Fattening up for the market? Higher electricity prices and the value of the CEGB

A mathematical model of the evolution of the electricity supply industry to beyond the end of the century is used to forecast the cost and revenues of electricity generation after privatization. Subracting the costs from the revenues gives a time profile of profits that is discounted back to the date privatization to give a valuation of the Central Electricity Generating Board (CEGB). The model shows that every 1% rise in the price of electricity before privatization adds between 2.2% and 3.3% to the value of the CEGB. The exact increase depends mainly on whether the price rises are permanent, or are clawed back after privatization by price cuts until turn of the century. The tougher financial targets for the industry announced by the Department of Energy in 1987 are expected to add about 7% in real terms to the price of electricity before privatization. The government's proceeds from the sale of the CEGB should receive a 15–20% boost as a result.