Revised French nuclear expectation to increase power prices, gas burn in France and surrounding countries

Author: Matthew Jones

2020/05/07

This story has originally been published for ICIS Long-Term Power Analytics subscribers on 27 April 2020 at 15:11 CET.

EDF recently announced an expectation that nuclear output would fall to 300TWh in 2020 due to the impact of coronavirus on extending outages at the majority of the company’s reactors. We modelled a scenario based on the recently-announced maintenance schedule to assess the impact this would have on European power markets. The modelling shows that the significant decline in nuclear output will be largely replaced by increased gas-fired output, both in France and surrounding countries. This results in higher emissions across Europe and a bullish price impact on French power contracts and the markets most closely connected to it.

Background

  • On 16 April EDF revised down its 2020 nuclear output projection from 375-390TWh to just 300TWh, as well as forecasting a range of 330-360TWh for both 2021 and 2022
  • The company announced that the decision was driven by the impact of Covid-19 on affecting the maintenance schedule of reactors and lowering power demand
  • On 22 April EDF released a revised nuclear schedule, which showed extended outages at 42 of the company’s reactors, representing 45GW of capacity

Model set-up

  • To assess the impact of the revised nuclear schedule we carried out two model runs. For both runs we used:
    • Updated fuel price assumptions
    • Updated Europe-wide demand assumptions
    • All other assumptions were as per our Q1 2020 base case
  • For the ‘Reference’ scenario we used our existing nuclear profile for 2020, 2021 and 2022, which is based on historical generation profiles. The reference scenario is included so as to factor out all impacts on generation that are not driven by the nuclear schedule (especially demand)
  • For the ‘EDF schedule’ scenario for 2020 we created a new profile based on actual availability so far this year and the new maintenance schedule. However, since this profile would still lead to more than 300TWh, and since further outages are highly likely given that there are 7 months to the end of the year, we lowered the profile slightly to attempt to hit 300TWh
  • For the 'EDF schedule' scenario in 2021 and 2022 we adjusted our base case profile down to attempt to hit around 345TWh (the mid-point of the announced forecast)

Results

French generation and imports

  • As we previously analysed, the impact of lower demand on nuclear generation is minimal, due in large part to the position of nuclear in the merit order. Compared to our Q1 base case (which did not include coronvirus-related demand falls), nuclear generation declines by only 6TWh in 2020 (to 383TWh) in the ‘Reference’ scenario for this analysis
  • This highlights the fact that the revised maintenance schedule is overwhelmingly the main reason for EDF’s anticipated fall in output rather than the impact of demand
  • In our ‘EDF schedule’ scenario, generation from nuclear falls to 300TWh in 2020. The shortfall of 83TWh (compared to the 'Reference' scenario) is made up for predominately by a significant decline in net exports (-61TWh), though domestic gas (+20TWh) and coal (+2TWh) see an increase
    • In 2021 the 34TWh nuclear decline under the ‘EDF schedule’ scenario is expected to lead to a 25TWh fall in net exports, 8TWh increase in gas and 1TWh increase in coal
    • In 2022 the figures are 34TWh nuclear decline, 27TWh lower net exports and 7TWh increase in gas (coal will be offline in 2022)

Impact on neighbouring countries

  • The massive reduction in French net exports has an impact across European power markets, but is most significant in the countries directly connected to France (DE, GB, BE, IT, ES), as well as the Netherlands
  • Given the current extremely low gas prices and the fuel mix in neighbouring countries, gas-fired generation is the main beneficiary of the drop in nuclear output in 2020. Gas-fired generation rises by 51TWh across the six countries, with the sharpest rises seen in Spain (+15TWh) and Italy (+11TWh)
  • Coal generation increases by just 2.2TWh (mostly in Germany and Netherlands), while lignite output rises by 1.2TWh (all in Germany)
    • In 2021 we expect to see an 18TWh increase in gas-fired generation in the six neighbouring countries, with 2TWh more coal and 0.7TWh increased lignite
    • In 2022 the figures are +21TWh gas, +1.6TWh coal and +1TWh lignite

Emissions

  • Since the lost French nuclear is replaced mostly by gas, with a small amount of coal and lignite, emissions increase significantly in 2020
  • The difference between the ‘Reference’ and ‘EDF schedule’ scenarios across Europe is 33Mt in 2020, with increased French emissions (+9Mt) accounting for 27% of the increase
  • The six most impacted countries account for 66% of the increase (+22mt), with Germany (+5.7Mt) and Spain (+5.5Mt) the most affected
    • In 2021 we see 14Mt of additional emissions, of which 3.6Mt is in France
    • In 2022 an additional 13.4Mt is anticipated, with 2.3Mt in France

Price impact

  • The revised nuclear schedule is expected to push up average French power prices in 2020 by €5.85/MWh, compared to a scenario in which availability was at normal levels
  • In 2021 the bullish price impact is modelled at €2.53/MWh, while in 2022 it is expected to be €2.42/MWh
  • Belgium is expected to see the most significant price increase among neighbouring countries (€2.59/MWh in 2020, €1.25/MWh in 2021 and €1.6/MWh in 2022), followed by Germany (€1.16/MWh in 2020, €0.43/MWh in 2021 and €0.62/MWh in 2022)
  • The nuclear profiles used for the 'EDF schedule' scenario will become our new base case from the start of May

Matthew Jones is a Senior Analyst - EU Carbon & Power Markets at ICIS. He can be reached at Matthew.Jones@icis.com

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