PowerGen to sign up two RECs

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PowerGen, the smallest of the three privatised electricity generators, is close to reaching agreements with two regional electricity companies to supply most of their needs when the market is opened to full competition in 1998.

The generator has signed heads of agreement with the two RECs and hopes to seal three- to five-year supply contracts early next year. In total, PowerGen is looking to sign up about five of the 12 RECs on to long-term deals.

At present, most of the electricity supplied to the RECs comes through the coal-backed contracts the generators signed with British Coal at the time of privatisation. These contracts, now largely taken over by RJB Mining, require the generators to buy 30 million tonnes of UK coal a year. RECs are then obliged to take the power generated from the coal to meet domestic demand in their areas. The contacts expire in April 1998.

Currently about three-quarters of PowerGen's output goes to the RECs, with the remaining quarter sold direct to large industrial and commercial customers. However, by the end of the decade, PowerGen expects that up to half the electricity it generates will be sold direct rather than through the franchise market.

Following the Government's decision to block PowerGen's takeover of Midlands Electricity, the generator has been working on a new strategy in readiness to compete in the domestic market from 1998.

Apart from the long-term contracts with individual RECs, it is considering marketing alliances with RECs and partnerships with new entrants. Last week National Power, its larger rival, forecast prices would drop significantly when the coal-backed contracts ended and the domestic electricity market was opened up to full competition.