UK power crisis deepens

AES, the US firm that owns the Drax plant near Selby in North Yorkshire, could not pay a £12m fuel bill to UK Coal, because it was waiting for a delayed £20m payment from power distributor TXU.

TXU, an American firm, pulled the plug on its UK operations this week - a move that has sense ripples of panic through the electricity markets.

Late on Thursday, TXU eventually paid its bill, and coal supplies will probably resume,

But observers are concerned that the entire industry seems to be sailing close to the wind.

"It's absolute turmoil out there," said Derek Dixon, a consultant with Energy Services Partnership.

"I don't think there can be anybody in the industry making much money, and nobody can be happy with things the way they are."

Shockwaves

AES Drax, which produces about 5% of the UK's electricity, was never in serious danger of shutting down.

The station claimed to have enough coal to last for two-and-a-half months.

But the incident has demonstrated that the shockwaves from the effective collapse of TXU Europe are still reverberating.

TXU, which takes some 60% of AES Drax's output to supply 5.5 million customers in eastern and northwest England, was hit hard by its long-term contracts to buy power at fixed prices, just when market prices were falling.

TXU's travails came only three weeks after British Energy, a nuclear power producer, had to be bailed out by the government.

Mutual trouble

The mutual reliance of the various suppliers, generators and distributors in the market leaves them vulnerable to each others' financial tremors.

UK Coal, which relies on AES Drax for 25% of its sales, saw its shares fall by 11% on news of the cut-off.

The firm insisted that trading with its other generator customers remained "within normal contractual terms".

The fundamental cause of the general cash shortage in the industry is the unexpectedly heavy 40% fall in wholesale prices since 1998, when new trading arrangements were put in place.