Monti plots investment freeze for British Energy

Date: 17/06/04

By Peter Chapman

MARIO Monti has told British Energy, the stricken UK power group, that it will face a six-year freeze in investment at the only competitive parts of its power-generation business as the biggest price for EU clearance of a government restructuring aid package.

A large slice of the estimated €8 billion aid is earmarked to keep British Energy's array of out-of-date - and unsaleable - nuclear power stations ticking over until they reach the end of their lives in decades to come - when the government will foot the bill for decommissioning.

EU sources said the freeze in expansion of its profitable Eggborough coal power plant in Yorkshire - part of a ruling expected next month - will prevent aid being redirected from the nuclear side of the business.

Many state-aid decisions from the European Commission impose some plant closures or sell-offs in return for allowing government handouts.

However, the Commission rules out imposing a sell-off of the coal plant because nuclear power firms need separate power-generation site to cope with peak periods when demand is temporarily higher than their nuclear plants can manage.

“It is the one plant that would be marketable,” explained one source. “But at least we kept it at its present capacity. There is no way that aid can be used ... to expand Eggborough.”

The investment freeze is designed to augment measures imposing strict separation of financial accounts between nuclear, coal-powered and trading units. This will be backed-up by long-term monitoring of the prices it sets for its direct business clients.

“That is to see that, in spite of separate accounts, there is no predatory behaviour or price undercutting when they compete with others. That is naturally inserted to appease a series of other producers who do not use nuclear power.”

The six-year timescale was arrived at during 'market-testing' talks between officials and British Energy's rivals, the source said.

These discussions were designed to ensure the company cannot misuse state handouts designed to give a future to the company, saddled with nuclear power stations that would have cost billions of euro to close.

“It was market tested with the complainants and it all seemed to crystallize [at 6 years],” he said. “Everyone who was involved ... has indicated that this is an excellent solution.”

Luxembourg Green MEP Claude Turmes was less impressed.

He said letting British Energy swallow up the government cash “sets a bad precedent in industrial and energy policy”, allowing subsidized nuclear energy to compete with more environment-friendly energy, such as bio-fuels and wind power.

He said other companies, such as France's EDF and Germany's RWE, could benefit in future - as could operators in the new member states.

“It opens up a Pandora's box that will be difficult to close. If we have a liberalized market, of course we must allow failures. Giving this large credit without any obligation to shut [plants] is completely crazy from a fair competition viewpoint.

“The fact that the government is paying for this and not the market operator is a large distortion. It is naïve to think otherwise.”