UPDATE 5-British Gas owner goes nuclear with EDF deal

* Centrica to buy 20 pct stake in British Energy from EDF

* EDF to take Centrica's 51 percent stake in Belgian SPE

* Centrica to take part in new British nuclear build

* Centrica shares up 5.7 percent, EDF stock down 5.8 percent

(Adds EDF CEO comment, advisers, updates shares)

By John Bowker and Sudip Kar-Gupta

LONDON/PARIS, May 11 (Reuters) - State-owned French power group EDF (EDF.PA) is to sell 20 percent of its British nuclear unit to British Gas owner Centrica (CNA.L), gaining the 'Made in Britain' stamp seen as key to building new reactors there.

Centrica (CNA.L) will pay 2.3 billion pounds ($3.4 billion) for the stake in British Energy, giving it vital exposure to nuclear power generation and protecting it from volatile wholesale energy prices as a hedge to its household business.

The deal, first mooted last year when EDF was lining up its acquisition of British Energy, comprises 1.1 billion pounds cash plus Centrica's 51 percent stake in Belgian generation and supply business SPE, valued at 1.2 billion.

EDF and Centrica will form an 80/20 joint venture to build four new nuclear power stations in Britain, making EDF less likely to suffer regulatory scrutiny following its takeover of British Energy.

"It was imperative that both sides could agree this deal. It is central to Centrica's position in UK energy markets, while EDF knew that if it did not dispose of the stake it would face both regulatory and UK political pressure," Evolution analyst Lakis Athanasiou said.

A spokeswoman for the British government's Department of Energy and Climate Change said it was pleased that a new player had committed to invest in new nuclear.

"New nuclear is seen as a good investment in the UK. Centrica joins other big European energy players on the list of companies gearing up to play a role," she said, adding land had recently been sold to Germany's E.ON (EONGn.DE) and RWE (RWEG.DE) [ID:nLT011202]. EDF chief executive Pierre Gadonneix told reporters the group was in talks with other European utilities about forming further partnerships [ID:nLB100251].

Centrica shares were up 5.7 percent at 240.75 pence at 1346 GMT, valuing the business at around 12.3 billion pounds, while EDF was trading down 4.4 percent at 4.86 euros a share.

HALF THE MONEY

Centrica has long sought to boost its energy generation business to help protect its household supply arm, British Gas.

It has struggled to make money from Britain's biggest supplier of domestic gas and electricity in recent years when wholesale gas prices were rising.

It had originally meant to buy a 25 percent stake in British Energy for over 3 billion pounds. Centrica chief executive Sam Laidlaw said the lower price gave it the firepower to pursue more deals, potentially in the North Sea and North America.

"This means we are only using half the money we raised in the rights issue in December, leaving us with a very strong balance sheet," he told reporters.

Centrica said in March it had bought a 22 percent stake in oil and gas producer Venture Production VPC.L for 240 million pounds. [ID:nLI493566] It launched a 2.2 billion pounds rights issue last October. [ID:nNLV430393]

The deal was welcomed by 4 percent Centrica shareholder Invesco Perpetual's head of investment Neil Woodford. "Centrica has negotiated a good price for the deal package which will create a more vertically integrated and more balanced business in an environment of volatile international energy prices."

EDF agreed to pay 12.5 billion pounds for British Energy last September after months of wrangling. The British government, which owned a 35 percent stake, viewed EDF as the best candidate to lead its new nuclear programme. [ID:nLO702516]

EDF agreed to sell Centrica a stake in British Energy partly to ease concerns Britain's future energy supplies were being entirely passed into foreign hands. The deal was then complicated by a sharp fall in wholesale electricity prices -- a yardstick of British Energy's performance.

British Energy owns eight nuclear power stations and one coal plant in Britain, as well as land for potential new build [ID:nLO47185]

EDF will provide Centrica with an additional 18 terawatt hours (TWh) of power at market prices over five years from 2011.

Centrica was advised by Goldman Sachs and Credit Suisse on the acquisition of the British Energy stake, while Merrill Lynch acted as financial adviser to EDF. (Additional reporting by Nao Nakanishi and Marcel Michelson; Editing by David Cowell and Dan Lalor) ($1 = 0.7592 euro)