The creaking state of Britain’s nuclear power stations was laid bare yesterday when British Energy revealed a sharp drop in first-quarter profit as a year-long outage at two of its biggest reactors reduced its power output.

The nuclear generator, which is looking for a buyer, was unable to take advantage of soaring power prices because of the shutdown of its Hartlepool and Heysham 1 reactors. The group, which has eight reactors and provides 15 per cent of Britain’s electricity, said that profits in the three months to June fell by 65 per cent to £62 million, compared with £179 million in the same period last year. The group produced 9.5 terawatt hours (tWh) of power in the period, down from 13 tWh a year earlier.

The nuclear group has been plagued by a string of technical faults at its ageing reactors in recent years. Problems were first discovered at the Hartlepool and Heysham sites in October and the generators will not be back on line until the end of the year. The full cost of the outage has now reached at least £115 million, according to British Energy, and could get higher.

The sharp fall in profits will also affect the amount of cash the Government, which has a 35 per cent stake in the company, takes at the end of the year. It is entitled to 35 per cent of the free cash flow from the generator after its bailout of the company in 2002, and received £102 million for the last financial year. That figure is expected to fall by as much as 60 per cent this year.

British Energy is looking for a buyer and major shareholders rejected a £12 billion takeover bid from EDF, the French energy giant, at the beginning of the month. The Government had pushed for a sale to EDF.

Bill Coley, chief executive of British Energy, denied that the operational difficulties at the group had made it more difficult to secure a sale to EDF. “I am completely comfortable with our plants and our people, who are a huge asset and make us a very attractive company to buy,” Mr Coley said.

Talks with the French company are continuing but there are few signs of a breakthrough. EDF had offered 765p a share in cash for the company, or 700p plus a further payment based on performance. Analysts believe that a deal will be done but doubt that the stalemate between shareholders and the Government will be broken quickly.

If no deal is achieved, British Energy will pursue joint ventures to develop new nuclear generators with other interested energy companies.

However, it admitted yesterday that those discussions were still taking a back seat to potential takeover talks.

Mr Coley said that he intended to maximise British Energy’s involvement in the development of new nuclear capacity in the UK.

“Anyone can have sites but if you look at our people they are a unique asset – it takes many years to build up that sort of experience,” he said of the 6,000-strong workforce which work in nuclear generation.

Mr Coley, a veteran of the US nuclear industry, praised the Government’s commitment to nuclear development and denied that the delays to the sale were holding up the replacement of the country’s nuclear fleet.

He said: “There are many complicated steps that need to be taken – for example on planning, on education and on approving new designs before a spade can be put in the ground. I look around the world and this Government is not taking much longer than anyone else.”

British Energy’s poor output and profits were partially offset by higher selling prices – up 12 per cent at £45.7 per megawatt hour – for the power it produced. However, operating costs soared by 47 per cent.

The rising cost of coal made up just less than half the increase in operating costs at the nuclear group, which has doubled its output from its single coal-fired power station at Eggborough.

Rising uranium prices are also a factor. At the beginning of August, the long-term price of uranium was $80 per pound, down from a high of $95 per pound in March this year but still higher than this time last year. British Energy has struck purchase contracts for uranium at much lower prices and has a fuel cost advantage of approximately £115 million per year at these prices. But it gave warning that this benefit will reduce over the next nine years.

Government figures published this month showed the share of electricity generated by Britain’s nuclear power stations has fallen to 15 per cent of total demand, its lowest level in 21 years.

Turning down the wick

British Energy outages

Heysham 1 Boiler closure, unit problems
Hartlepool Boiler closure, unit problems
Dungeness B Unit 1 closed for refuelling
Unit 2 statutory outage
Hinkley Point B 70% capacity
Hunterston Statutory unit outage
Unaffected
Heysham 2
Torness
Sizewell

Source: British Energy

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