France Energy & Utilities Infrastructure Forecast
|Fitch Solutions Sector Intelligence
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France Energy & Utilities Infrastructure Forecast
- 15 Jun 2022
Key View: Short- to medium-term opportunities in the French power and utilities infrastructure sector lie in the development of energy storage and new non-hydropower renewables capacity, in which France is a European outperformer. There are also opportunities in the continued development of grid infrastructure, with notably large-scale European cross-border power interconnection projects. The government's new energy strategy, which outlines plans to build out new nuclear power capacity, small modular reactors and green hydrogen plants, carries large-scale upside risks and opportunities for investors in the later half of the forecast period.
- Flagship investment efforts announced since mid-2021, such as the EUR30bn (USD33bn) 'France 2030', highlight the priority placed on green infrastructure investment by French authorities and the scope for private investors. Plans to develop up to 14 new nuclear reactors in the long term complement the market's attractiveness, alongside the continued feasibility of investment in renewables.
- While the nuclear build-out will only impact the sector in the long term, near-term opportunities will centre around non-hydropower renewables, energy storage, hydrogen production and cross-border power transmission infrastructure.
- The French government launched a 500MW offshore wind power tender in mid-March 2022, split over two 250MW projects in the Mediterranean Sea; The Gulf of Fos Offshore Wind Project and Narbonne Offshore Wind Project. The winning bids will be selected in 2023. The Ministry of Ecological Transition, in March 2022, announced that it had awarded contracts to develop 704.9MW of solar power capacity over 71 projects in its latest ground-mounted solar capacity auction.
- Ailes Marines, a unit of Iberdrola, has reported that piling works have resumed on the 496MW Saint-Brieuc offshore wind farm in France. Works are scheduled to last from March 2022 to 2023, with Van Oord expected to also start installing the three-legged jackets at the pre-piled locations in H222. In Q322, Saipem will transport and install the electrical substation on site, and Prysmian will begin the installation and burying of the 90km three-core submarine cables between the wind turbines. Offshore construction work is expected to complete in 2023, and the wind farm is scheduled to be operational by the end of 2023.
- The Government of France, subject to approval from the European Commission, has agreed to provide EUR190.0mn (USD208.3mn) to Air Liquide for the construction of a large-scale renewable hydrogen production facility in Normandy. Called the Air Liquide Normand’Hy, the facility will feature a 200MW first phase, which will supply renewable hydrogen to TotalEnergies' Normandy refinery, and will use Siemens Energy's Proton Exchange Membrane technology. The first phase is planned to be commissioned in 2025.
- The Government of France has unveiled plans to support McPhy with EUR114.0mn (USD128.9mn) of financing for construction of its electrolyser gigafactory in the Belfort commune in the country. The facility, with an expandable capacity up to 1GW, will mass-produce alkaline electrolysers. Completion of the project is scheduled in H124. The scheme remains conditional upon obtaining funding, under the Important Projects of Common European Interest framework.
Energy And Utilities Infrastructure Data (France 2021-2031)
|Indicator ||2021e ||2022f ||2023f ||2024f ||2025f ||2026f ||2027f ||2028f ||2029f ||2030f ||2031f |
|Energy and utilities infrastructure industry value real growth, % y-o-y ||2.9 ||2.3 ||1.9 ||1.8 ||1.8 ||1.2 ||1.6 ||1.7 ||1.8 ||1.8 ||1.9 |
|Power plants and transmission grids infrastructure industry value real growth, % y-o-y ||4.5 ||3.1 ||2.9 ||2.5 ||2.2 ||2.2 ||2.2 ||2.2 ||2.2 ||2.2 ||2.2 |
|Oil and gas pipelines infrastructure industry value real growth, % y-o-y ||0.2 ||-0.4 ||0.1 ||0.0 ||-0.6 ||-0.6 ||-0.6 ||-0.6 ||-0.7 ||-0.7 ||-0.8 |
|Water infrastructure industry value real growth, % y-o-y ||0.2 ||1.1 ||0.2 ||0.7 ||1.1 ||-0.6 ||0.6 ||0.8 ||1.0 ||1.3 ||1.5 |
|e/f = Fitch Solutions estimate/forecast. Source: Eurostat, Fitch Solutions |
Flagship investment efforts trailed since mid-2021, such as the EUR30bn (USD33bn) 'France 2030', highlight the priority placed on green infrastructure investment by French authorities and the scope for private investors. Plans to develop up to 14 new nuclear reactors in the long term complement the market's attractiveness, alongside the continued feasibility of investment in renewables. Announced in October 2021, the 'France 2030' investment plan spreads funding over 2022-2026 for industries such infrastructure, healthcare and culture. Most relevant for infrastructure, the plan includes EUR8bn (USD8.7bn) to develop small modular reactors (SMR) and green hydrogen and to support decarbonisation of industry, as well as EUR4bn (USD4.3bn) to manufacture 2mn low-emission vehicles and explore low-emission aviation.
