Terry Murden: Power struggle marred by Whitehall muddle

The two German utilities have blamed their home country’s decision to abandon nuclear power as it impacts adversely on margins and their ability to raise funds. But there are other matters involved, not least the UK government’s frustratingly slow decision making and lack of clarity.

This dithering has left companies wondering why they’re bothering committing enormous amounts of capital with little guarantee that they will get any long-term return on their investments.

The Scottish Government, of course, is firmly against nuclear and, while it has its critics, notably from the engineering and – inevitably – the power generation sector, at least everyone knows where they stand.

But Scotland, like the rest of the UK, has been warned that a failure to create a balanced energy strategy that includes nuclear will hasten the day when the lights go out.

E.ON and RWE, which owns Npower, had planned to invest £15 billion in 6,000 megawatts of nuclear power station capacity, a programme that would have created considerable business for the supply chain.

They will now look for a buyer for their Horizon joint venture, which is developing a site at Wylfa in Anglesey. There is commitment to completing the project but clearly uncertainty now hangs over it.

After Scottish & Southern Energy announced it was pulling out of nuclear, the building programme is now left with the French firm EDF and Centrica, who are jointly developing a plant in Somerset, though a final decision will not be made until the end of the year.

The UK government, meanwhile, is yet to determine some key elements in its planned shake-up of the electricity market, which includes the creation of contracts to reward producers of low-carbon electricity, such as nuclear power. The Electricity Market Reform proposal is due before parliament in May, but there is still confusion about how it will work. This is muddying attempts at working out costs and other elements in the planning process.

Whitehall insists the nuclear programme will continue, but this latest blow does little to instill confidence.

Co-operation is not always the easy option

after the grindingly long process of finding a buyer for Lloyds Banking Group’s 632 branches, it seems we could be faced with a return to first base. The bidding round prompted a disappointing turnout. A number of parties showed interest, including Clydesdale owner National Australia Bank, Virgin Money and Hugh Osmond’s Sun Capital. But as they fell away, Lloyds and the Treasury were left with a choice between Lord Levene’s NBNK vehicle and the Co-operative.

The latter was chosen, much to the annoyance of NBNK’s chief executive Gary Hoffman, who said that not only would he have protected all the jobs at the branches, but would also have offered 2,000 jobs to Lloyds’ employees who were part of the wider redundancy programme.

He accused Lloyds of making the wrong decision and said there was a higher “execution” risk by going with the Co-operative.

There have been a number of reports suggesting all is not well with the Co-op’s bid and that the process is in danger of being aborted. Critics have had a go at its board, pointing to the number of laymen who sit on it. There have been hiccups in its integration of the Somerfield supermarkets and the Britannia Building Society.

Peter Marks, the chief executive, was put on the defensive yesterday, insisting that it had all the right credentials to take over the Lloyds’ assets and with more than 100 years of running a bank it knows what it is doing.

The government is keen to encourage “new entrants” and the Co-op – though a long-standing financial institution – fits the bill to the extent that it would substantially expand its ethical and basic banking model into a sector tarnished by excess.

However, Marks also admitted that the deal might not be concluded and that considerable due diligence is being undertaken to ensure it is right for the Co-op.

You have to salute his honesty in this, though he’s now put himself and the Co-op on the back foot by planting the seed of doubt.