Npower, one of Britain’s biggest electricity suppliers, could be sold for up to £5 billion after its German owner hired Goldman Sachs to review its future.
The firm has been a prize asset of RWE, the German utility giant, for nearly a decade. Insiders said it was now considering a sale because of its hefty debt burden, the need to invest billions in a new generation of green power stations and a dissatisfaction with British energy policy.
An auction of Npower would shake up the electricity and gas market. The company provides gas and electricity to 6.8m homes, generates 8% of the UK’s electricity, and employs 11,000 staff. Iberdrola, the Spanish power company that owns Scottish Power, is regarded as a likely buyer.
The move comes as the coalition government puts the finishing touches to a radical new architecture for the power market that it hopes will encourage investment in nuclear power stations, wind farms and other technologies.
Chris Huhne, the energy secretary, will this month publish the final version of the government’s controversial energy white paper, which will set out the blueprint for a £200 billion, low-carbon makeover of the industry.
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The new regime will impose harsh penalties on Britain’s old fossil-fuel plants and provide subsidies for more expensive and cleaner alternatives. Companies are struggling to fund the costly new plants, raising fears of an energy generation gap as old plants go offline.
The proposed regulatory overhaul has raised tensions with the government. Experts predict household energy bills will as much as double over the next decade to fund the wind turbines and biomass burners needed to meet binding emission reduction targets.
Ministers, however, have harshly criticised companies over recent tariff rises that are small in comparison with those to come.
RWE is in a weak position to cope with the demands for new investment. Its shares have dropped by a quarter over the past year as it has struggled with low power prices, big debt payments and the rising cost of carbon taxes through Europe’s emissions trading scheme. Chief executive Jürgen Grossman has pledged to sell billions of euros of assets.
Last month Standard & Poor’s, the credit agency, slashed RWE’s rating. It warned that profits could “materially decline” after the German government’s recent order to close nuclear plants.
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RWE bought Npower, or Innogy as it was then called, in 2002, for £3.1 billion, part of a rush by continental firms into the privatised British industry.
The potential exit of the owner of one of Britain’s “Big Six” utilities could jump-start a round of consolidation in the industry. Industry observers argue that if Britain has any hope of meeting its ambitious pollution reduction targets, it will need companies armed with big balance sheets to lead the charge.
New nuclear plants, for example, are expected to cost at least £5 billion each. The London Array, the world’s largest wind farm, being built off the coast of Kent, will cost more than £3 billion.
RWE’s troubles also raise immediate questions about our already delayed plans for a new fleet of nuclear stations. RWE and Eon formed one of three consortiums behind plans for plants in Britain. While some have questioned RWE’s commitment to nuclear power, senior sources say the German group could sell Npower and continue to invest in the new plants.
A sale is not a foregone conclusion. Goldman could find other assets in RWE’s empire to sell.