Confidence over longer EDF plant lives could lower ARENH

Beatrice Mavroleon

18-Oct-2013

Confidence that EDF nuclear electricity plants will be allowed to stay on line beyond a 40-year lifespan could influence the new ARENH tariff to be set by the end of the year, sources said. A lower ARENH tariff – the price EDF can charge for selling its nuclear output to competitors under a liberalisation measure – could undermine price support for the new front year.

A decision to extend the plant lifespans is to be taken after 2015, a spokeswoman from France’s nuclear energy regulator ASN confirmed on Thursday.

ASN is still in discussions with French incumbent electricity supplier EDF on whether any of EDF’s reactors will be safe to operate beyond the end of their originally intended lifespans.

But confidence that EDF will get longer plant lifespans and amortisation periods may lead French energy regulator CRE to set a lower ARENH tariff at the end of this year even before ASN grants the extensions, market observer said.

With lower amortisation costs, EDF could afford to receive a lower ARENH tariff, according to one source.

EDF has to sell output from a quarter of its nuclear generation capacity under the ARENH tariff since 2011. The tariff has been at €42/MWh since January 2012.

A French electricity trader said a tariff below €42/MWh “would be a bad signal for the market”.

It would depress wholesale power prices further because more companies would buy straight from EDF at the ARENH level instead of in the traded market, effectively imposing a lower cap on market prices, he said.

The ARENH tariff acts as both a support and a cap on traded power prices. If prices fall below ARENH, demand increases as previous ARENH buyers flock to the market, pushing wholesale prices upwards to the ARENH level. If market prices rise far above the tariff, the lower ARENH charge attracts liquidity away from the market, cutting into demand ( see EDEM 25 June 2013 ).

A spokeswoman from CRE previously confirmed that the ARENH tariff will be revisited at the end of 2013, but the regulator was unavailable to comment as ICIS went to press on Friday ( see EDEM 14 August 2013 ).

ASN will extend the lifespan if EDF can show that its older plants meet the same safety standards as the new generation of European pressurised reactors, such as the Flamanville project.

Market observers argue that it is likely the extensions will be granted on a case-by-case basis for each individual reactor. Analysts pointed to the investment that would be needed to replace the missing generation capacity if the extensions are not granted as the strongest motivation for making this happen.

As most of France’s nuclear capacity was built within little more than 10 years in the 1980s, from 2020 onwards, five or six plants will reach the 40-year mark every year. Closing them would sharply cut into the country’s electricity production capability over the ten years after 2020.

Longer lifespans would also mean longer amortisation periods for EDF’s plants ( see EDEM 30 September 2013 ). Beatrice Mavroleon

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