MorganEnergy

The latest news on the interminable British Energy saga is that Invesco, the largest City shareholder in BE, thinks that a merger with Centrica is the “obvious solution” for the nuclear generator. Previous rumors had suggested that lack of cash was one of the obstacles that led Invesco and Prudential to back out of the EdF sale. Invesco is apparently now saying that this is not the case. So who exactly is holding out for cash. Is there someone involved in the process who is desperate for money? Would that be you, Mr. Brown?

While EdF is still talking about investing in the UK, and British Energy blusters about how it doesn’t need foreign help to build new power stations, the French energy giant is busy diversifying its risks.

Earlier this week EdF increased its stake in US-based Constellation Energy, and is expected to invest further in the coming years. EdF is, of course, in the general business of electricity generation and retail around the world. However, its specific interest in Constellation is tied to UniStar, a joint venture between the two companies intended to develop, you guessed it, a new generation of nuclear power stations in the USA.

Various rumors continue to leak out regarding the on-off sale of British Energy. Energy Business Review claims that Centrica is still trying to find a partner to boost its offer for the nuclear generator. More recently the Financial Times reported that Centrica is considering adding a £4bn cash component to its merger offer. British Energy shareholders, including the UK government, are believed to prefer cash to shares.

However, the FT also notes that EdF continues to be the preferred buyer for Mr. Brown and his government. Even the normally fiercely patriotic Daily Telegraph is prepared to accept a sale to the French on the grounds that the only viable alternative would be importing more energy from countries such as Russia and Algeria.

Unfortunately for Mr. Brown, EdF seems unwilling to buy at the price he, and other major BE shareholders, appear to want. And the more desperate the British become, the more likely it is that EdF will stick to its guns and refuse to spend more than it wants. After all, as the International Herald Tribune points out, there are plenty of other options for investment around the world. Interest in nuclear generation is booming in many parts of the globe. Britain might be conveniently just across the water, and also home to a large EdF-owned retail business, but the USA, China and South Africa are all promising investment targets. The IHT also notes that EdF does not want to become dependent wholly on nuclear generation. The company needs peaking plant as well, and the recent merger of Gaz de France with Suez is a major threat to EdF’s gas-related business.

All in all, it doesn’t look like there will be any movement on the British Energy sale any time soon, which probably means that a new deal will be announced tomorrow.

The planned purchase of British Energy by EdF (and Centrica) collapsed at the last minute on Friday. Initial reports suggested that EdF had got cold feet and pulled out, but later it emerged that two major British Energy shareholders, Invesco and Prudential (M&G), who own around 22% of the company between them, had refused to accept EdF’s offer and demanded a higher price.

Quite what happens uncertain. EdF still insists that it wants to be a part of the “nuclear rebirth of Britain”, but is apparently unwilling to pay what BE’s shareholders think the company is worth. Centrica is mulling various options, including a merger, or a purchase in collaboration with an as-yet-unnamed third party. According to Reuters the UK government still prefers EdF as the buyer because of their “experience of new nuclear build,” and The Scotsman says that the government will “urge” EdF to renew talks. Quite what EdF could be offered as an inducement is unclear.

Then again, maybe tomorrow Gordon Brown will remember that he is supposed to be encouraging major investment in renewables.

The great on-off British Energy sale saga has lurched back into life with rumors that Centrica will agree to take a 25% stake in the company, thereby enabling EdF to raise the total bid to £12bn. Although Centrica’s involvement will mean some British ownership of BE, the prospect of majority control by a French company is still raising nationalistic passions in some areas of the UK media. Here’s The Independent’s Jeremy Warner:

If this were France, the sale would have been wholly to Centrica, however low the price, so as to preserve the national integrity of the assets. Yet these days, money speaks louder than any strategic considerations the Government might have. So instead, it must settle for Centrica’s minority participation.

An alternative theory might be that the British government knows that new nuclear power stations will be deeply unpopular with the electorate and that having a French scapegoat at hand to blame for any problems will be very convenient.

A couple of weeks ago Gordon Brown announced that the UK would be investing massively in renewable energy. Yesterday, in a speech at the end of President Sarkozky’s Mediterranean summit in Paris, Mr. Brown called for “a renaissance of nuclear power”, though to be fair he did mention “massive expansion” of renewable energy as well. Given the looming urgency caused by the imminent retirement of Britain’s fleet of existing nuclear power stations, it would not be surprising to hear Mr. Brown call for massive investment in fossil fuel generation as well.

The real question, however, is all about money. Who is actually going to build any of this new plant? The Guardian quotes a Downing Street source as saying, “The industry will not make the long-term investment required to build a new nuclear power station if they think the government is not totally committed to nuclear energy.” This seems very likely. But given the continuing reluctance of anyone to buy British Energy, total government commitment may not be enough.

One issue that may be giving investors pause for thought is the cost of decommissioning. A report issued last week by Parliament’s Public Accounts Committee put the current cost of decommissioning the existing nuclear fleet at £73 billion ($146bn) and rising fast. Who would have to foot the bill for decommissioning any new plants that get built? The Daily Telegraph quotes a government spokesman as saying:

As for the building of new nuclear power stations, we’ve been clear from the very start that energy companies – not taxpayers – must meet the full costs of eventual decommissioning of new nuclear power stations and their full share of waste management and disposal costs.

Anyone fancy taking on that obligation?

The latest rumor regarding the British Energy sale is that Centrica will agree to take a minority stake in the company, thereby reliving government fears about the company being in foreign hands, and allowing EdF to up its bid for the nuclear generator. (Story via Energy Business Review.)

Britain might be still debating what to do about nuclear power, but Brazil is apparently in no doubt. An article in People’s Daily Online reports the President of state-owned Electronuclear as stating that the country will be building four new nuclear power stations with a total capacity of 6,000 MW. Brazil already has two nuclear plants operational and is building a third.

The latest idea from British Energy is that, instead of selling of the company as a single unit, they will enter into a series of joint ventures with different companies over individual power stations. The idea may have some merit. Although Iberdrola have formally withdrawn their interest in buying the company, they are apparently still keen to invest in nuclear power in the UK. E.ON, RWE, Centrica, Scottish & Southern and, of course, EdF are all believed to have similar interests. Whether the joint venture idea will net British Energy the sort of money that they are not getting from EdF’s rejected bid is another matter.

Spanish generation giant, Iberdrola, has formally declared that it is no longer interested in buying a stake in British Energy (BE). The company had previously been one of those linked to rumors of a consortium that might outbid Electricite de France’s offer of around 680p per share. The market price of BE shares has been rising following the recent UK blackouts and takeover talk, but may have peaked as The Times reports a slight drop today to 740.5p – still well short of the 1000p that the company’s management thinks it is worth. Meanwhile Reuters reports that EdF’s share price is falling because traders fear that it may raise its offer for BE.