The French state owned energy supplier EDF has increased its presence in the UK electricity retail market by acquiring British Energy, thereby extending its market share in the UK business segment to around 30%. This is, however, unlikely to affect competition in the UK market.

 After a long process, EDF finally seems to have got its hands on British Energy (BE), having reached an agreement with renegade shareholders Invesco Perpetual and M&G. The UK government will be ecstatic that the French nuclear generator is now in control of the ageing nuclear facilities in the UK, as it therefore will be able to progress nuclear new build in the UK.

However, some consumer groups, such as the notoriously anti-market Energywatch, have criticised the deal on the grounds that it will further reduce the amount of competition in the wholesale market, as well as in the retail business segment. EDF, through its UK subsidiary EDF Energy, is currently the largest supplier, with 18.6% of the business retail electricity market, while BE controls 11.5%. A merger between the two companies would create an energy supplier that would control around 30% of the business market. However, although it would become by far the largest supplier in the UK, it would still be a long way from monopolising the market.

Given the UK government’s strong push to sell BE, and its recent action to fast-track the HBOS/Lloyds TSB merger and the nationalization of Bradford & Bingley, the EDF/BE deal is likely to be approved by the UK Competition Commission. European competition approval should also be straightforward as, by European terms, market shares above 30% are quite regular. If there is opposition from either regulator, EDF can point to Centrica’s 46.4% share of the residential gas segment as testament of their approval of market shares of this size.

The announcement that Centrica could have rights to 25% of BE’s future production will have some impact the wholesale market. Recently, due to its unreliable generation, BE has been reducing its retail presence and selling more generation on the short-term wholesale market, and while it is likely that Centrica has already been purchasing a lot of this generation, the merger will reduce market liquidity.

The EDF/BE merger is likely to give the UK nuclear generating sector the impetus that it needs to spark development. Competition issues should not be discounted, but the UK retail market has one of the most diverse spreads of suppliers in Europe, and so little harm can come from this deal.

Related Research: Premium Company Scorecard: EDF