6 September 2002 – Britain’s largest electricity generator, nuclear power firm British Energy plc, has asked the Government for financial support.

The ailing firm has been hit by the sharp drop in electricity prices and problems with gas cooling systems which have taken out of action two of its Scottish power stations. The problems have resulted in the group’s shares slumping over the past month.

The announcement of the group’s financial position and the prospect of discussions with the government was made after the close of the London Stock Exchange on Thursday and shares have been suspended at 80 3/4 pence.

The group, which posted a £518m loss last year, needs to refinance £210m of UK and US debt and £265m of other banking facilities.

A week ago it confirmed it was in talks with British Nuclear Fuels (BNFL) to take over running the firm’s Magnox reactors, which was seen as providing short-term relief for the loss-making group.

British Energy said BNFL had delivered its formal proposals to the group and the terms offered “fell short” of those required. The group added it was “progressing” talks over immediate financial support.

“However, the discussions over a longer term restructuring will be complex and are unlikely to be concluded in the near future. Any support from the Government will need to take into account both UK and EU regulations,” it said.

Executive chairman Robin Jeffrey said, “It is now clear that there will be no prompt resolution to these issues. Having reviewed the longer term prospects for the business, the board has concluded that we had no alternative other than to seek Government support.”

The Department of Trade and Industry said, “The Government confirms that the British Energy board has initiated discussions with Government with a view both to seeking immediate financial support and to enable discussions about a possible longer term restructuring to take place. “Any support provided by Government would need to be within the scope of the EC rules on state aid. The Government’s paramount objectives are to ensure the safe operation of British Energy’s nuclear stations and security of supply.”

British Energy is seeking a buyer for its 50 per cent interest in Amergen which operates several US nuclear power stations and which could raise £200m-300m. It also has a £1bn investment in Canadian nuclear complex, Bruce Power.

Among long term options which may be considered by the government are an opt-out from the Climate Change Levy for nuclear power production and a reduction in the £200m annual fuel reprocessing costs paid to BNFL. British Energy could also be given a contract to run BNFL’s Magnox nuclear power stations.

UK electricity prices have fallen 40 per cent from levels in the late 1990s and are well short of the £22 per MWh claimed by nuclear power producers as a level required to sustain a future industry. Regulator Ofgem is likely to fiercely defend its market mechanism against manipulation to support special interest groups although Energy Minister Brian Wilson has already spoken of the need to help encourage cogeneration in the UK.

The likelihood is the government will not risk any radical change to Neta but will have to look at other means to alleviate the position of British Energy and to encourage energy efficient power production, if it is to meet its climate change targets.