Nuclear generator warns of California-style power crisis

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British Energy warned yesterday that the UK could be heading for a California-style power crisis after it was forced to announce a £430m write-off because of falling electricity prices.

The nuclear power producer complained there was an "unsustainable structural problem" in the UK wholesale electricity market which could result in the country running short of capacity unless prices are allowed to rise.

British Energy is writing down the value of its Eggborough coal-fired station, bought from National Power two years ago for £600m, by a half. It is making a further provision of £200m to cover loss-making trading contracts taken out with other producers including Teesside Power and Elf. The write-down and provisions totalling £500m will be offset by a £70m reduction in the company's tax liability.

A spokesman said British Energy was not complaining about the new electricity trading arrangements (Neta), which took effect last year, but the unsustainably low prices. Unless some mechanism was introduced to encourage generators to invest in new power stations on the back of long-term contracts, then the UK would run short of capacity at some point.

"Prices have to rise to give people the confidence to build new capacity or refurbish existing stations otherwise we could find ourselves in a Californian scenario," a spokesman said. "The industry can sustain low prices at the moment because there is surplus capacity in the system but if we lose that spare capacity then prices could rise and frighteningly so."

British Energy said that for the financial year just ending, its average prices had fallen by 9 per cent to £20.40 a megawatt hour. But it said that in recent weeks, forward baseload prices had fallen to £16 a megawatt hour and prices for this summer were below the cost of producing electricity.

Despite the loss the group will make in the UK this year, British Energy indicated that it would record an overall profit of about £30m-£35m – in the middle of the range of analysts' forecasts.

The company's nuclear plants in the US and Canada are performing better than expected and will generate profits of £75m this year, at least £110m next year and £180m in 2003-04. Cost reductions in the UK are expected to reach £50m this year in addition to the £63m saving achieved last year.