EDF-British Energy Deal Litmus Test For European Energy Sector

Posted by: Mark Scott on September 24

The British and the French always have had a love-hate relationship. Like two squabbling siblings, Brits like to mock the ‘frogs’ for their supposedly snooty attitude and knack for calling a strike at a moment’s notice. The French, likewise, accuse the ‘rosbif’ of an apparent bad dress sense and unhealthy taste for greasy food.

When it comes to business, though, both sides of the English Channel know a good deal when they see it. No wonder France’s state-owned utility EDF on Sept. 24 finally agreed to buy British Energy for $23.2 billion. Under the deal, the French company will pay $14.36 for each British Energy share — a slight increase on a previous offer that shareholders had rejected. Centrica — Britain’s largest energy supplier — also will take a 25% share of EDF’s enlarged British operations.

Behind the headlines, the acquisition highlights two over-arching themes currently dominating the European energy sector.

Firstly, the deal shows the growing role nuclear power will play across the continent. EDF -- the world's largest nuclear plant operator -- will take on British Energy's eight nukes (and one coal-powered station), and is expected to announce the construction of more nuclear power plants across Britain.

European countries from Finland to Romania are looking to nuclear power to boost local electricity production from theoretically 'green' sources. While the fate of nuclear waste remains a concern, many of Europe's governments view nuclear as a short-term solution to cut CO2 emissions, especially considering the European Commission has laid out tough targets to cut carbon dioxide levels by 20% by 2020.

Secondly, the fact state-owned EDF could acquire its British rival (which is 39% owned by Britain's government) is a litmus test for the liberalization of Europe's power sector. Only a few countries have fully opened their markets to foreign competition, while others -- especially Germany and France -- have dragged their feet to let foreign firms buy into their domestic energy industries.

Sure, Centrica's participation in the deal helps maintain a British face on a predominantly French acquisition. But the idea EDF could even buy nuclear plants in Britain (which are considered national security assets) just shows how much the country has embraced market liberalization. Despite a few attempts to increase domestic competition, it's pretty unlikely the French would allow a British energy company to purchase nuclear power stations across the Channel.

With energy prices rising and concerns that Britain won't make its CO2 reduction targets, the EDF-British Energy deal is by no means a panacea. Yet it does show just how important nuclear energy and market liberalization continue to be in Europe's energy sector