Shares in British Energy gained 5% yesterday as the company continued to attract the attentions of some of Europe's biggest utility companies keen on a slice of the UK nuclear energy market.

Investors are expecting a bidding war as its shares closed up 38p to 739.5p, well above the all-cash offer just shy of 700p a share thought to have been made by RWE, itself slightly above the all-share bid made by Centrica. Some analysts have forecast that offers could reach as high as 900p a share.

Livingston-based British Energy is 35% owned by the government, which could make around £4bn from a sale which it is expected to use to pay for the clean-up of reactor sites.

The UK government has signalled it wants an expansion in nuclear energy generation as it seeks to cut carbon emissions.

New plants will be placed near current ones, making British Energy particularly attractive because it runs eight of the UK's 10 nuclear power stations, including Hunterston in Ayrshire and Torness in East Lothian. British Nuclear Group and British Nuclear Fuels separately own each of the UK's two remaining nuclear plants.

Although Germany's RWE, which owns energy supplier nPower, and Centrica, which owns British Gas and Scottish Gas, are thought to have already submitted bids to British Energy, French company EDF is also likely to enter the fray. The company, Europe's biggest nuclear power generator, is expected to table a bid for the whole of British Energy despite initially planning only to buy a part of it.

Keith Bowman, analyst at Hargreaves Lansdown Stockbroker, said: "There seems to be a growing view that there is a lack of generation capacity on a global basis. That is certainly a factor driving some of the consolidation in the industry."

It has also been thought that one of the foreign bidders might team up with Centrica for a bid, thereby reducing worries about a strategic UK asset falling into foreign hands.

The bidding process is the culmination of a year of activity. British Energy announced last year that it was in partnership discussions with at least 10 organisations. Last month it confirmed that these discussions could lead to its takeover or merger.

British Energy was privatised in 1996 but it had to be rescued by the government in 2002 when it almost collapsed amid falling power prices.