EDF grapples with nuclear power costs as ‘finance problem’ mounts
The modernisation of the French nuclear fleet is the “best means of producing competitive electricity by 2030”, according to a spokesman for power incumbent EDF. Yet market observers are divided on the ability of the company to bear the costs.
EDF plans to invest a total of €51bn over the period 2014-2025, increasing its annual investment commitments to €4.2bn from €3bn.
The operating cost of the French nuclear industry will reach €55.00/MWh, according to the company’s own calculations, while the wholesale power price for delivery in 2019 has not been above €33.00/MWh this year, despite the government’s plans to introduce a carbon price floor in 2017.
The average age of French nuclear reactors is now 30 years and the oldest reactors will reach the originally intended lifespan of 40 years in 2017. The lifespan is not fixed by law and extensions are considered case by case on the basis of ten-year reviews. The first reactor to undergo its fourth ten-year review will be the 915MW Tricastin 1 in 2019.
“There is indeed a finance problem to support this lifespan extension,” one utility-based analyst said. “EDF was intended to finance this €55.00/MWh through the ARENH tariff. That was the aim of the draft decree that should have set up a method to count all the costs between 2011 and 2025.
“But this draft decree is still under discussion between Paris and Brussels, and Brussels won’t accept a method which is based on full economic costs,” the analyst said. This is because Brussels would consider that EDF was being too generous to itself.
“EDF is in any case no longer selling to competitors on the basis of the ARENH tariff,” the analyst added.
The tariff was created to regulate the price at which EDF sold power from nuclear reactors to alternative retailers, but the ARENH has been over-priced relative to wholesale power prices since late 2014.
“We need to look at this in a mid-term frame, with an increase of the market price and a carbon price floor,” the EDF spokesman said.
The carbon price floor was announced in late April and, while the measure is intended to bolster the competitiveness of gas-fired plants relative to coal, there is no doubting it will also benefit the profit margins of nuclear reactors.
The carbon floor will be set at around €30.00 per tonne CO2 equivalent and will be introduced as part of the budget for 2017, French energy minister Segolene Royal said on 17 May.
“We assume that a price support of €20.00/tonne is more realistic” Olav Botnen of market analysis company Markedskraft said, referring to a price to be added on top of the cost of EU Allowances, rather than a fixed floor.
“€30.00 per tonne is a lot and could harm energy-intensive industries, which are already struggling with high operational costs, particularly the steel industry. This could make it difficult to get it through the political process,” he said.
Traders have indicated that they expect the measure to be introduced in 2017 but that its impact was yet to be priced in to the market given the lack of detail in design.
A price support at €20.00 “could push up the operating costs of gas-fired generation by approximately €8.00/MWh and coal-fired generation by €15.00-16.00/MWh, effectively pushing coal out of the market, while gas would still be needed in winter,” he said.
“It would push French wholesale prices up by a maximum of €5.00-6.00/MWh, though French power plants will also benefit from a capacity market in the future,” he said.
The capacity market was designed to remunerate the availability of power plants to ensure adequacy in periods of high demand, which in France is often driven by fluctuations in temperature during the winter months.
The system will create a market for capacity certificates, which suppliers without sufficient capacity to cover the demand of its customers will be obliged to purchase from capacity providers. The mechanism was scheduled to be launched in 2017 but has been blocked by the European Commission, in part due the risk of the power incumbent controlling the market to its advantage.
New nuclear-builds may also be able to draw from other support schemes, the utility analyst said. “I do not believe in a Hinkley Point deal or guaranteed prices applied to existing plants, but this scenario is likely on new nuclear, such as Flamanville,” he said. The energy ministry did not respond to requests for comment on this matter.
Despite negotiating a price guarantee with the British government, EDF is yet to make a financial investment decision due to the size of the project and its other mounting commitments in France.
The company has been compelled to acquire the nuclear arm of its partner Areva, as part of a reorganisation of the French nuclear industry, though efforts to avoid exposure to a costly Areva project in Finland have so far complicated the process.
The French government has also indicated its commitment to contribute 75% of a capital injection of €4bn, with dividends to be paid in shares instead of cash. EDF also intends to trim off €10bn in assets, possibly including the subsidiary RTE, the French transmission system operator. email@example.com