Non-Hydropower Renewable Projects Driving Sector Growth
In the short-to-medium term, large-scale opportunities in the energy and utilities infrastructure, and notably in the power plant and transmission subs-sector, will be centered around non-hydropower renewables capacity growth. Our Power team highlights that France will remain a renewables growth outperformer in the region, with non-hydropower renewables electricity generation to grow from an estimated 69.6TWh in 2021 to 120.3TWh in 2031, increasing its share of total electricity generation from 12.4% to 19.6% over the period. The country's ambitious renewables targets - which envisage a 32% share of renewables in the power mix by 2030 - will be the primary force driving power sector growth in the market. High energy commodity prices and natural gas import challenges in the context of the ongoing Russian invasion of Ukraine will also support renewable electricity investment, with large-scale wind and solar power plants being the focal points.
The strong commitment to non-hydropower renewables provides wide-ranging opportunities for investors in the this sector, and will boost power plant and grids infrastructure sub-sector growth throughout our forecast period. This is reflected in our Infrastructure Key Projects Database, which shows that 27 projects out of the 41 projects currently under development or under planning in the energy and utilities sub-sector are non-hydropower renewable projects.
Last in line, The Ministry of Ecological Transition, in March 2022, announced that it awarded contracts to develop 704.9MW of solar power capacity over 71 projects in its latest ground-mounted solar capacity auction. The French government also launched a 500MW offshore wind power tender in mid-March 2022, split over two 250MW projects in the Mediterranean Sea; The Gulf of Fos Offshore Wind Project and Narbonne Offshore Wind Project. The winning bids will be selected in 2023.
Benefits Of European Interconnectivity To Sustain Growth In Domestic Infrastructure
We expect that rising levels of intermittent renewables, coupled with the phase-out of baseload power supply, will continue to spur growth of cross-border interconnections in Europe and offer France further power export opportunities, creating similar opportunities in grid infrastructure development. France is the largest power exporter in Europe and requires a buoyant export market to export excess power from its large and inflexible nuclear power fleet.
In an effort to increase electricity interconnection capacity, France and Spain set up a joint electricity grid company. French transmission system operator RTE and Spanish Red Eléctrica de España each hold 50% of the joint venture, called Inelfe. An estimated 1,400MW of electricity is currently transmitted between the two countries. The company is planning to expand its transmission capacity to 5,000MW with a quadruple cable aerial, underground and underwater interconnection between Cubnezais in France and Gatika in Spain. The 370km line is in the planning and discussion phase, with plans to reach completion by early 2025. The project is likely to receive approval in the coming quarters.
In a similar vein, the Celtic Interconnector, set to provide the first direct link between Ireland and continental Europe, will serve as a catalyst for developing the European energy network and renewable power capacity in both Ireland and France. The 575km cable is backed by EUR530mn (USD567.5mn) from the European Commission's Connecting Europe Facility Energy Programme. It is being developed by RTE and Ireland's state-owned transmission operator EirGrid, and will stretch from the southern coast of Ireland to Brittany, in north-west France. With capacity of 700MW, it will supply electricity equivalent to the power needs of around 450,000 homes. Set to cost EUR1.0bn, the project is currently in pre-development phase, and its provisional schedule stipulates procurement and construction to take place between 2023 and 2026. In May 2022, the project was granted planning permission.
Power Plants And Transmission Grids Accounts For Sizable Industry Value
France - Energy & Utilities Infrastructure Industry Value By Sub-Sector, EURbn
e/f = Fitch Solutions estimate/forecast. Source: Eurostat, Fitch Solutions
Nascent Hydrogen Infrastructure Set For Growth
We expect that the coming decade will be pivotal in electrolyser technology development, following proof of concept and several European markets, including France, developing green hydrogen projects at a demonstration level. Following several power-to-hydrogen gas pilot projects, we expect to see an increasing number of commercially viable technologies after convergence in production methods. Power-to-hydrogen gas conversion involves the utilisation of electricity to produce hydrogen through electrolysis, the splitting of water into oxygen and hydrogen. This is now commonly seen as a natural partnership for intermittent power sources, such as non-hydropower renewables, and the resulting green hydrogen is a highly adaptable energy carrier and can be used in a number of applications.
