Utility Week

UTILITY WEEK | 28Th March - 3rd aprIL 2014 | 15 Finance & Investment substantive contractual changes may well be prescribed. Indeed, the necessary financial changes could be a deal-breaker. Aer all, nuclear power is hardly a new generation technol- ogy. If the Hinkley Point C project does end in tears, EDF's raison d'etre for its UK opera- tions become less compelling, although its existing nuclear plants are still throwing off plenty of cash. While there is minimal likelihood of Cen- trica exiting the UK in its entirety, an increas- ing share of its investment may be directed overseas. Aer all, the company reported a whopping £133 million loss on its CCGT plants over 2013 and, having opted out of the Race Bank project, it is now more discerning about its renewable investments. On a worse case scenario, Centrica could face a split up of its core UK gas business: the UK regulatory authorities are already on the case. The precedent of the privatised BAA is a real worry as its owners were pro- gressively stripped of Gatwick, Stansted and Edinburgh airports – aside from Heathrow, the mainstay of its business. In any event, Centrica's focus is increas- ingly on oil and gas assets, whether in the North Sea or further afield. And, despite some disappointing returns in 2013, further North America acquisitions are anticipated. In time, Centrica will expect to emulate Hanson by being "big over here and big over there". For almost a generation, SSE has focused almost exclusively on the British Isles – this scenario is unlikely to change. But whether its head office remains in Scotland if the Scottish electorate votes to secede from the UK in September is a different matter. Unlike Standard Life, SSE remains tight- lipped on the issue, but investors will be concerned about the durability of renewable energy payments if Scotland goes its own way. In any event, SSE is currently not short of challenges within the energy sector, rang- ing from depressed spark spreads to ongoing distribution reviews. In summary, of the overseas-owned big six energy companies, RWE's entire strategy is effectively under review, while Eon has many alternative investment opportunities around the world. EDF's UK future seems tied into any developments surrounding Hinkley Point C, while Iberdrola is firm in its UK commitment – at least for now. Interesting times lie ahead. Nigel Hawkins (nigelhawkins1010@ aol.com) is a Director of Nigel Hawkins Associates which undertakes investment and policy research Nuclear: Hinkley Point C strike price may yet be ruled illegal state aid by the European Commission CCGT: all generators have announced lower profits or outright losses on gas-fired generation in the UK Coal generation: many plants have closed already, more are closing soon Something to shout about: the political tide has abruptly turned against energy companies with Ed Miliband's price freeze promise

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