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UTILITY WEEK | 21ST - 27TH OCTOBER 2016 | 15 Finance & Investment Analysis A quarter of a century has now elapsed since the high-profile privatisation of National Power and Powergen, and the two integrated Scottish electric- ity companies, Scottish Power and Scottish Hydro-Electric. Twenty-five years on, things have changed radically. Both National Power and Powergen were controversially acquired by leading German electricity companies, RWE and Eon respectively, both of which have seen their share prices plunge in recent years – by around 90 per cent on 2007. North of the border, Scottish Power was surprisingly snapped up by Spain's Iberdrola, whose pronounced switch to renewable generation was prescient. As for Scottish Hydro-Electric, it merged in the late 1990s with Southern Electric, one of the leading regional electricity companies (Recs), which were privatised in 1990. Compared with the EU's most valuable utility, National Grid – which was owned by the Recs at privatisation – the intervening years have not been kind to either National Power or Powergen. When partly privatised in 1991, they were regarded as major players in the UK, owning almost 30GW and 19GW of capacity respectively. Indeed, they shared almost 80 per cent of the combined market in England and Wales. Furthermore, they had undoubted potential to expand worldwide. It was also widely assumed that both companies would be in the vanguard of UK plant investment, as the dash for gas acceler- ated. These hopes were realised in the early years, but more recently baseload generation investment has plunged. While substantial cost-savings boosted both companies' share prices initially, subse- quent earnings growth was curbed by regula- tory disputes, changes to the much-criticised pool arrangements and plant disposals. Sector changes were driven by vertical integration, which took off with a vengeance in the mid-1990s. By the start of the millen- nium, all 12 Recs had lost their independ- ence. However, much to the undisguised fury of Powergen's chief executive, Ed Wallis, the government banned the first UK generator/ Rec deal – Powergen's bid for Midlands in 1996. This major setback le both companies prey for well-funded overseas bidders. In Powergen's case, it was taken over by Eon in 2002, although it had managed to buy East Midlands before that. RWE acquired National Power's UK business, Innogy, in 2002. The resulting Npower brand survives to this day. The overseas business, Inter- national Power, eventually became part of Engie, previously GDF Suez. Whether RWE and Eon will retain owner- ship of their UK assets is not certain, espe- cially in view of their lacklustre returns in recent years. The Brexit vote, too, is hardly an inducement to stay. Had either British company been actively encouraged to become vertically integrated, they might have retained their independ- ence – and emerged as a major EU integrated player like, for example, Iberdrola. Their visions fell apart on the back of shortsighted, ad hoc, government merger policy and they were unlucky that their acquirers have gone downhill since 2007. For the two integrated Scottish electricity com- panies, things have turned out better. Scottish Power was taken over by Iberdrola, and the smaller Scottish Hydro- Electric has thrived, especially aer its merger with Southern Electric. The latter is now worth more than £15 billion. At flotation in 1991, Scottish Power's prime asset was its now-closed 2,400MW coal-fired plant at Longannet. In subsequent years, its business has changed, especially with the acquisition of Manweb. In 2007, Iberdrola, which usurped Endesa's role as Spain's leading electricity company, acquired Scottish Power. While Iberdrola's share price performance has been disappointing, it has nonetheless out- performed a sector where recession, low electricity prices and high debt levels have combined to depress stock ratings. SSE, though, has done very well, follow- ing its merger with Southern Electric. Its energy business is wide-ranging and its exposure to renewables, despite periodic concerns about subsidy cuts, has undoubt- edly benefited its share price. At March 2016, SSE owned 3,275MW of renewable plant, of which 1,150MW is con- ventional hydro-power, a business in which SSE had considerable experience. Of the quartet privatised in 1991, it is clear that SSE has infinitely more to cele- brate, although the outlook for Iberdrola has brightened of late. In England and Wales, though, the near disappearance of both National Power and Powergen will be seen by many as a massive missed opportunity. Neither is bestriding the global electricity world, as some thought they would in 1991. Instead, they were absorbed into German companies, whose share prices have plummeted. A sad outcome. Nigel Hawkins, director, Nigel Hawkins Associates A mixed bag for generators It's 25 years since Powergen, National Power, Scottish Power and SHE were privatised – and the intervening years have proved a mixed bag for those utility pioneers, says Nigel Hawkins. 16 14 12 10 RWE SHARE PRICE, ONE YEAR (€) Nov 2015 Jan 16 Mar 16 Jul 16 Sep 2016 May 16 10 9 8 7 6 EON SHARE PRICE, ONE YEAR (€) Nov 2015 Jan 16 Mar 16 Jul 16 Sep 2016 May 16