EDF's Expensive Nuclear Sideshow

So EDF have finally promoted a 20% slice of their BE acquisition to Centrica. A smaller chunk, and for a lower price than initially advertised last year; and Centrica took the opportunity to offload onto EDF a large piece of SPE, their unloved Belgian asset: but that was the inevitable consequence of the softening of energy prices in the meantime.

This confirms (a) that EDF paid too much (- fine by me !); and (b) Centrica’s understandable fixation with running a more balanced UK energy book: they’d become the standout structural short position once EDF had squared itself up with the BE purchase. As we commented back in November, the UK gas & power market is slipping back into vertical integration, with baleful consequences for wholesale market liquidity, the viability of the merchant model, and hence for competition and consumer energy prices. The big structural imbalance now belongs to generator Drax (long coal) who, whilst continually up against it in PR terms, are sticking with their simple business model for the time being.

Does the government care about competition and prices ? Well, Ofgem does, and the more market-oriented faction in BERR. But the pragmatists at BERR (and their canny new figurehead Ed Miliband) reckon it’s more important to give the utilities an easier ride – at our expense – in order to encourage them to build new power stations on the back of higher prices.

But there were never any guarantees from EDF, and there aren’t any now, notwithstanding the spin. Their latest efforts to promote even more of their UK operation – they only want to own 50% of their much-hyped, but still only putative ‘4 new nukes’ programme – demonstrates clearly that it’s all too big, even for them. So – they’ll be holding the options-to-build they’ve acquired so expensively; asset-stripping (started already); and watching to see what happens on the coal front. That’s where the real action will be – and that’s what will keep the lights on.

ND