ABSTRACT
If any one thing explains why British Energy got into financial difficulty it was the fall of electricity prices by around a third from an average of £26/MWh in 1999 to £16/MWh in 2003. For a commodity producer of electricity with a high fixed cost base, this was bound to be a huge shock to profits. This chapter analyses what caused the price fall; whether BE should have expected it; and what it might have done to prepare for it. There was nothing BE could do to stop the price falling because during the 1990s it had no influence over price setting and from 2000 onwards the generation market was both competitive and oversupplied. But it might have been better prepared for the risk of a price fall.
