Germany’s RWE and EDF have entered discussions with Centrica about a possible bid for British Energy, the UK’s leading nuclear generator.

The talks are at an early stage, but show that the struggle for control of British Energy is gathering pace.

Eon, another big German energy company, and Iberdrola of Spain have not approached Centrica but are said to be following the situation closely.

Iberdrola is itself facing a possible bid from EDF.

All five companies – EDF, Eon, RWE, Iberdrola and Centrica – remain in talks with British Energy about a possible bid or other co-operation. Media reports on Friday stated that EDF had emerged as a frontrunner.

Centrica, which owns British Gas, could not mount a bid on its own because it lacks the financial firepower or nuclear record.

The UK government is considering selling its 35 per cent stake in British Energy to ease the strain on public finances.

The company is an attractive asset to any business that seeks a role in the future of Britain’s nuclear industry. It controls access to many of the best sites for new reactors.

EDF and RWE appear to be closest to making a full offer, which would be triggered if any company bought the whole of the government’s stake.

EDF appears to be more advanced in its thinking.

Centrica, EDF and RWE all refused to comment.

For EDF or RWE, an alliance with Centrica would drape a Union flag over any bid and ease concerns about the majority of Britain’s nuclear generation capacity and skills passing into foreign hands.

Centrica supplies about a tenth of the UK electricity market and is one of the biggest residential suppliers. Yet it has just 5 per cent of the country’s generation capacity and has to buy power on the wholesale markets.

A merger of EDF or RWE with British Energy would create a company with more than 20 per cent of the UK’s power generation capacity. That would heighten concerns about lack of competition and liquidity in the wholesale electricity market. If Centrica were involved, those concerns would be even stronger.

The government could still split its British Energy stake among several buyers, preventing any from taking a dominant position in the market.

As well as raising cash, the government wants to encourage investment in nuclear power. It could jeopardise that by selling its stake to a single company. Pressure for investment means the situation is likely to be resolved in the next few months.