N-plants can be built without subsidy, British Energy insists

British Energy, the country's biggest producer of nuclear power, indicated yesterday that it would be interested in building and operating a new generation of nuclear stations provided it had long-term contracts for their output at guaranteed prices.

The company, which was saved from bankruptcy only a year ago by a £5bn government bailout, insisted that new reactors could be constructed without public subsidies or an obligation on energy suppliers to buy a set amount of their needs from nuclear stations.

But Bill Coley, British Energy's chief executive, said potential investors would need "price certainty" before they would provide funding, while the permitting and licensing system for new nuclear stations would need to be streamlined and speeded up.

Mr Coley also said that British Energy was looking seriously at life extensions of up to 10 years for its entire existing fleet of nuclear stations as a way of avoiding the "energy gap" which could open up by 2023 when only one nuclear station, Sizewell B, will otherwise still be operational.

His comments come less than a month before Tony Blair is due to pave the way for a new generation of nuclear reactors in the Government's forthcoming energy review, despite scepticism from the Conservatives and outright opposition on the part of the Liberal Democrats. In a speech to the CBI last month, the Prime Minister said nuclear power was back on the agenda "with a vengeance".

British Energy is an obvious contender for building and operating new nuclear stations because it has existing sites. The company owns eight nuclear stations and the Eggborough coal-fired station in Yorkshire.

Mr Coley estimated that, including decommissioning and spent fuel costs, new nuclear stations would cost £30 to £35 a megawatt hour to construct. That compares with British Energy's operating costs of £22.80 a megawatt hour and a forward price of nearly £50 a megawatt hour for wholesale electricity.

He said that electricity from new nuclear plants would need to be sold into the retail market as opposed to the merchant market, suggesting that British Energy might seek tie-ups with big domestic suppliers such as Centrica, npower and Powergen. He declined to elaborate on how such suppliers could be persuaded to enter into long-term, fixed-price contracts in the absence of any nuclear obligation.

Mr Coley was speaking as British Energy reported a pre-tax profit of £599m for its first full year since the company relisted on the stock market following the government-backed rescue. Operating profits for the 12 months to 31 March were £635m compared with £69m in the previous 10-month period.

The Chancellor disclosed in the Budget earlier this year that the Government intended to sell part of its 65 per cent stake in British Energy once the energy review is complete. The stake is currently worth about £7bn - some £2bn more than the nuclear liabilities the Government agreed to shoulder when it rescued British Energy. Even a sale of half the Government's interest would represent one of the biggest secondary offerings ever seen on the London market.

British Energy has just secured a 10-year life extension for its Dungeness B station in Kent until 2018, and will decide in 2008 whether to seek similar extensions for its Hinkley Point B reactor in Somerset and Hunterston B station in Scotland, both of which are due to close in 2011. Further into the future, there is the possibility of extending the lives of Hartlepool and Heysham 1, which close in 2014, and Heysham 2 and Torness, which are scheduled to shut in 2023.