Powergen

Procurement policy
Powergen's Generation business procures most of its major construction activities either by a turnkey or a multicontract approach, depending on marketplace, supplier capability and appetite for risk. Both are pursued through competitive tendering, used to establish a preferred development partner.

East Midlands Electricity has adopted a competitive tender approach for major projects, with either a turnkey or multicontract strategy used, depending upon value for money. The best practice from that process is being reviewed to establish a medium-term strategy for major projects, which will aim to obtain some of the benefits of partnering while retaining a competitive edge.

Current and future projects
Powergen is one of the UK's leading integrated energy companies. Its business is built on the marketing of electricity, gas, telecoms and associated companies to business and residential customers, asset management in electricity production, and distribution and energy trading to support the above. Powergen is now owned by E.ON AG.

According to the most recent accounts, Powergen's investment in UK operations fell back in 2001 to just below £200m. This fall related primarily to a decline in investment in generating assets, and in particular investment in gas-fired plant. At the start of 2002, 50% of Powergen's generating capacity was fuelled by gas, 49% by coal, and 1% by hydro, wind and oil.

In line with the government's call for 10% of all UK energy to be produced from renewable resources by 2010, Powergen is increasing its exposure to this market. Powergen Renewables is one of the UK's leading wind farm developers, with 16 wind farms operational. Consent was recently granted for Powergen's Scroby Sands offshore wind farm in Norfolk (76 MW), and more renewable projects are planned. Powergen recently announced that it plans to increase its renewables capacity by 1000 MW by 2010. This will be split 80:20 between wind farms and biomass. The company has a current wind farm capacity of 135 MW.

Essential information
In March 2001 the government introduced a new electricity trading agreement to make the power generation industry more competitive. This led to a near 40% fall in wholesale electricity prices. In line with falling prices and overcapacity, Powergen recently announced that it is to suspend more than a quarter of its plant in an effort to stem losses. The group plans to mothball 1800 MW of capacity, including all of its Isle of Grain oil-fired plant, and the rest of its Killingholmne plant in Lincolnshire.

On a more positive note, Powergen recently acquired TXU's energy retail business for £1.37bn. With this deal, Powergen becomes the UK's largest electricity supplier.