THE chairman of British Energy, Adrian Montague, called his board together late last year.

After years in the doldrums, nuclear power, British Energy’s core business, was back in fashion. Ministers were about to sanction the construction of new nuclear power stations and, realistically, the only land that could be used to site these plants belonged to British Energy or the Nuclear Decommissioning Authority. If there was ever a time for the company to put itself up for sale, this was it.

Montague instructed his advisers at Rothschild to court offers from Europe’s leading utility groups: EDF and Suez of France, RWE and Eon of Germany, Iberdrola of Spain and Britain’s Centrica.

Rothschild had been talking to all these parties since early last year to gauge their interest in working with British Energy on building new nuclear plants in the UK. Up to this point, discussions had centred on forming joint ventures to build specific plants on specific sites in southern England.

By the time the government’s nuclear intentions were formally declared on January 10, an unofficial auction of British Energy was already under way. It was also clear that the government would be willing to sell some or all of its 35% stake in the company to facilitate a deal.

Now that auction is descending into a battle between RWE and EDF, with Centrica lurking on the fringes. Whatever ultimately happens to British Energy will dictate UK energy policy for the next 50 years or more.

RWE, EDF and Centrica are all now conducting due diligence on British Energy, having been given access to reams of figures from the company.

Other potential bidders are keeping an eye on what is happening.

Centrica submitted an all-share takeover proposal and is talking to both RWE and EDF about joining forces, industry sources say. The two continental firms have put indicative cash offers on the table. If either were to win control it would automatically become Britain’s biggest power supplier, and hold the keys to a much bigger position in the future.

David Cox, managing director of energy consultancy Pöyry, said: “If any of the big power companies operating in Britain were to take over British Energy, there is potentially an issue for the Competition Commission to look at. If either RWE or EDF bought it, they would control more than 25% of the UK’s power generation.”

This is not a straightforward takeover battle.

All the prospective bidders are talking to the government’s advisers at UBS, as well as British Energy’s bankers, who are running the auction. To win control requires the support of the government’s 35% stake.

Competition concerns appear to be high on the agenda. Malcolm Wicks, the energy minister, said last week the government would ensure that building new nuclear plants “is not a monopoly business”.

The government may use its stake to make sure there is competition, industry sources say. That in turn could lead to British Energy’s board being forced to recommend a deal that did not offer top price for its other shareholders – which could set off a legal tussle between investors and the government.

At the prices mooted, the government’s British Energy stake is worth up to £4 billion. Cash raised from the sale would go towards the nuclear liability fund set up to pay for the clean-up and decommissioning of old nuclear sites. Any excess would be diverted to the Treasury’s coffers.

With the public finances under pressure, opposition politicians believe the government is more interested in “cash than consequences”.

“The government must immediately say whether its policy is simply to let British Energy go to the highest bidder or whether there are other issues in terms of security, competition or ownership that will influence their decision,” said Alan Duncan, shadow secretary for business, enterprise and regulatory reform.

Security of the nation’s energy supplies is a concern in Whitehall, and a large part of the reason behind sanctioning a construction programme.

British Energy generates about 18% of Britain’s electricity. Most of its plants are scheduled to be shut by 2016 – some four years before the earliest date by which analysts expect the new stations to be operational.

Officials are sceptical about relying on one company, or one reactor design, for the new plants. As many as 20 new nuclear power stations could be built.

If the same equipment were used in all the new reactors, they might all have to be shut down at once if a fault developed. Were that to happen, Britain’s lights would go out.

Dividing the nuclear building programme between a number of parties plays into the hands of Centrica, and its attempts to negotiate a joint bid with EDF or RWE.

Sam Laidlaw, Centrica’s chief executive, has been trying to persuade the government for some months to favour a deal involving his company. Having a British company involved helps to ensure the nation’s energy supplies, he argues.

But analysts says that Laidlaw is probably more interested in securing his own energy supplies. A stake in British Energy would help Centrica, the owner of British Gas, to hedge its exposure to soaring gas prices. Centrica produces only enough gas to meet about 25% of what it sells. It generates only enough power to meet about 65% of its sales.

If Centrica owned part of British Energy it would be able to benefit from rising gas prices, through the corresponding rise in power prices.

Even if Laidlaw wanted to go head-to-head in a bid battle with its continental rivals, Centrica does not have the financial firepower. Riding on the coat tails of a bigger company is probably the easiest way to get involved.

If Laidlaw cannot get a place at the negotiating table, Centrica will lose its title as Britain’s biggest power group.

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