Security of Energy Supply in Europe

Security of Energy Supply in Europe

Natural Gas, Nuclear and Hydrogen

Loyola de Palacio Series on European Energy Policy

Edited by François Lévêque, Jean-Michel Glachant, Julián Barquín, Christian von Hirschhausen, Franziska Holz and William J. Nuttall

In economic, technical and political terms, the security of energy supply is of the utmost importance for Europe. Alongside competition and sustainability, supply security represents a cornerstone of the EU’s energy policy, and in times of rising geopolitical conflict plays an increasingly important role in its external relations. Within this context, the contributors analyse and explore the natural gas, nuclear, and hydrogen energy sectors, which will be of critical significance for the future of energy supplies in Europe.

Chapter 7: Nuclear Power and Deregulated Electricity Markets: Lessons from British Energy

Simon Taylor

Subjects: economics and finance, energy economics


Simon Taylor1 INTRODUCTION 1 The British government privatized the more modern UK nuclear power stations in the form of the company British Energy plc in 1996. The company was unusual in being a wholly nuclear merchant power generator in a deregulated power market. It was also unusual in having full financial responsibility for its back-end nuclear liabilities. The company initially raised output and profits and saw its shares rise strongly. But by 2002 it had run out of cash and had to get emergency financing from the government to avoid going into administration. The subsequent financial restructuring saw shareholders lose most of their investment. This episode, and the contrast between the company’s initial success and subsequent financial collapse, offer an interesting case study in the viability of nuclear power in a deregulated market. But the facts do not support a simple conclusion that nuclear power cannot survive in such markets. A restructured British Energy Group plc was re-listed on the London Stock Exchange in 2005 and continues to trade, albeit with a lot of volatility owing to unreliable power station availability. A detailed examination of the British Energy story suggests that the roots of the crisis were complex and historically deep (Taylor, 2007). The management had to contend with a unique type of technology and with fixed-price contracts for fuel reprocessing arising from government decisions taken decades before. The company distributed cash to shareholders which, with hindsight, was unwise and reflected a general misunderstanding of the riskiness of the company....

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