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EDF hit by cap on power prices

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Tuesday, May 17, 2022
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EDF hit by cap on power prices

EDF hit by cap on power prices

The French government said that it had ordered state-owned utility EDF. This is to sell more of its cheap nuclear power to smaller competitors. So that, they can limit the increase of electricity prices in France. EDF said that the measure could cost it up to 8.4 billion euros. It dropped its earnings guidance. The utility also lowered its nuclear production forecast after technical problems forced it to extend the outage of a fifth nuclear reactor.

The energy and environment ministry stated in a joint statement that EDF will have to increase by 20 terawatt-hour (TWH) to 120 TWH the volumes of nuclear power it sells to its smaller competitors this year. The price at which EDF will have to sell that electricity will be increased to 46.2 euros per megawatt-hour. The price is still below EDF’s actual production costs and far below current market prices of more than 100 euros per MWH. Finance Minister Bruno Le Maire said in an interview that with French daily Le Parisien, that without the new price cap new measures, power prices would jump by more than 35%. Also, added that the European Commission had approved the French government’s plan.

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Le Maire also said that there will be no catch-up to the capped power prices in 2023. The ministries said that the additional volumes will be available to consumers via their suppliers. Suppliers will have to fully pass on this advantage to consumers. Environment Minister Barbara Pompili said on LCI television that they thank EDF for making this effort in the interest of the public, but they will help EDF.

EDF said in a statement that the impact of the measure on its 2022 core earnings is estimated at about 8.4 billion euros. The utility dropped its guidance for 2022 earnings. The financial consequences for EDF cannot be precisely determined at this stage. This is because the final impact on core earnings will depend on the market prices over the implementation period. The new measure is bad news for EDF. It asked the government to scrap its obligation to sell part of its nuclear output to competitors. It says that ARENH mechanism limits its capacity to invest and subsidises its competitors. The mechanism was put in place in order to compensate for EDF’s dominant market position in France.

EDF also lowered its 2022 nuclear output forecast to 300–330 terawatt-hour. This is after the detection of welding faults at its 1300 MW Penly 1 nuclear reactor would force it to extend a maintenance outage of that reactor. Four other, more recent, 1500 MW reactors have already been halted. A control program is under development on the entire nuclear fleet, due to the defects. EDF is the world’s biggest operator of nuclear plants. And, it produces about three quarters of France’s electricity in 56 nuclear reactors.

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