Aggreko boss warns against power investment hopes

The chief executive of temporary power generator Aggreko said delays in settling the new regulatory structure for the electricity market would deter big companies having the confidence to invest billions of pounds in new power stations.

There is a generally held view that Britain faces an “energy gap” as old stations are taken out of commission because of carbon-reduction directives but are not being replaced quickly enough by new capacity.

The Westminster government is still working on a new pricing and regulatory regime and it is likely to be another 12 months until it is finally settled.

Soames said the industry is expected to begin investing from that time, but there was no guarantee it would be ready. “The hope is that there will be an avalanche of investment, but I rather doubt it,” he said. “There will be gradual investment but it will take rather longer than people think for the new capacity to come through. We will be running close to a shortfall of demand versus capacity.”

He said the extent of the gap will depend on how fast the economy grows. “If it grows faster it will make the situation more difficult.”

He did not blame the government for being slow, simply that there was “a lot of detail to work out”.

But while the regulatory regime was still to be discussed, investors were pouring money into new capacity in Germany, India and South America. In Britain, 10 per cent of generating capacity had been taken out already this year and none built.

“I am not a natural pessimist, but we are going to be in a very tight situation in the next few years,” he said.

His comments came after Aggreko told investors of a strong start to its new financial year, with revenues up 7 per cent. On an underlying basis, which strips out the effect of the London Olympics, revenues during the three months to 31 March were 8 per cent higher than the same period last year.

Soames said capital expenditure during the first half would be about £130 million, with a full-year figure of about £260m, “although as always we will increase or decrease our rate of investment depending on conditions”.

Caroline de La Soujeole, analyst at Cantor Fitzgerald, said the annual capital expenditure estimate was “a bit light” compared with the broker’s forecast of £300m, but said there were “encouraging signs” in the trading update.

Soames said he had told investors: “Relax, it is not a big change.” The company had been busy in the UK during the bad weather.

Aggreko said underlying revenues across Europe, the Middle East and Africa were up 13 per cent year-on-year, while the Americas has seen growth of 9 per cent. In Asia Pacific and Australia, growth was more muted at 1 per cent.

At its power projects division, which builds and operates temporary power stations, revenues were up 5 per cent, while its larger “local” generator business enjoyed a 17 per cent surge in revenues Soames said: “Overall, our expectations for the year remain unchanged from previous guidance.”

Cantor Fitzgerald expects Aggreko to deliver a full-year adjusted pre-tax profit of £340.8m.