MorganEnergy

Here are a couple of follow-ups to stories that we have run here.

– E.On is apparently now free of anti-trust worries in electricity as the European Commission has accepted its promise to divest itself of 5,000 MW of generating capacity. EurActive has details.

– While doom and gloom is all too common in business these days, some people still have confidence: Westinghouse has set up a UK company in expectation of a bonanza from new nuclear plant build in that country. The move may also be connected with concerns about the vulnerability of US-based companies to law suits arising from nuclear accidents, as explained by this Guardian article.

Most governments are now coming around to the idea that new nuclear generation is inevitable, but what will their electorates (if they have them) say? In the USA at least it appears that nukes may be welcomed with open arms. Dr. Fereidoon Sioshansi has an article at EU Energy Policy that suggests support for new nuclear build in the USA could be as high as 74%.

As expected, regulatory authorities in both the UK and EC will be taking an interest in the purchase of British Energy by EdF. Interestingly EdF has announced that any deal with Centrica, who are supposed to be taking a 25% stake in the deal, will have to be put off until after regulatory approval is granted. Presumably EdF is much more worried about Centrica’s potential dominance of the UK retail market than about its own potential dominance of the UK generation market.

Now wait for British MPs to tell Gordon Brown that the deal can’t go to Brussels unless some UK ownership is involved.

That has to be the question that everyone is asking right now. OK, so the banking sector is in meltdown, but what about me? Or, in our case, what about energy?

Despite the regular panics about price spikes, market failure, environmental regulations and so on, it appears that the energy industry is weathering the storm. Last week Platts reported that the US energy sector was still seen as a good investment. Of course that was last week, but it does help to be producing a product that just about everyone needs. The demand for energy may tighten, but it will never go away.

On the other hand, the nature of investment in energy may change. Today the California PUC has warned that lack of investment capital may put the brakes on the state’s green agenda. Platt’s reports that Commission member John Bohn has been voicing concern about the ability to finance development projects. Even major utilities are likely to be hit, but smaller companies will feel the pain much more deeply.

That, I suspect, will be a major problem for the burgeoning renewables industry. Right when it was about to take off in a big way, investment is going to come to a grinding halt. Instead new investment will have to come from other sources, and there will probably be government involvement in many cases. We can’t afford to let the lights go out, so government will feel the need to Do Something. And, as is the way of government, they will eschew multiple small and innovative projects, and go instead for something big and flashy that will appear to solve all of their problems in one go. Building nuclear power stations may prove to be a lucrative career over the next few years.

In the wake of EdF’s (planned) purchase of British Energy, Oliver Morton tackles the issue of whether nuclear energy will indeed lead to a reduction in CO2 emissions. He notes that between 1977 and 2003 the amount of nuclear generation in France grew by 4000%, and yet:

According to the Stern review fossil fuel emissions in France during the 25 years of that 4000% increase fell, on average, by less than 1% a year. Emissions from the generating sector dropped 6% a year, which is about 80% over the 25 years, which is great — but the rest of the economy kept growing and burning fossil fuels in cars and heating systems and factories and all that.

Looking at the chart he used for generation data, it appears that the growth in nuclear generation accounted for all of the growth in electricity consumption, while other fuel sources remained roughly constant. Obviously if nuclear were to replace existing generation then things would be rather different.

But then again, nukes are not very flexible plants. You have to have some flexible generation in your mix. Looking at Morton’s data (which is from Wikipedia and which I haven’t checked), less than 20% of France’s generation comes from non-nuclear sources. How much lower could that go, and still have the system remain manageable?

More information has been emerging about the Centrica deal to take a 25% share in the new nuclear power company being created by EdF from British Energy. EdF is buying BE through a subsidiary called Lake Acquisitions, and Centrica will take a stake in that company. According to EasyBourse:

The acquisition by Centrica would be at the same implied price per share as EDF pays for British Energy, subject to certain costs to be agreed. Under the deal EDF would retain control of British Energy through its 75% interest in Lake Acquisitions and be responsible for running all British Energy’s power stations.

