UK price review forces London-TXU merger

Two UK electricity suppliers have announced a joint venture operation that will merge their distribution networks and help them achieve the price reduction targets set out by regulator Ofgem. TXU subsidiary Eastern Electricity and London Electricity say that their plan to join forces to run their power networks is a creative and innovative solution to delivering efficiencies and cost savings.

Physical assets such as the overhead lines and underground cables, together with operating licences, will remain separately owned. The joint venture says that it will produce cost savings by consolidating the management of the distribution networks by improved procurement, the use of single IT systems, reduced property costs and other economies of scale.

In 1999, Ofgem published a price review of the distribution companies in England and Wales, under which tariff reductions must be implemented by the utilities. Ofgem believes the move will make them more cost efficient.

The long term aim of the joint venture is to manage similar infrastructure assets on behalf of other utilities and private networks. Eastern Electricity owns 89 000 km of distribution network, the largest in the UK.

Finland-Estonia cable delayed

The development of a submarine power cable from Finland to Estonia has been delayed for technical and economic reasons. Falling power prices in the Nordic region have affected the economic viability of the project, according to Estonia’s state power firm Eesti Energia.

Eesti Energia, Helsinki Energy, Pohjolan Voima Oy, Graningeverkens and ABB agreed in September 1998 to build the Estlink cable across the Gulf of Finland from Tallinn to Helsinki. Construction was due to start in mid-1999 with completion within 15 months, but a technical and environmental appraisal of the cable has taken longer than planned and has delayed the project.

The $100m project now looks more likely to be completed in early 2002. Eesti Energia currently generates around 97 per cent of Estonia’s power, but only uses about half of its production capacity. Estlink would give Eesti Energia the opportunity to export surplus electricity, but low electricity prices in the Finland and Sweden have given the utility cause for concern.

Logica wins $80m trading contract

The UK’s electricity regulator, Ofgem, has awarded the contract for the installation and operation of the system that will support the new electricity trading arrangements (NETA) in England and Wales to a consortium led by IT consultant Logica. The contract is reported to be worth $80m.

Logica, OSI and UK Data Collection Services (UKDCS) will provide services in three main areas: settlement and reporting; collection and aggregation of contract data; and collection and aggregation of meter data. Energy Pool Funds Administration Ltd (Epfal) will provide the funds administration services. NETA is due to be implemented in October 2000.

The consortium will base the NETA system on the ‘Star’ software package designed by Logica and UKDCS. This system is already used by settlement operations and utilities in the USA, Canada and Australia. UKDCS manages meter data collection and processing for several electricity suppliers in the UK.

Norwegian utilities merge

Norway’s Hafslund and Elkem utilities have announced that they are to merge their operations to create a listed power generation and distribution utility. The new company will be known as Hafslund SA and will have a total production capacity of over 6.5 TWh per year.

The merged unit is expected to become a key player in power generation, distribution and trading. Elkem’s assets will be exchanged for 45 per cent of the total outstanding shares in Hafslund.

Elkem’s assets comprise ten generating plants in Norway and the USA with an annual generating capacity of 3506 GWh. Hafslund operates six plants in Norway and four small plants in the USA with an annual production of 2931 GWh. It has a key position in distribution in Norway.

Abengoa plans development of 400 MW GTCC plant

Spanish engineering and industrial services group Abengoa is to team up with energy company PSEG of the USA to develop a 400 MW combined cycle plant in Cadiz, Spain. Construction will cost $161m.

Abengoa and PSEG have established a joint venture company, Guadalcacin Energia, to develop the project. The local hydrographic confederation has already given the company permission to use the waters of the local Andalusian river for the plant. An application to construct the plant has been filed with the industry ministry.

News digest

International: The Amsterdam Power Exchange and Nord Pool have scrapped plans for a European electricity futures exchange that would have created a market for derivatives and futures-based products based on APX spot prices. APX says it will go ahead with the development plans on its own.

France: The reconstruction of France’s power supply systemfollowing the violent storms that ripped across Europe in December could take years, and could cost state utility EDF as much as FFr16bn ($2.4bn). The bill for urgent repairs to reconnect the millions who were cut off by the storms is an estimated FFr4-5bn. At the worst point of the crisis, 3.4m homes – around ten per cent of EDF’s clients – had no power.

Germany: The European Commission has approved the takeover of German utility Elektriz-itaetswerk Wesertal GmbH by Finland’s Fortum. The acquisition gives Fortum a strong foothold in the liberalized electricity market of Germany, a country which it describes as one of its main target markets. Fortum paid euro390m ($403m) for the utility which has a turnover of DM500m (euro255m, $256m).

Germany: The federal cartel office has asked the European Commission for the right to review the merger of Veba and Viag. If its request is granted, the cartel office will scrutinise the impact of theproposed merger on Germany’s competitive electricity markets. The RWE-VEW merger is already under review by the cartel office.

Spain: Enron Wind Corp. of the USA has signed a contract to supply Energias Eolicas Europeas (EEE) with 100 variable speed wind turbines for a 75 MW wind power project in Spain. Enron will supply 100 of its TZ-750 kW series wind turbines with a rotor diameter of 50 m and a 55 m hub height.

UK: Entergy Corp. has announced construction delays on the 1200 MW Saltend power plant in Hull. The plant will be completed in June 2000, rather than January 2000 as originally scheduled. Raytheon Engineers and Constructors has cited continuing construction problems as the reason for the delay. The contract between the two companies calls for daily payments to be made for delays to offset the impact of lost earnings.

UK: Following its acquisition of London Electricity and Sweb’s electricity supply business, France’s EDF is now the largest single supplier of electricity to homes in the UK, according to a new report by Datamonitor. It has a total customer base in the UK of 2.87m, and a 12.02 per cent market share of the domestic electricity market.