British Energy in talks on reactors

Thursday, February 14, 2008

British Energy remains in talks with 10 potential partners for the construction of nuclear reactors and hopes to sign at least one deal in the next few months.

The nuclear energy group reported third-quarter results on Wednesday, which were hit by the unplanned closure of its Hartelpool and Heysham reactors.

Revenues for the three months to December rose to £768m ($1.5bn), from £754m in the same period of 2006, as a result of the Hinkley Point B and Hunterston B reactors returning to service after lengthy shutdowns.

However, the discovery of corroded wiring at the Hartlepool and Heysham 1 reactors in October led to their closure and extra inspection and repair costs, as well as the cost of buying electricity in the wholesale market to fulfil supply contracts.

This pushed pre-tax profits for the three months down 34 per cent to £192m.

In spite of this, the shares rose 44p to 533p as the results were better than expected and a special dividend of 14.5p was confirmed.

Bill Coley, chief executive, said the Hartelpool and Heysham 1 reactors were due to return to service in the middle of the year.

He said the government’s decision last month to back a new generation of nuclear power stations had given momentum to British Energy’s talks with its possible partners, which are understood to include RWE and Eon of Germany, EDF of France and Centrica, owner of British Gas.

“The interest has certainly picked up,” said Mr Coley, adding that “one or two partnerships” should be signed around the end of the financial year.

British Energy could play a range of roles in the new projects, he said, from a passive shareholder to the lead investor and operator of the plants, depending on who the partners were.

Energy companies that are keen to build nuclear reactors in the UK need to talk to British Energy as the group owns many of the sites that are deemed most suitable for new nuclear projects, such as Dungeness in Kent and Sizewell in Suffolk.

FT Comment
British Energy shares have been on a rollercoaster ride in the past year, affected by the volatility in UK power prices and several unplanned outages at ageing nuclear reactors. From about 400p a share in February last year, the stock has twice climbed close to 600p before plunging again. It rose sharply yesterday and should be helped by prospects for a British nuclear revival and the group's involvement in new projects. But new reactors will take at least a decade to build and British Energy’s near-term stock performance will remain determined by power prices and output at existing reactors. If it can avoid more unplanned shutdowns, there should be some value.

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