Plant 'outages' damage prospects for British Energy flotation

Click to follow

British Energy, the nuclear electricity generator, has been hit by output problems, just as the Government prepares to float part of its £7bn stake in the business.

The company missed out on about £100m of profits in the first quarter of its financial year because of an unplanned loss of 3.4TWh (terrawatt hours) of electricity output for the three months to 2 July. Nevertheless, profits shot up for the period, with operating profit coming in at £215m - up from £45m last year - because of the jump in price available for its electricity.

The output losses have continued and a new technical problem emerged a week ago. Since the start of the financial year to 6 August, total output was 22.9TWh, after the loss of 4.4TWh of previously expected production.

British Energy had aimed for total output for the year of 63TWh but said yesterday that it would be in the range of 61 to 63TWh, assuming there are no large losses.

Bill Coley, the chief executive, said the problems had arisen at assets yet to be touched by the company's investment programme, which is three years old.

"A fundamental issue was underinvestment in the assets over a long period of time... These turnarounds take several years to accomplish," he said.

However, the company also admitted that part of the losses were due to what it called "isolated human performance issues". One example was a "communications error" in Torness, Scotland, where an operator mistakenly shut the supply of lubrication oil to both plants on the site, rather than just to the one as planned. Mr Coley said this was caused by not following the proper procedure for communications.

Technical problems included trouble with a refuelling machine at Torness, which meant refuelling took longer than expected.

In recent days it emerged that leaks were found in the tubes in boilers at Hunterston B during a routine inspection. This will add a month to the scheduled outage for maintenance at Hunterston, which would usually last 40 to 50 days. The company warned that further work was needed to see if the problem affected other plants.

Lakis Athanasiou, an analyst at Collins Stewart, said even for the company to hit the bottom of its new output target for the year was "looking really tight". He added that problems would not help the Government's plans to float part of its stake this autumn. "Given this news, the valuation will be a bit lower. That's because the risk element has increased," he said

The Government owns 65 per cent of British Energy, with 35 per cent already listed on the London Stock Exchange. It is thought the Government will divest up to half of its holding. British Energy shares were the biggest faller in the FTSE 100 yesterday, closing down 4.46 per cent at 718p.