Centrica goes nuclear with bargain BE stake

Centrica has paid a knockdown £2.3bn for a 20% stake in nuclear power generator British Energy.

Last Updated: 31 Aug 2010

The deal will give Centrica – which owns BG, the company which most of us still know as British Gas – a crucial foothold in what has become known rather portentously as Britain's Nuclear Renaissance. Four new nuclear reactors have already been commissioned, and there are likely to be more on the way. It's shaping up to be the biggest party our national energy sector has had for years, and everyone who wants to be anyone had better be there.

Now £2.3bn may not sound like a bargain, but the deal represents a pretty nifty piece of footwork on behalf of Centrica chief exec Sam Laidlaw. Centrica originally contracted last year to pay BE's new owner, EDF of France, some £3.1bn for a 25% share. But the fall in energy prices hit BE's performance, and Centrica pressed EDF to renegotiate the deal. The new price represents a 6% discount on the original, and that's not all. It's only £1.1bn in cash, with the other £1.2bn being provided by Centrica's stake in Belgian power company SPE - at a very favourable valuation. The market approves: Centrica shares were up just over 3% on the news, while EDF's price dropped by about the same amount.

So hats off to the Centrica team. With negotiators who know how to play that kind of hardball, there's not much chance of any of us getting a discount on our next gas bill. But as every good supermarket shopper knows, a bargain is only a bargain if its something that you actually need. Does Centrica really need a stake in BE?

Well, yes it probably does. Centrica currently only generates around 30% of the energy it supplies to its customers, meaning that it has to source the rest in the wholesale markets. Price fluctuations here can be considerable, and they have caused Centrica and its customers no end of headaches. Remember all those price hikes last year?

BE already owns eight operational nuclear power stations in the UK, and the licenses to build new ones are most likely to be granted for its existing sites – like the four planned for Hinckley Point in Somerset and Sizewell in Suffolk. So the deal will boost Centrica's in-house generating capacity closer to the industry norm of 50-55%, helping it to ensure greater consistency of supply and pricing.

Of course, nuclear has historically been a hugely controversial industry, with many claiming that the health and environmental risks from radioactive contamination and waste disposal are simply too high. So not everyone will welcome this deal. But as a nation, we urgently need to make more power, and to do so in a low-carbon fashion. Wind and solar have their place, but we can't just turn the lights off when the sun goes in or the wind stops blowing. Nuclear is currently the only low-carbon technology which works 24/7, so until something better comes along, that's what we should build. And it's good to see that a British company will be getting some of the benefit, too. More power to you, Centrica.

In today's bulletin:

Centrica goes nuclear with bargain BE stake
Even civil servants face the axe, says CIPD
HSBC banks record investment banking revenues
Price trouble brewing for coffee drinkers
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