Centrica’s 25% interest in Lake Acquisitions would give Centrica the right to offtake at least 25% of the uncontracted output of British Energy’s existing generation fleet. Profits of Lake Acquisitions would be distributed to EDF and Centrica in proportion to their equity interests. Centrica would also be entitled to participate in EDF’s nuclear new build activities in the U.K. on a 75/25 (EDF/Centrica) basis, with EDF leading the developments and being responsible for the building and operation of the new nuclear power stations.

It is also apparent that despite yesterday’s fanfares there are still rocks on which the deal might founder. Centrica may yet face an inquiry into the share of the UK generation market it controls with the addition of 25% of BE’s output. The Times talks about a “furious backlash” of patriotic Brits, none of whom have presumably been reading the newspapers over the past few months and have been taken completely by surprise by the news. And the Scots have finally woken up to the idea that British Energy is actually their national champion (BE’s head offices are in East Kilbride. Unfortunately for them, the SNP government has set itself firmly against any new nuclear build north of the border, so Alex Salmond is going to have to work very hard to make EdF think it worthwhile sticking around.

It appears that the EdF buyout of British Energy has finally happened, though much of what has happened remains somewhat murky.

As the BBC reports, there is now an expectation that Centrica will take some sort of stake in the nuclear generator. It seems likely that this will be in the form of an off-take deal for 25% of the output of the plants, plus 25% ownership of any new plants that are built.

Then there is the deal itself. The basic offer is for 774p per share, which is well up on original suggestions of 700p, but well short of the 1000p that BE initially said it was worth. However, there is an alternative deal on offer of 700p plus a “Contingent Value Rights” note (CVR). Yes, it is a derivative. EdF is asking BE shareholders to take a punt on the future value of UK energy prices. As the Telegraph points out, this is something of an uncertain deal.

Finally, it looks like EdF may not be the sole nuclear generator in the UK. It will definitely be building new plants at Hinkley Point and Sizewell but, as this Guardian report reveals, it will be selling some of the brownfield sites:

The company, which is 85% owned by the French government, has also agreed that it will sell off British Energy land at Bradwell, Essex, and more at either Heysham, Lancashire, or Dungeness, Kent, to rivals who are also interested in constructing and operating a new generation of nuclear stations.

So other companies may well decide to get in on the nuclear bandwagon. Indeed, RWE has already announced its intention to do so.

Several hundred years ago the French helped the Americans throw off the yoke of British Imperialism. These days, however, Frenchmen are rather less welcome over the other side of the Atlantic than they are on the other side of the Channel. The Wall Street Journal reports that Constellation Energy has accepted a takeover bid of $26.50 per share from Warren Buffett’s MidAmerican Energy Holdings even though they had a rival bid from EdF worth $35 per share. Constellation cites confidence in Buffett’s legendary financial acumen, immediate access to funds, and ease of obtaining regulatory approval as the primary reasons for their seemingly unusual choice. (Knowledge Problem has more links.)

EdF, as we have been noting for some time, is keen to acquire nuclear generation assets elsewhere in the world, and it is the nuclear issue that the WSJ thinks was the stumbling block for Constellation. America’s nuclear generation in the hands of garlic-eating foreigners? No thank you. But French money is rather more popular in Britain. The Times reports that the board of British Energy has accepted a revised bid for their company from EdF. An announcement is expected this week to coincide with the Labour Party Conference, so that Gordon Brown can welcome his French friends with a great fanfare. Nelson, Wellington and Henry V are doubtless turning in their graves, and William the Conqueror will be having a good laugh at their expense.

There have been a few rumblings this week that the EdF/BE deal is back on again. This has been going on for so long that I would not have even mentioned it were it not for the fact that the whole rationale for an EdF takeover is their expertise in running nuclear power stations, and Platts has just reported that 17 of their 58 nukes, representing some 29% of capacity, are currently offline for various reasons.

The fashion for new nuclear plant has moved closer to becoming a reality in the USA. Exelon Generation has submitted a formal request to build and operate a new nuclear power station in Victoria County, Texas. The twin reactors would be capable of producing 3,000 MW of power.

Meanwhile the EU Energy Policy blog has a long article by William Nuttall and David Newbery of Cambridge on policy attitudes towards new nuclear build around Europe.