Jeremy Warner's Outlook: Centrica wants to be part of our nuclear future

It's a wonderfully romantic idea, but will it fly? Centrica says that if its talks with EDF on taking a minority position in British Energy come to nothing, then it might revisit the notion of an alternative all-shares merger with BE. How credible is such a notion?

There is considerable scepticism about it in Whitehall, where the best solution to Britain's nuclear future is still thought to be that Eléctricité de France buys British Energy. For the time being, that's off the menu, encouraging Centrica, which would have come in as a minority partner in the EDF deal, to think its original proposal of an all-shares merger might now be seen as a reasonable alternative.

When Centrica's chairman, Roger Carr, first floated the idea of an all-British solution to the UK's nuclear future early this year, he was given a lukewarm reception by the Government and in the City.

In Whitehall, the proposal was seen as an alliance of two relatively weak companies, neither of which obviously had either the balance sheet or the expertise to deliver a new generation of nuclear power stations. Instead, ministers opted for EDF as their preferred route to new nuclear build. There were also doubts in the City as to whether Centrica could pay the necessary premium. In addition to its role as policymaker, the Government is also a big shareholder in British Energy with 35 per cent of the stock.

As part of the deal under which the Government rescued British Energy from insolvency five years ago, liability for decommissioning costs was assumed by the taxpayer. Proceeds of the sale of the 35 per cent stake will go towards defraying these costs. The Government therefore has just as much interest as other shareholders in maximising value. For the Government, the beauty of the EDF deal is that it allowed a clean cash exit at a good price that also met the policy objective of providing a new generation of privately financed nuclear power stations. The Centrica solution might not immediately achieve either of these two aims.

Since the merger was first proposed, the two share prices have moved in opposite directions, with British Energy shares going higher still, but Centrica under some pressure because of the rising costs of wholesale gas supplies. A deal that looked difficult enough even back then looks more problematic still today. It is not clear how, even with the ingenuity of investment bankers, Centrica could, through an all-equity merger, deliver the 765p a share in cash offered by EDF. The dilution involved in so doing would be unacceptable to its own shareholders.

Even so, in the absence of the EDF deal it might still be just about do-able. The EDF price was only available for as long as it was there, and now it has gone. For outside shareholders who rejected it, the concern was that it failed adequately to reflect a world in which energy prices would remain high and possibly go higher still. By merging with Centrica, those shareholders would retain a share of this perceived upside.

Both companies would also become less risky if merged, and therefore more highly valued, at least in theory. British Energy would have the hedge of Centrica's customer base against the possibility of power prices suddenly plummeting again, while Centrica would equally be able to hedge its currently high exposure to volatile wholesale prices with BE's fixed-cost source of supply.

There might be some public policy benefits too. The trouble with EDF is that though it provides more certainty as to new nuclear build, it is also an all-French solution at odds with the British model of energy supply, which is to have a number of competing suppliers. The EDF strategy is to recreate itself in Brit-ain as an imitation of the French parent company, a vertically integ-rated, powerfully monopolistic in nuclear mini-me. The EDF strategy also underwrites a decent future workload for Areva, the French nuclear design and construction company.

As owner of the best sites for new nuclear build, a Centrica/British Energy combination would, by contrast, be able to pick and choose its partners and operators, thereby ensuring a range of different designs and owners. The plan at least deserves a hearing, though for the reasons just given, it's going to need a strong following wind to make it happen.

Arts & Entertainment
Madonna in her music video for 'Like A Virgin'
music... and other misheard song lyrics
Sport
Steven Gerrard had to be talked into adopting a deeper role by his manager, Brendan Rodgers
sportThe city’s fight for justice after Hillsborough is embodied in Steven Gerrard, who's poised to lead his club to a remarkable triumph
News
Waitrose will be bringing in more manned tills
newsOverheard in Waitrose: documenting the chatter in 'Britain's poshest supermarket'
News
The energy drink MosKa was banned for containing a heavy dose of the popular erectile dysfunction Levitra
news
VIDEO
News
Much of the colleges’ land is off-limits to locals in Cambridge, with tight security
educationAnd has the Cambridge I knew turned its back on me?
Environment
People are buying increasing numbers of plants such as lavender to aid the insects
environmentGardeners rally round the endangered bumblebee
Sport
Australia's Dylan Tombides competes for the ball with Adal Matar of Kuwait during the AFC U-22 Championship Group C match in January
sportDylan Tombides was diagnosed with testicular cancer in 2011
Arts & Entertainment
Customers browse through Vinyl Junkies record shop in Berwick Street, Soho, London
musicBest exclusives coming to an independent record shop near you this Record Store Day
News
Ida Beate Loken has been living at the foot of a mountain since May
newsNorwegian gives up home comforts for a cave
Extras
indybest10 best gardening gloves
Arts & Entertainment
tvIt might all be getting a bit much, but this is still the some of the finest TV ever made, says Grace Dent
Arts & Entertainment
Comedian Lenny Henry is calling for more regulation to support ethnic actors on TV
tvActor and comedian leads campaign against 'lack of diversity' in British television
News
Posted at the end of March, this tweeted photo was a week off the end of their Broadway shows
people
News
peopleStar to remain in hospital for up to 27 days to get over allergic reaction
Arts & Entertainment
The Honesty Policy is a group of anonymous Muslims who believe that the community needs a space to express itself without shame or judgement
music
News
Who makes you happy?
happy listSend your nominations now for the Independent on Sunday Happy List
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit