British Energy unveils £150m cost-cutting plan

British Energy, the embattled nuclear generator, declared yesterday that it was "turning the corner" and forecast that wholesale electricity prices would start to rise.

British Energy, the embattled nuclear generator, declared yesterday that it was "turning the corner" and forecast that wholesale electricity prices would start to rise.

Despite plunging into loss for the first time since privatisation, the company said that its strategy of increasing generation capacity and expanding into the North American nuclear market was beginning to pay off.

Outlining a three-year, £150m cost-saving plan and forecasting that output from its 26 reactors would reach record levels next year, Peter Hollins, chief executive, said: "We recognise that our current performance is unsatisfactory but we all have the strong sense of turning the corner."

Mr Hollins added that there was likely to be some "upward pressure" on wholesale electricity prices. In the first half of the year contract prices fell by 15 per cent. Together with lower than expected output in the UK, particularly at its two Scottish reactors, this resulted in an underlying loss of £56m in the six months to the end of September.

The cost-saving plan is likely to involve "modest" job losses among British Energy's 5,000- strong UK workforce but Mr Hollins pledged that the cuts would not compromise safety.

British Energy intends to raise output by about 10 per cent next year. It has also extended the lives of two of its advanced gas-cooled reactors - Hartlepool and Heysham 1 - by five years, which will improve pre-tax profits by £29m a year and produce a one-off £29m credit for the current year.

The company is still trying to renegotiate its spent fuel reprocessing contracts with BNFL and switch to storage, a move that could add £100m to profits. But Mr Hollins indicated there was a long way to go before any breakthrough was achieved, even though British Energy said reprocessing was becoming "increasingly questionable on economic grounds".

Mr Hollins also said that British Energy is claiming about £50m in compensation from Siemens because of allegedly faulty repair work on the Heysham 2 reactor. The dispute is due to go to arbitration next year.

Robin Jeffrey, British Energy's chairman-designate, said the freak weather of the past month and the renewed fears about the greenhouse effect had been "a great plus for nuclear power".

It raised the fundamental question of how Britain was going to produce more electricity without pumping more carbon dioxide into the atmosphere.

He said there was no way Britain could meet its emission targets agreed at the Kyoto environmental summit, without nuclear power. Nevertheless, until consumers were made to pay the full cost of electricity produced from fossil fuels, it would be uneconomic to build any new nuclear power stations.