Outlook: The method in Nat Power's madness
Thursday 26 November 1998
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.
- 1 Apple has installed security backdoors on 600m iPhones and iPads, claims security researcher
- 2 UK pirates will get four warning letters a year
- 3 Fight Club 2: Chuck Palahniuk sequel is a 'meta-fictional comment on the cultural response to the original'
- 4 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 5 Israel-Gaza conflict: Deadly flechette shells 'used by Israeli military in Gaza Strip’
Hacking Trial: Rebekah Brooks, Raisa and a new twist in the saga of a horse fit for a Prime Minister
Israel-Gaza conflict: Palestinian death toll now exceeds 500 – but Israel fights on
Income tax league: Revealed - the UK towns where people pay the most and least tax
Israel-Gaza conflict: Deadly flechette shells 'used by Israeli military in Gaza Strip’
Malaysia Airlines MH17 crash: Blogger captures footage ‘showing BUK missile launcher that shot down jet’ now back in Russia
Malaysia Airlines flight MH17 crash: 'Nine Britons, 23 Americans and 80 children' feared dead after Boeing passenger jet is 'shot down' near Ukraine-Russia border
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: victims’ bodies bundled in black bags and loaded onto trains
iJobs Money & Business
£850 - £950 per day: Orgtel: Programme Director - Conduct Risk - Banking - £85...
£45000 - £50000 Per Annum + excellent benefits: Clearwater People Solutions Lt...
£250 - £300 per day + competitive: Orgtel: Finance Manager - Accountant - Bank...
£100000 - £120000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fi...