In a lease deal worth £173.5m ($252m), the UK’s largest electricity and gas supplier, Centrica, has acquired plant operating leases for two East Anglia power plants with combined capacity of 705 MW, from Eastern Energy’s US owner, TXU.
Centrica has bought two 20-year leases to operate gas-fired power plants in Peterborough and King’s Lynn. The transaction is Centrica’s second purchase of generating capacity and comes only three months after it bought a 60 per cent stake in Humber Power, one of the country’s most modern gas-fired stations.
The overall value for TXU is equivalent to £252.5m ($366m). Centrica is making a single, up-front, lease purchase payment of £173.5m ($252m) with the balance of the value to TXU comprising benefits from financial structuring and retained UK tax allowances.
Centrica will assume responsibility for the day-to-day operation and management of the power stations and all 77 staff will transfer from TXU to Centrica. The transaction, which is due to be complete by the end of September, will be financed from existing funds.
Commenting on the agreement, Martin Stanley, President, TXU Europe Energy Trading, said, “We are delighted to have signed this deal. This transaction is earnings enhancing in 2002, further strengthens our balance sheet, is a significant step towards achieving our optimum generation position in the UK market, and increases the proceeds of disposals to around £1bn.”
TXU is the third largest electricity and gas supplier in the UK. In June it sold its 1000 MW Rugely coal-fired plant to International Power in a deal worth £200m and has signalled further disposals as it seeks to strengthen its own balance sheet.
Centrica will operate a total of 1260 MW capacity which will meet 30 per cent of peak demand from the company’s 4.5 million electricity customers. The move reduces Centrica’s exposure to volatile UK wholesale electricity prices which can arise through the UK electricity trading arrangements, introduced in March. Under the new system, companies who get their supply and demand forecasts wrong have to trade in the punitive balancing market unless they have access to spare capacity.
Roy Gardner, CEO of Centrica said, “Our strategy is to source 20-25 per cent of our future peak capacity from our own generating resources in order to give us increased long-term stability and protection against electricity price fluctuations and spikes.”