French vision for a nuclear future

Monday, April 7, 2008

It is only a matter of time. Since the UK government gave the go-ahead for new nuclear power plants, a takeover of British Energy has become all but inevitable. The nuclear power generator owns the sites on which future plants are likely to be built. It is a tasty target for EDF and other big continental European suppliers who want a slice of the UK's nuclear revival.

Placing the nuclear industry in the hands of a sole foreign owner might seem unpalatable. Yet a foreign buyer, particularly a French one, could be in the UK's interest.

War with France is unlikely. EDF could hardly take any plants it builds back to Paris. British Energy is not a monopoly supplier of electricity. Its main assets are a fleet of ageing power plants that require decommissioning. Assuming the government disposes of its 35 per cent stake in the company - it probably will - it is hard to make a strategic case to block a foreign bid.

Moreover, ministers envisage an ambitious expansion of nuclear power. If the dozen or so plants needed are to be delivered safely and on time, then France's technical expertise would be an advantage. British Energy lacks the resources to build and operate the next generation of plants. Given its chequered past - the government rescued the company in 2002 after low power prices drove it almost to bankruptcy - a deep-pocketed owner better able to
ride out a sustained fall in prices has attractions.

A bigger worry is the impact a takeover would have on competition in the electricity market. EDF has a major presence in the UK. Ownership of all commercial nuclear generating capacity, as well as the prime real estate for replacement power plants, would give it a sizeable advantage over rivals. There would need to be safeguards as well as guarantees of

The economic rationale for nuclear power's expanded role is that it will diversify the UK's energy supply mix by reducing dependence on gas imports.

This should benefit consumers by ensuring there is adequate baseload generating capacity. But the gains will be eroded if one supplier becomes dominant.

The sale of the government's British Energy stake will almost certainly trigger a bid for the whole company. Ministers must therefore tread carefully. They should avoid the temptation of a swift disposal in order to shore up weak public finances. It is imperative that the competition
implications of a takeover are explored fully. Whatever British Energy's fate, investors and the public need to hear the full commercial and strategic logic for it.

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