Energy Central Professional


France forces EDF to pay electricity bills of users on the edge of the law

CE Noticias Financieras  


    In just one week, EDF shares have plummeted by 25%, from 10.35 euros per share on January 13 to 8.26 euros on Friday, January 21. Behind this collapse is the French government's decision to limit the increase in the electricity bill for French consumers to 4% this year, despite the fact that wholesale market prices have suffered the same fate as in Spain and other European countries, with increases of more than 60% since last summer due to the cut in the supply of natural gas by Russia.

    The cost of this measure, announced on January 14, will be paid out of pocket by the energy company EDF, in which the State controls 84% of the capital, and which operates the 58 reactors which make up the French nuclear fleet. The remaining 16% is listed on the stock exchange. Both the government and the company have calculated an impact on Ebitda of 8 billion euros as a result of the controversial decision.

    In 2011, following a contentious electricity market liberalization process that pitted the French government against the European Commission, the parties agreed on a temporary mechanism, until 2025, for domestic consumers to benefit from their nuclear energy. Named ARENH (Access Regulated to Historical Nuclear Energy), the system consisted of a long-term, 15-year contract for 25% of EDF's nuclear production (100,000 MWh) to be supplied at a fixed price of E42/MWh.

    A system that has been hoisted before the Government of Pedro Sánchez by Spanish ecologists and anti-marginalists as an example to be followed, but which, strictly speaking, goes against the 2019 EU Regulation, Article 3 of which states that electricity prices must be set through market mechanisms. Therefore, the EU regulation, except in the case of the promotion of renewable energies, prohibits regulating wholesale electricity prices.

    With the excuse that it was a mechanism negotiated before the adoption of this regulation, which many consider to be a real State aid, it has not only survived, but the French government has just reinforced it: the decision of January 14 means increasing the volume of energy that EDF must supply at 42 euros MWh to 120,000 MWh.

    The problem for the French energy giant is that it does not have all this nuclear energy at its disposal, as it does not have idle energy, but has committed it on a term basis through bilateral contracts. In addition, it has half a dozen reactors that are unavailable for one reason or another. According to industry sources, this forces it to buy energy on the market (remember that it has reached over 200 euros/MWh) in order to comply with the new obligation. This is the only way to understand the strong impact that the measure will have on its Ebitda.

    In fact, with a mechanism in place for 12 years, EDF's accounts had not suffered until now because the regulated price was in line with its costs (in Spain, nuclear power is profitable from 59 euros/MWh).

    The Spanish case

    The measure of Emmanuel Macron's government is equivalent to the one that the Spanish government wanted to apply through the royal decree law of September, which reduced the extra income that the large electricity companies obtain from their nuclear and hydroelectric generation when natural gas sets the marginal price of the wholesale market.

    As with the French energy company, Endesa, Iberdrola and Naturgy, have a large part of their energy contracted on a forward basis, so, according to their data, they do not receive extra profits. The Government rectified the situation because, unlike EDF, which is a public company and sooner or later it will be the State (i.e. the taxpayers) who will assume this cost, the three large Spanish electricity companies are not owned by the Spanish State (Endesa is controlled by the Italian public group Enel).

    After doing the math, the Ministry for Ecological Transition decided to backtrack, in order to avoid losses of 5 billion euros for these companies.

    Therefore, it is no longer a question of whether or not setting a regulated price for nuclear and hydro is against EU regulations (in view of the French decision, Brussels, much criticized for using double standards with France and Germany, would have no grounds to denounce Spain or any other country), but to avoid irreparable damage to the companies.

    After seeing the pernicious consequences of the measure for EDF, its CEO, Jean Bernard Levy, showed his indignation and spoke of "real shock" and "shock", as it gives more power to competitors. These statements were clearly aimed at the group's private investors. EDF will sell below cost to third-party marketers who will supply energy to end consumers. The exit, according to his words, "strengthen the balance sheet" through strategic measures that will be made public in a month.


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