PowerGen said that the four combined heat and power plants operated by YCL would complement its five existing CHP stations.

Combined heat and power plants are used to power utilities such as hospitals and factories, with any unused power sold back into a power company's supply network.

Powergen wants to increase its generating capacity

PowerGen CHP has already invested £150m in its own CHP stations.

A 130MW scheme completed in the summer of 2000 will increase its capacity to 484MW after the deal is completed.

YCL is the power generating division of Yorkshire Electricity Group.

Its CHP stations in Nottinghamshire and Yorkshire produce 176MW of energy, with an additional 56MW CHP station in Cheshire currently under construction.

The company also operates a number of small peaking plants that are used to supply extra power during periods of high demand. In the year to 31 March 1998, YCL reported profits after tax of £4.9m.

After adding back inter-company debt of £46.4m, it had net assets of £55.7m.

Focus on energy distribution

Yorkshire Electricity said the disposal decision was made several months ago in a bid to concentrate on its core business of energy distribution.

It has over two million electricity customers, and supplies gas to a further 300,000 users around the UK.

A spokesperson said that Yorkshire Electricity had been one of the first companies to branch into power generation, but had decided its core business should remain in distribution.

A few months ago it sold its 75% stake in the Brigg power station to Finnish company IVO and is looking for a buyer for its two remaining wind farms.