Minister says nuclear rescue is under review

The Government confirmed yesterday that it is exploring ways to help the nuclear power giant British Energy, which is facing a financial crisis.

The energy minister, Brian Wilson, tried to play down weekend reports that the Government is considering a range of options including full-scale renationalisation of the debt laden group. This would have unfortunate echoes of the Railtrack fiasco.

However, he refused to rule out some kind of financial rescue and admitted the Government was monitoring the situation closely. He said options being explored included introducing a level playing field that would enable nuclear energy to compete more efficiently with other energy providers.

Commenting on British Energy's plight, which has seen its debts spiral and the shares sink to new lows, he said: "The reason British Energy have well-publicised difficulties is that the wholesale price of electricity has been driven down below a point at which they can produce economically in this country."

He added: "Given the implication of the nuclear sector to our energy mix, it would be very strange if we weren't keeping a close eye on the possible implications of [British Energy's] difficulties."

Asked whether this could mean renationalisation, he said "I think by far the most sensible option is that they should be able to get the price for their product that allows them to operate in a profitable way."

Apart from renationalisation, other possibilities include a deal to buy the group's eight nuclear power stations, or paying British Energy to take over the six nuclear reactors from British Nuclear Fuels without taking on any of the liabilities.

British Energy needs to raise around £450m in the next year to pay off various debt commitments. It has been hit hard by the climate change levy under which it pays around £100m a year even though it does not produce carbon dioxide emissions. It also claims its rates bill is £25m too high.

The company's shares have plunged from 336p last September to just 59p on Friday and the company's bonds trade at only 50p in the pound.

British Energy refused to comment on the possibility of a Government rescue yesterday. However, it hinted at a possible deal with BNFL. "We are in discussions with BNFL on a wide range of issues," a company spokesman said.

The Government denied the existence of "Project Blue", a codename for contingency plans being made to address British Energy's problems. "British Energy is a private company operating in a commercial market," a Department of Trade and Industry spokesman said. "Obviously the Government monitors the situation closely but these are issues that will be dealt with by the ... board of directors."

Liberal Democrat trade and industry spokesman Dr Vincent Cable called the possibility of a Government rescue a "very worrying development".

He added: "It would be wrong for the Government to organise an expensive bailout for the nuclear power industry. It's very clear that nuclear power isn't competitive in the short and medium term."

British Energy runs eight power plants in the UK as well as nuclear power operations in the United States.

The company was hit last week by the closure of two power stations. The plant in Dungeness, Kent, was shut for maintenance, while the Torness reactor, in East Lothian, was closed because of a technical fault.

The six Magnox sites British Energy may take over include reactors at Sizewell, Oldbury and Gwynedd.