Playing for high stakes in generation game

Date: 01/05/1997

By Tim Jones

WHEN a quarter of Europe's energy markets are liberalised in January 1999, the UK's third-largest electricity generator will not be camping outside waiting for the store doors to open.

British Energy will have enough on its plate holding on to and increasing its commercial share in its completely open domestic market.

“The liberalisation of the European market is to be welcomed, but I do not see it having a huge effect on us,” says British Energy's chief executive Robert Hawley.

“There are simply not enough connections. It is fine having a liberalised market, but how do you get your product into it? You cannot just put it in bottles like whisky and send it across.”

Generators could choose to buy stakes in power stations on the continent and sell supplies into other European markets.

But the single connector between France and the UK has a capacity of only 2,000 megawatts and through this link, Electricité de France supplies as much as 5&percent; of the UK's power needs. British Energy - the recently privatised holding company of Nuclear Electric and Scottish Nuclear and operator of eight nuclear power stations - is not interested in building new connectors.

“We have looked into the economics of doing that and, at the moment, it is not really interesting,” says Hawley. Instead, the company is seeking to build up its presence in eastern Europe and Ukraine through the use of its expertise as a consultancy.

“Much more important to us is 1998, when consumers in the UK will theoretically be free to buy electricity from whoever they like,” he says. “Until now, it has only been big industry that has been able to do that.”

Even though British Energy is a generator and not a supplier, Hawley wants to ensure that it does not miss out on the commercial opportunities when 26 million households are able to shop around for their electricity sources.

At the same time, he does not want to have to start putting together a billing system for domestic customers which could soak up as much as 70 million ecu of the company's cash flow.

To get around this, British Energy is tying up alliances with regional electricity companies (RECs), the latest being a 15-year contract to sell electricity to Southern Electric.

In Scotland, the electricity generated by British Energy is automatically sold under a standing agreement which runs until 2005 to Scottish Power and Hydro Electric while, in England and Wales, the companies trade in a pool for long-term contracts with the RECs.

The firm is also aiming at small-scale energy diversification since no new nuclear power stations are to be built in the UK during the next two decades until, Hawley predicts, the country's gas surplus is used up.

“We are trading in a market that goes up and down during the day, so we want to get into types of generation that will enable us to sculpt our product so that we can sell it more easily,” he says.

For this reason, at the beginning of this month British Energy bought a 12.5&percent; stake in Humber Power Ltd, the owner of a 1,260-megawatt gas-fired power plant at Stallingborough on the east coast of England. It could be the first of many.

“We have always said that we will not build gas turbine stations ourselves because there is overcapacity in the market, but we will take stakes either in existing plants or ones which are certainly going to be built,” says Hawley.

Although he is always looking for areas of production where British Energy can take a role, Hawley is more than sceptical about getting involved in 'alternative' energy sources.

“I have run companies that build windmills and was on the board of a firm involved with the Mersey tidal barrage, and I would not touch them with a bargepole,” he says. “They are just gestures.”

He claims that the company's new Sizewell B power station can generate 1,300 megawatts. “To produce that much electricity from windmills, you would need an area the size of the Greater Manchester land mass to do it.”

With the UK's oil and coal resources running out, policy-makers can turn to gas or nuclear energy to replace them or become import-dependent.

But therein lies a danger. “A nation that is dependent on imports of energy for its well-being is crazy,” says Hawley. “Some have no option - Japan, Korea and Taiwan - because they have no resources. But we have them. Fifty million people should be controlling their own destiny and not letting other people do it.”