Regarding associated hydrogen infrastructure specifically, our broad expectation for significant growth in low carbon hydrogen production will sustain opportunities for concurrent investment in hydrogen infrastructure. Such infrastructure is likely to be developed in two distinct phases, driven by the need to create a ready market to drive further investment in production. The transport of hydrogen gas from the production facility to the demand centre is a core cost component of the gas. Therefore, efforts will be initially made to invest in infrastructure that satisfies immediate demand, such as around petrochemical and gas reformation facilities. Broadly, a phased approach to the developments will probably be taken:
- Phase One: A focus on the linking of supply and demand into clusters with smaller-scale local infrastructure development. We highlight that smaller-scale investment in local pipeline infrastructure between industrial demand centres and supply will be key. This phase may also seek to utilise offshore wind and electrolysis to supply pure hydrogen to petrochemical producers, oil refiners, industrial heating, local gas networks to displace natural gas and smaller-scale storage located at industrial centres.
- Phase Two: As low-cost hydrogen production expands and meets the needs of the hydrogen hubs, more distant markets will lead to a larger-scale transport hurdle, linking expanded demand cases through longer-range networks. We expect this to take the form of transport via pipelines or road and rail networks and most likely through the re-purposing of existing infrastructure. Currently, the capability of blending hydrogen gas into the existing network varies greatly between markets, ranging from a displacement of 0-20%. However, there are currently a number of projects looking to trial greater volumes of gas, aiming to highlight the cost-effectiveness of retrofitting.
We believe this nascent sector creates upside risks for French energy and utilities sector growth over the coming decade. As part of the France 2030 plan announced in 2021, Macron highlighted he wanted the country to become a global leader in green hydrogen production, with plans to construct at least two electrolyser 'giga-factories' over the next decade. These factories will consume vast amounts of electricity, highlighting an expansion in renewable electricity demand through the years to come.
Fresh Long-Term Opportunities From Nuclear Policy Turnaround
February 2022's announcement that France would seek to develop between six and 14 new nuclear reactors over the coming decades marked a stark turnaround from the government's long-standing policies aimed at scaling back its nuclear power sector, and thus provides upside for companies capable of construction and equipping fresh nuclear power capacity. The government of France led a group of 10 EU countries requesting that the European Commission classify nuclear power as a low-carbon electricity type. Macron cited decarbonisation and power security as the main factors motivating this change in energy policy, stating that nuclear power would be essential in the country's efforts to reach carbon neutrality by 2050 without eroding the security of its electricity supply.
This announcement marks a drastic shift in France's long-term energy policy trajectory, highlighting its departure from a renewables-centric energy transition plan. The French government's prior position was that the country's heavy reliance on nuclear power was detrimental to its power security and the safety of its people, therefore, its previous long-term energy targets envisioned the erosion of this nuclear power reliance by systematically retiring its nuclear reactors to the point where nuclear power made up only 50% of total generation by 2025 (later pushed back to 2035).
Plans for new nuclear capacity are, therefore, a key upside risk to our energy and utilities long-term outlook, given the size of investments required for such projects. In addition, the president added that none of France's 56 currently operational reactors would be shut down unless necessitated by safety risks. As such, this provides opportunities in the sector for maintenance and repair projects, given the aging existing nuclear park.
Additionally, we are increasingly positive on the development of SMRs in France. EDF, the French state-owned utility, currently plans to develop a set of SMR technologies in partnership with the government, and leverage its longstanding expertise in conventional nuclear power. Among the France 2030 EUR30bn investment plan's 10 key objectives, the country plans to spend EUR1bn on promoting SMRs. As such, we expect France's nuclear power generation to stand at 413.6TWh in 2031, up from 388.2TWh currently.
France - Major Energy And Utilities Infrastructure Projects
|Project Name ||Sub Sector ||Project Risk Metric ||Value (USDmn) ||Size ||Status ||Construction End |
|ITER Tokamak Complex, Provence-Alpes-Cote d'Azur ||Nuclear ||5.0 ||17,997 ||500MW ||Under construction ||2035 |
|Flamanville 3 EPR Nuclear Power Plant, Normandy ||Nuclear ||9.0 ||14,473 ||1,675MW ||Under construction ||2023 |
|Saint-Brieuc Offshore Wind Project, Bretagne ||Wind - Offshore ||9.4 ||2,710 ||496MW ||Under construction ||2023 |
|Iles d'Yeu et de Noirmoutier Offshore Wind Project, Pays de la Loire ||Wind - Offshore ||7.0 ||2,621 ||496MW ||At planning stage ||2025 |
|Saint-Nazaire Offshore Wind Farm, Loire-Atlantique, Pays de la Loire ||Wind - Offshore ||9.4 ||2,553 ||480MW ||Under construction ||2022 |
|Note: Top projects by value. Project Risk Metric scores out of 10; higher score = lower risk. Source: Fitch Solutions Infrastructure Key Projects Database |
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