SCOTTISH & Southern Energy has confirmed that it is in the running to buy the electricity networks business of EDF, a deal likely to be worth more than £4 billion.
Reporting bumper first-half profits, the Perth-based group indicated it might team up with infrastructure funds to buy the three electricity distribution networks, which deliver power to millions of customers in the south-east of England, including L
ondon.
EDF, the French power giant that bought British Energy this year, has put the assets up for sale to free up cash for investment in new nuclear power stations in the UK.
SSE chief executive Ian Marchant said that, while the group was not yet part of a formal consortium, it had held talks with Canadian investors about a bid after concluding the assets "are part of our core competence".
Analysts have warned that energy regulator Ofgem may be concerned about the scale of SSE's networks business, as it already owns two distribution and one transmission network.
Marchant said that while Ofgem might question the deal if SSE bought EDF's assets outright, he believed a joint bid with another investor "will be acceptable from a regulatory point of view".
Any deal would be funded through debt and a share placement, with Marchant saying yesterday that he did not expect to need to conduct a rights issue.
A sale is expected to fetch in the region of £4bn to £4.5bn, depending on the level of interest.
Centrica, which owns Scottish Gas, is understood to be among those monitoring the sale closely, although SSE is thought to be the leading candidate.
SSE delivered a sharp increase in profits for the six months to 30 September, with adjusted profits before tax of £410.5 million, a 35.7 per cent increase over 2008.
The improved performance came despite a sharp fall in demand for electricity, which Marchant warned was unlikely to pick up until "well into 2010", as the economy slowly recovers.
Marchant said that wholesale energy prices were significantly down on last year, while SSE had also benefited from greater output from its gas, coal and renewable assets, and an additional 600,000 customer accounts. "The business has grown in scale," he said.
SSE is paying an interim dividend of 21p a share, up a 6.1 per cent on last year. The return put it on track to pay a full-year dividend of "at least" 70p, it said. Shares dropped 7p to 1,073p.
The group also joined the race to commercialise clean coal technology, announcing plans for a £21m carbon capture and storage project at its Ferrybridge coal station in Yorkshire.
The trial, in collaboration with Doosan Babcock, is expected to begin in late 2011.
Marchant said that while most people accepted coal had a continuing role to play in powering the UK, "that role will have to alter if climate change targets are to be met".
