nuclear-power plants is now coming to be seen as a globalised step too far.

Such worries could explain why Centrica, a British electricity firm, has repeatedly been linked to the sale. The parent of British Gas, it is exposed to fossil-fuel prices and keen to diversify. But it is hard to see what it has to offer British Energy.

It takes a lot of capital to build nuclear plants, and almost nowhere has the private sector on its own provided it. A big European company such as EDF has the financial clout to pay for at least one new plant from its balance sheet, a proof-of-concept that British Energy hopes would attract cash for subsequent stations from the financial markets. Centrica—whose revenues of £16.3 billion look puny compared with EDF's sales of €60 billion (£40.8 billion)—would find that approach much harder. But it is British; and sources close to the negotiations talk of a possible joint venture, providing European cash with a Union Jack draped around the deal.

The other worry is competition. British Energy operates all but two of Britain's nuclear plants, and with those due to close by 2010 it will soon have a monopoly. British Energy is not the only entry point for would-be providers of nuclear power—the government plans to sell land it owns around older, decommissioned reactors as well. But there is nevertheless talk of either dividing the firm or forcing it to sell off some of its unused property to stimulate competition. Buying that land could be more attractive than acquiring British Energy itself, since the new proprietor would not be burdened with running down existing plants.

Insisting on having more than one supplier is probably a good idea, although there are strong arguments that economies of scale are vital to making nuclear energy affordable. And if there are several competitors, what does it matter whether a few are fully foreign-owned?

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