What is the “fair price” for the MWh of nuclear electricity produced by EDF? The one bearable by the consumer who is preparing to suffer a new increase of 10% on their electricity bill at the start of 2024, after already a 25% increase this year? Or the one that will allow the electrician to finance the upcoming investment wall to maintain its fleet of nuclear power plants and build the six new EPR reactors ordered by Emmanuel Macron for 2035-2040? After months of difficult negotiations, pressure and slammed doors, the State shareholder and EDF are on the verge of announcing a scrappy agreement, which was part of squaring the circle but imposed on everyone with the scheduled extinction of the current Arenh system (for “Regulated access to historic nuclear electricity”) scheduled for the end of 2025. According to the compromise reached between the government and EDF, the reference price of electricity produced by the 56 reactors of the nuclear operator would now be set at 70 euros per MWh, as desired by the State, a member of the executive indicated this Monday afternoon to the Reuters agency. Information confirmed at Release by another source close to the case.
The Minister of Economy and Finance, Bruno Le Maire, expressed his optimism this Monday morning about the imminence of an agreement with the CEO of the electrician, Luc Rémont: the negotiation “is about to be completed in the coming hours” And “I am convinced that the result we will achieve […] is a good result which will allow us to regain sovereignty over our prices.” And a final meeting, early Tuesday in Bercy, between the two men and the Minister of Energy Transition, Agnès Pannier-Runacher, was to seal the principle and the outlines of the agreement reached between EDF and the State before its formalization during the day. But is the result as good as Bruno Le Maire says for the French electricity giant?
Price compromise
For EDF, this is clear progress compared to the price hitherto planned by Arenh which forced the group to resell its electricity to its competitors at only 42 euros per MWh. Far, very far from the real production costs of its nuclear power plants and most often at a loss. It is also an improvement compared to the price of 60 euros estimated by the CRE, the Energy Price Regulatory Commission. But we are really far from what the electrician hoped for, who estimated at least 100 euros, or even 120 euros, the threshold allowing him to ensure the financing of his major nuclear projects for the years to come.
The price compromise reached by the negotiators of the Ministries of the Economy and Ecological Transition and the management of EDF is however close to the price at which electricity was exchanged this Monday noon in France on the Epex Spot market, 77 euros per MWh, which is much less than in Germany (121 euros), Italy (114 euros) or the United Kingdom (98 euros). But electricity prices in Europe, which have skyrocketed dramatically since the outbreak of the war in Ukraine in 2022 due to their alignment with those of gas, have since experienced enormous fluctuations. They reached up to 1,200 euros last year and contributed significantly to inflation, forcing the French government to resort to costly price shields on gas and electricity.
EDF’s abysmal debt
Paris has decided to gradually put an end to this “whatever it costs” while seeking to continue to limit the damage to consumers by reviewing the rules for setting prices at European level. A decisive step in this direction was taken with the complex agreement reached by the 27 countries of the European Union on October 17 to “making electricity prices less dependent on fossil fuel price volatility and protecting consumers from price spikes”. Since then, France has had free rein to set the reference price at which EDF must resell its nuclear electricity, the latter having the assurance of being reimbursed by the State for the difference if the price of the wholesale electricity market turns out to fall short. This will be the case if electricity prices fall below the threshold of 70 euros provided for in the agreement. Conversely, if electricity prices are negotiated above this threshold, the State will carry out a tiered taxation of the group’s revenues from nuclear power, in order to then redistribute the amounts collected to consumers and prevent their bill from flame. A “circuit breaker” would also be put in place in the new regulation when market prices exceed 110 euros/MWh, with the State being able to collect up to 90% of the corresponding excess revenue. In return, EDF obtained “review clauses” making it possible to guarantee over the long term an average resale price of its electricity at 70 euros/MWh, which should give it better visibility and reassure its creditors.
The compromise reached this Monday between EDF and its public shareholder will not, however, make the electrician jump for joy, whose financial trajectory remains most uncertain with an abysmal debt of 65 billion euros and a cliff of investments unprecedented since the great program launched in the 1970s by the Prime Minister at the time, Pierre Messmer, to make France a nuclear country like few others in the world.
The group will thus have to pay not only the interest on its debt with rates which are rising again, but pay at least 60 billion to build the six EPRs, the first pair of which will be built at the Normandy power station of Penly (Seine-Maritime). ), while waiting for two other pairs in Gravelines (North) and Bugey (Ain). At the same time, EDF will have to continue to finance its “major overhaul” to the tune of 65 billion euros to extend the lifespan of its current reactors from forty to fifty years, but also set aside several billion to shut down and dismantle its longest-running reactors. older, build a new swimming pool in La Hague to accommodate spent fuel and finance the burial of the most dangerous radioactive waste on the Cigéo site in Bure (Haute-Marne)… Don’t throw any more away.
State schizophrenia
The whole question now is whether this price of 70 euros imposed by the State on EDF will allow it to generate enough cash flow every year to replenish its cash flow and face this enormous industrial and financial challenge. “The time when nuclear power is capable of paying for the entire community must come to an end. Nuclear must be able to invest in its own future […]we need collective awareness,” warned EDF CEO Luc Rémont during his hearing before Parliament’s commission of inquiry into the causes of France’s loss of energy sovereignty. “What concerns the government is the interest of the consumer and the competitiveness of our economy and our industries,” the Prime Minister, Elisabeth Borne, replied dryly, testifying to the schizophrenia of the State which wants everything and its opposite: lastingly low prices for consumers and a forced relaunch of French nuclear power by 2050… that the electrician will not be able to finance under any conditions. The future will tell whether EDF is able to ensure the country’s energy sovereignty between these two contradictory injunctions.