2023-11-17 11:00:06
Water vapor escapes from the cooling towers of the Bugey nuclear power plant, in Saint-Vulbas, July 20, 2023. OLIVIER CHASSIGNOLE / AFP
The French State and Electricité de France (EDF) announced, Tuesday, November 14, that they had reached an agreement on the price of electricity from nuclear sources: from 2026, the megawatt hour (MWh) would be sold by EDF in the surrounding of 70 euros, significantly more than the current amount – unchanged since 2011 – at 42 euros.
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Why was a new agreement needed after 2025?
The result of long and difficult negotiations between EDF management and the government, this agreement makes it possible to continue the system of regulated access to historic nuclear energy, or Arenh, which will end on December 31, 2025. The system Arenh, passed in December 2010 by the NOME law which organized the opening to competition of the French electricity market, forced EDF to cede, between mid-2011 and the end of 2025, part of its nuclear electricity production to alternative suppliers , within the annual limit of 100 terawatt hours (on an average annual production of 377 TWh), so that they can resell this electricity at a reasonable rate for the consumer. The aim is to open the electricity market to competition, in accordance with European policies.
Since 2012, EDF has therefore sold part of its production at 42 euros per megawatt hour.
Why will the price of nuclear electricity increase?
EDF has called for an upward revision of the price per megawatt hour set by Arenh, which it considers far too low compared to the market prices of the last two years. When the price of 42 euros per MWh was set at the end of 2011, it was not far from wholesale market rates, where the megawatt hour was generally negotiated between 40 euros and 55 euros. These prices remained stable until the summer of 2021, but soared with the sudden post-Covid economic recovery and the energy crisis caused by the war in Ukraine: they exceeded 200 euros/MWh and regularly experienced peaks at more than 400 euros/MWh.
The current prices may well have returned to more reasonable levels (between 90 euros and 120 euros/MWh), the cap imposed by Arenh still represents a shortfall for the French operator, who is constrained until the end 2025, to sell in a context of high prices, more than a quarter of its production at a price two to three times lower than those of the market.
The new tariff negotiated with the State to follow on from the Arenh capping therefore aims to limit the damage to EDF’s finances when prices on the wholesale market are high. In this regard, the year 2022 was catastrophic due to a historic drop in nuclear power production caused by the shutdown of many nuclear reactors due to maintenance problems, as well as due to the high electricity prices that They had to buy to compensate for this drop. The government also raised the Arenh ceiling to 120 TWh, which forced EDF to cede more of its production to its competitors at a price much lower than the markets in order to contain the cost for consumers.
In recent years, the State has tended to protect household budgets more than EDF accounts, but the recent agreement constitutes a notable change of line on the part of the government.
Why is the government changing its position towards EDF?
The government acceded to the electrician’s requests because EDF will have to, in the coming years, undertake several major industrial projects that are costly in capital, while cleaning up its finances. Controlling EDF’s debt is a priority subject for public finances, as the company’s debt has increased due to the cost of energy and the low availability of French nuclear power plants. Established at 43 billion euros at the end of 2021, it jumped by almost 22 billion euros in just one year, reaching 64.5 billion euros at the end of 2022.
The slow decline in electricity prices and the relaunch of nuclear production helped to stabilize this increase in the first six months of 2023, but Bercy intends to ask EDF to rebalance its accounts more sustainably. “EDF must be profitable. We are not in the Soviet Union. EDF must find means to finance its future investments”, declared the Minister of the Economy, Bruno Le Mairepresenting the new agreement.
The other reason is the industrial challenges of EDF, which will have to maintain the efficiency and safety of an aging nuclear fleet, and ensure the construction of six new power plants. Considerable work which will require significant financial investments and mobilize the entire engineering capacity of the company. The construction of six to fourteen reactors for the 2035-2040 horizon is expected to cost around 51.7 billion euros, while the “great fairing”, the project which aims to extend the operating life of existing reactors to at least fifty years, could cost around 66 billion euros.
Will this agreement lead to higher prices on invoices?
Estimating the consequences of the new State-EDF agreement on future electricity bills for households and professionals is a perilous exercise, and probably premature. Because, on the one hand, the future price is higher than the ceiling price planned by the Arenh but relates to the entirety of EDF’s nuclear production, and not to a maximum of 100 TWh, as at present current. And on the other hand, the agreement concluded provides for a mechanism for redistributing EDF’s income to consumers when the price of the megawatt hour exceeds a certain threshold: 50% of income above 78-80 euros per MWh, 90% above 110 euros. Furthermore, the cost of the megawatt hour is only part of the cost invoiced by EDF, it does not include other costs (transport, for example), which means that the increase in the price of the MWh will not be reflected not as is, ultimately, on the consumer.
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Such a mechanism aims to protect individuals and professionals from strong fluctuations in the electricity market, particularly during periods of high prices. But he does not rule out fears linked to the lack of visibility of invoices in such a system. “These scenarios do not give us any visibility”judge Frank Roubanovitch, president of Cleee, an association bringing together large buyers. Asked by The ParisianFrançois Carlier, general director of the CLCV, a consumer defense association, did not mince his words: for him, the new agreement “will not fail to once again weigh down household bills”.
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