Electricity prices could soar if EDF, the French electricity group, is allowed to take over British Energy, the UK’s main nuclear generator, in a £9 billion deal. Shares in British Energy leapt more than 7 per cent yesterday to 711p on hopes of an EDF bid. EDF’s board has given the green light to bid for all of the UK company, which recently said that it was in talks with several suitors.

There are fears that EDF, Europe’s largest energy company, which cannot generate enough electricity for its UK customers, would use all the 18 per cent of total power generated by nuclear in this country if a deal goes through, leaving other energy companies to pay more in wholesale markets.

Lakis Athanasiou, analyst at Evolution stockbrokers, said: “Liquidity is an issue because British Energy/EDF would control power volumes, which will eventually feed through to price. The issue may push the Government towards favouring a consortium bid involving one of the UK companies.”

“If EDF gets British Energy there will be a huge impact on liquidity,” an expert added. This means any deal would almost certainly be closely scrutinised by the Competition Commission. A comparable shortage of liquidity in the wholesale gas market has already seen prices for this summer climb 45 per cent on a year ago, prompting suppliers to impose double-digit price rises. The French company said yesterday: “The UK is one of the four countries EDF is targeting as it takes part in nuclear power development. We are in contact with the UK’s players in the area to deliver this objective.”

EDF is expected to submit a non-binding offer for British Energy, which will continue to talk to other companies about a possible sale or partnership for a month or so. The French energy giant faces competition from RWE and E.ON, of Germany, and Iberdrola, of Spain, which could launch a takeover for the nuclear group.

Centrica would be the front-runner to participate in such a consortium even though it is thought that it would prefer a simple joint venture for new nuclear development. Analysts believe that the British Gas owner may find itself forced to join a consortium bidding for British Energy’s existing assets, so that it is not carved out of involvement in new nuclear projects.

Analysts at Evolution, the broker, said the probability of a full bid for the company was increasing and suggested that the nuclear group could be sold at 900p a share, valuing it at just over £9 billion. That would set the scene for a battle for the nuclear operator, 35 per cent owned by the Government.

British Energy is vital to any renaissance of nuclear power in the UK because it owns the sites where new nuclear power stations are likely to be built. Its employees also have most of the UK’s nuclear know-how and skills.

The Government, faced with dwindling North Sea stocks and rising gas prices, has backed a new generation of nuclear power stations to secure Britain’s energy. UBS, the investment bank advising the Government on new nuclear stations, has published research saying that European gas prices will continue to rise in the next decade.

A full takeover of British Energy by EDF would be controversial because it would concentrate responsibility for the UK’s nuclear future almost entirely in the hands of one company, controlled by a foreign government. While the UK prides itself on its open energy market, EDF would be gaining access to assets and skills that a British company could not buy in France.

Home-grown utilities, such as British Gas and Scottish and Southern Energy, are also concerned that potential partnerships they are negotiating with British Energy could be torn up, leaving them out when it comes to securing supplies of relatively cheap nuclear-generated electricity in future.

Alan Duncan, Conservative spokesman for Business, Enterprise and Regulatory Reform, said that competition issues would arise from a takeover by EDF or other bidders. Vince Cable, Treasury spokesman for the Liberal Democrats, said safeguards would need to be in place if the bid succeeded.

— France’s plan to play the lead role in the race to build a new generation of UK nuclear power plants had a boost yesterday after a rival pulled out. Atomic Energy of Canada was one of three companies competing against Areva, the French nuclear group, to register its reactor design for use in the UK.

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