Centrica is expected to turn its back on building new nuclear power stations in Britain and instead focus its expansion on US shale gas. Executives believe there are not enough incentives to develop offshore wind projects and plan to invest in the US shale boom.
The owner of British Gas will formally take the decision by January at the latest to end its partnership with French energy giant EDF to build a new Hinkley Point power station in Somerset.
According to senior company sources, only a dramatic change in Government policy on subsidising nuclear power would create a business case for investment.
Decision: The owner of British Gas will end its partnership with French energy giant EDF to build a new Hinkley Point power station in Somerset
Centrica has an option to buy a 20 per cent stake in the new-build nuclear project.
Centrica is believed to see itself as the whipping boy for public anger over price increases and it is becoming increasingly disillusioned over the Government’s handling of energy policy, which is making long-term investment decision-making almost impossible.
Executives believe there are not enough incentives to make it worth their while putting more money into developing offshore wind projects.
In contrast, Centrica’s US business, Direct Energy, is doing well. Last year it invested $1 billion (£630 million) in the US and added 500,000 customers, bringing the total to 5.5 million.
With higher profit margins and shale gas offering huge opportunities, Centrica believes it is better to invest in the US.
The company is planning to buy billions of pounds worth of cheap shale gas from the US over the next few years to give Britain greater energy independence.
Centrica is thought to be planning a £2 billion order that will provide about 2.5 million tons a year of liquefied natural gas. This would meet the needs of about 2.5 million households.
The move by Centrica to widen the company’s source of energy supplies comes as gas prices look set to rise yet again next year because of dramatic increases in Government-imposed environmental targets. Centrica predicts green charges for households could go up by more than £60 to £215 next year.
At present, the company gets most of its gas from Qatar. In February last year it entered a £2 billion three-year deal with Qatargas to deliver liquefied natural gas to its Isle of Grain facility in Kent.
The vast quantity of shale gas discovered in the US has the potential to dramatically transform the world energy scene.
Shale gas is trapped underground, but can be extracted by using explosions and high pressure pumps to fracture the rock – a controversial process known as fracking.
Centrica has experience of fracking throughout the world.
The Mail on Sunday revealed this month that the Department of Energy and Climate Change was about to report that there were huge reserves – equivalent to the size of the North Sea gas supplies – in the North West and East Midlands.
Some American advisers have been suggesting that cheap shale gas should be kept in the US and used to fuel a domestic manufacturing renaissance. They believe that only after the US’s competitive position is secure should large-scale exporting of shale gas start. But many US firms want to export now.
A compromise solution is expected that will allow Centrica to go ahead with a US deal.