Long-term contracts needed to secure nuclear power – EDF

28 April 2017 14:14 Source:ICIS

French power incumbent EDF will be unable to finance new nuclear plants unless investment is secured under long-term power contracts, a company official told ICIS in a recent interview.

“The electricity prices that we see today do not allow us to invest in or simply generate electricity,” energy policy advisor Florent Jourde, of EDF’s European affairs division, told ICIS in Paris.

With almost 20 years experience at EDF, Jourde said that despite the closure of thermal power plants in the years to come, current market signals into the 2020s do not suggest a price that would allow for new investments, at least not without a “meaningful carbon price”.

“The European Commission is pleased that the short-term market is working well, but it has not addressed the issue of long-term investment in low-carbon technologies,” said Jourde. “And I don’t think it will look at it,” he added.

“But it’s not the short-term market that will trigger investment in the next ten or twenty years. We won’t consider investing in low-carbon assets such as nuclear, hydro or clean coal [including CCS] if there are no long-term contracts,” he added.

EDF’s views on long-term contracts largely reflect those of Foratom – the Brussels-based European nuclear trade body – which last week said the European Commission should submit proposals to mitigate the revenue risk over 20 to 30 years through co-investment with contractual sharing of risks between large consumers and electricity producers, or a market for long-term contracts based on average cost pricing.

EDF’s Hinkley Point contract in the UK, which will cover 35 years worth of nuclear power output, is an example of how the company would like to underwrite its future investments in large-scale, low-carbon generation. EDF has just begun construction of the 3.2GW plant.

EDF is currently in the testing phase of the third unit at its 1.65GW Flamanville nuclear plant off the coast in Normandy, scheduled to start in 2019, seven years delayed.

Strike price

Jourde considered the UK’s system of contracts for difference (CfD) to be one that is likely to be discussed in France. Under CfDs, producers sell their electricity on the wholesale market, but can be paid a top-up by a government-run company if the electricity price falls below an agreed strike price.

The strike price should reflect the cost of investing in a particular technology, although in the case of Hinkley Point it was negotiated between EDF and the UK, as opposed to being administratively set.

For nuclear power in the UK the levelised cost, which takes into account the entire lifespan of a power plant, is estimated to be £95.00 (€112.00)/MWh for a plant coming online in 2025 according to most recent government figures published last November.

The CfD model allowed for EDF’s 3.2GW Hinkley Point nuclear plant to receive the UK government’s approval stamp in October 2013 at a strike price of £92.50 (€106.20 using Thursday’s exchange rate)/MWh, inflation-linked to 2012 prices, over 35 years once the plant generates electricity.

“I think there will be more contracts following this type in the future,” said Jourde.

European plans

Elsewhere in Europe, only Finland, Hungary, Slovakia, Belarus and Turkey have firm plans to build new nuclear power plants.

The Hungarian, Belarussian and Turkish plants will all be built at least in part by Russian state-owned company Rosatom.

In north Finland, the producer Fennovoima will start construction of the 1.2GW Hanhikivi 1, with capital costs estimated at €6-7bn, with completion due in 2024.

Meanwhile for EDF, even in the absence of new investments, the costs of maintenance and extending the lifetime of current nuclear plants from 40 to 50 years will require average electricity prices at €55.00/MWh until 2025. By comparison, the Calendar Year 2020 Baseload contact in the French power market was assessed at €35.50/MWh on Wednesday this week – almost €20.00/MWh below EDF’s desired price to allow a retrofitting the nuclear plants.

For more on this story, see accompanying ICIS view . herman.moestue@icis.com

By Herman Moestue