Outlook: The method in Nat Power's madness

EVER SINCE the last government decided to privatise the electricity generating industry by creating a duopoly, National Power has had the reputation of being slower and less sure-footed than its smaller brother PowerGen. When NatPower does move, however, it does not believe in half measures.

Yesterday it announced the disposal of 40 per cent of its generating capacity and a ground breaking move into electricity retailing through the pounds 180m purchase of Midlands Electricity's supply business.

Vertical integration is the name of the power game these days. All its rivals have done it and now National Power has conceded that the way forward is not only to generate the juice but also supply it into the kitchen. Even so, the tactics employed by Nat Power look high risk, which is why the market fretted and wiped 3 per cent off the shares.

By putting Drax on the block, Nat Power is letting go of the jewel in its crown. The station is the newest, most efficient and cleanest coal- fired station in the land. In return, it expects to get regulatory approval to acquire 2.2 million domestic customers who between them generated profits of pounds 19m for Midland last year.

Factor in the high-priced long-term supply contracts Nat Power also inherits from Midlands and the cost of the acquisition probably works at about pounds 150 a customer. Since Midlands made a profit of only pounds 8.60 a customer last year, it does not take a genius to work out that the payback period could be a rather long one.

But there may be method in Nat Power's apparent madness. Precisely because it is so efficient, Drax should fetch a good price - say pounds 2bn. The alternative was to sell off under-utilised plant for a low price and then watch the buyer turn up the wick, eating further into Nat Power's market position.

The Midlands deal looks harder to square. On the other hand, the margin in electricity is moving away from generating and towards supply. Supposing NatPower can sell its 2.2 million customers extra services, like gas, insurance and perhaps telecoms, the sums may begin to add up. More importantly, ownership of a supply business will provide a natural hedge for the generating arm.

So Keith Henry, NatPower's chief executive, has a story to sell. If he wants the market to buy it, he may have to be prepared to return some, if not all, of the Drax proceeds to investors, rather than spending it on further expansion overseas.

Start your day with The Independent, sign up for daily news emails
News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tvPoldark episode 8, review
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
News
news
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence